Merck (MRK): Management Meeting Reinforced Bullish Views - BMO

BMO Capital analyst, Alex Arfaei, hosted investor meetings with Merck's (NYSE: MRK) s president of Global Human Health, Adam Schechter and came away with the following points:

Management is proceeding with the Keytruda 1L NSCLC filing as soon as possible and expects the label to be in line with study population (i.e., high PD-L1 expressers). However, over time, it expects some flexibility in the test and PD-L1 threshold used to determine high expression. Mr. Schechter believes that if Bristol’s CM-026 trial does not show an OS benefit in “strongly” PD-L1 positive patients, then Merck should have a marketing advantage. This depends on the PD-L1 cut-off and distribution of patients in CM-026.

The analyst believes that the cut-off for “strong” PD-L1 expression in CM-026 is probably 10%, and although the trial may show an OS benefit versus chemo, the hazard ratio will likely not be as impressive as Merck’s KN-024 study because the trial is not as enriched. In that situation, Bristol would need to do a post-hoc subgroup analysis in patients with > 50% PD-L1 for an apples-to-apples comparison, but the trial may not be sufficiently powered for that analysis. As a result, Merck could end up in a stronger marketing position in patients with > 50% PD-L1, which account for 20-25% of the market. The analyst forecasts Keytruda peak share of 15% in 1L NSCLC by 2019, corresponding to about a 60% share in patients with > 50% PD-L1.

No change to the Outperform rating or price target of $62.00.Merck (NYSE: MRK)

For an analyst ratings summary and ratings history on Merck click here. For more ratings news on Merck click here.

Shares of Merck closed at $55.31 yesterday.

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