Making drugs that allow the immune system to recognize tumors and destroy them is arguably the industry's most exciting field. When Merck & Co. (NYSE:MRK) and Bristol-Myers Squibb (NYSE:BMY) posted third-quarter earnings recently, advancement of their respective immuno-oncology assets Keytruda and Opdivo took center stage.

Source: Bristol-Myers Squibb.

Both received their first FDA approval late last year. Although sales to date have been encouraging for the pair, Opdivo has taken a strong lead over Keytruda. Recently, Bristol-Myers reported third-quarter revenue growth of 4% over last year to $4.07 billion, with Opdivo contributing $305 million. Merck's third-quarter revenue fell 5% compared with last year to $10.07 billion, with Keytruda contributing $159 million. Some analysts suggest these two therapies plus a handful of others in the late stages of their development represent a market opportunity in excess of $40 billion.

Looking at Opdivo's early lead, it seems the largest slice of that enormous sum will go to Bristol-Myers. Let's take a closer look at some recent events surrounding the pair and see if this is the case, or if Merck has a chance to close the gap.

Early results from a trial with Keytruda in lung cancer failed to reach an important goal. On the surface, the failure looks like a boost to Opdivo, but there's a good reason to suspect its current lead won't last much longer.

A brief recap
Before getting into recent trial results, it's important to understand how we got here in the first place. Keytruda first won approval for advanced melanoma in September 2014, more than three months ahead of Opdivo's first approval for a similar indication. When two drugs from a new class enter the market -- in this case, anti PD-1s -- it's the first to win approval that usually carves out a larger share. So why were Opdivo sales nearly double Keytruda's?

Source: Merck & Co.

Although Merck beat Bristol to the first approval finish line, Opdivo got the FDA's green light for a much larger, advanced lung-cancer indication this spring, seven months earlier than Keytruda. More Americans die of lung cancer than any other type, and options for advanced patients are few, making this indication a huge opportunity to reach thousands of patients with unmet needs.

Also bolstering Opdivo's lead is a genetic restriction placed on Keytruda. Both of these cancer immunotherapies block a pathway called PD-1. Keytruda is limited to patients with tumors that express high levels of PD-L1 -- a part of the blocked pathway. This means that before an oncologist can prescribe it, patients need to pass an FDA-approved genetic test. Earlier trials suggest about 22% of non-small-cell lung-cancer tumors meet the criteria. Opdivo, on the other hand, has no such restriction. 

Silver lining
If that's not enough of an advantage, Merck recently announced mixed results from a phase 3 lung-cancer trial that, on the surface, favor Opdivo. Cancer trials throw off a lot of data, but what concerns regulators most is the overall length of time from beginning of treatment until the disease progresses or the patient dies. In one arm of the trial, Keytruda increased the amount of time to disease progression, but not by enough to be considered statistically significant.

In a similar trial that led to its approval, Opdivo significantly lengthened time to death, and disease progression.

Now before you go dumping Merck shares, it's important to realize that measuring time to disease progression is far more subjective than death. This is why overall survival superiority is considered the gold standard when evaluating new cancer therapies.

Keytruda reached its primary goal of increasing overall survival in patients with tumors expressing high levels of PD-L1. More importantly, it showed a survival benefit in patients with lower PD-L1 expression as well. This could be enough to persuade the FDA to expand Keytruda's label to the same patient population as Opdivo.

Stay tuned
Before you get too excited for Merck, it's important to realize the company merely stated an overall survival benefit in both arms, not the extent of the benefit. As is typical with announcements like these, detailed results will be presented during an upcoming scientific conference to maximize their impact on the medical community.

Following Merck's latest earnings call, analysts have been predicting peak Keytruda sales of $9 billion per year. If the to-be-released data doesn't persuade the FDA to expand its lung-cancer indication, reaching that figure will be extremely difficult.

Cory Renauer has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.