Merck & Co., Inc.'s (MRK) slid 0.5% amid overall regulatory uncertainty for the pharmaceutical industry, despite a "milestone" lung cancer drug approval cheered on by analysts.
Merck said on Monday after market close the U.S. Food and Drug Administration has approved Keytruda in combination with pemetrexed (Alimta) and platinum chemotherapy for the first-line treatment of patients with metastatic nonsquamous non-small cell lung cancer. Keytruda is Merck's anti-PD-1 therapy used in lung cancer treatment.
The combined treatment "reduced the risk of death by half" in patients, according to the test results disclosed by Merck in April 2018.
"In this trial, Keytruda in combination with pemetrexed and platinum chemotherapy, compared with chemotherapy alone, prolonged overall survival and progression-free survival in patients with advanced nonsquamous non-small cell lung cancer regardless of PD-L1 expression," said Leena Gandhi, director of thoracic medical oncology at NYU Langone's Perlmutter Cancer Center, at the time.
The FDA approval four months after test results announcement is an "important milestone" for improving survival outcomes, according to Roger Perlmutter, president of Merck Research Laboratories.
The move should mean a more seamless sales process and use by cancer patients, according to BMO Capital Markets analysts.
"FDA's updated approval of Keytruda plus chemotherapy in 1L-NSCLC (Non-Small Cell Lung Cancer) and label update is incrementally positive for Merck," BMO Capital Markets analyst Alex Arfaei wore in a note examining the approval on August 20.
He added that he expects $9.6 billion in sales from the drug to help nurse Merck stock in 2019, with it growing to as much as $13.6 billion a year by 2026. On the back of the approval, Arfaei affirmed his outperform rating for the company and set a target price of $70.
"We believe the lack of PD-L1 or TMB screening requirement will make this a user-friendly regimen, particularly in the community setting," he commented.
However, this news arrives at a turbulent time for the drug industry, as politics has shown in the past to push down prices on both drugs and shares.
Health and Human Services Secretary Alex Azar, while promoting competition in pharmaceuticals and even gaining some endorsement from Merck, has been staunch in his promotion of lower drug prices.
"I've been a drug company executive-I know the tired talking points: the idea that if one penny disappears from pharma profit margins, American innovation will grind to a halt," Azar declared in May, setting the tone for his leadership. "I'm not interested in hearing those talking points anymore, and neither is the President."
As such, he has been adamant in his belief that both pharmacy benefit managers and drugmakers need to reduce costs for consumers, which has the potential to squeeze profit margins for both industries.
"We are not dependent on the voluntary action of pharmaceutical companies. We are not counting on their goodwill or their altruism," Azar commented in an interview reported by Reuters. "They're just changing because they see that's the future."
The administration's "blueprint" for reducing prices to consumers has leveled restrictions drugmakers like Merck and confine company profits, which very well might be fueling the $65 call options, which are seeing a three-fold increase in activity.
To be sure, the company has committed to a pledge not to increase its product pricing more than the rate of inflation in order to showcase its compliance with federal initiatives and its "commitment to responsible pricing."
So far, the initiatives this year have not held back the share price as shares have climbed nearly $20 since the start of the second quarter.
As the blueprint progresses into next year, it will be one to watch as the heavy trade volume on divergent opinion will have equally divergent reactions come the expiration date of these options.