Even in the world of Big Pharma, where pipelines of a dozen or more late-stage drugs are common, a couple of blockbuster-sized experimental programs can make a huge difference for the forward-looking analysts who cover these companies. Let's use Merck as an example.
Today, the analysts at Leerink Swann are adding $5 billion to Merck's ($MRK) projected revenue in 2020, much of it based on fast-swelling expectations of the success of an experimental cancer therapy, MK-3475, that's in a tight race with two other PD-1/PD-L1 drugs to the FDA. But Leerink is also adding $2.4 billion in projected sales for Merck's all-oral hepatitis C cocktail--which is in a second wave of interferon-free cocktails that are already beginning to radically reconfigure the mass therapeutic market.
"As we consider the landscape in immune-oncology, we believe that Merck is carefully carving out a strong position for PD1 monotherapy broadly in melanoma and it will be a staunch competitor in PDL1 + lung cancer patients," notes Leerink. "In addition, efforts to carve out a backbone therapy in IO combinations are strategically sound in this fast-moving area, in our view. As a result, we are increasing our MK-3475 estimates by $1.9B, to $4.4B in 2020 and forecast sales of $6.6B in 2026 due largely to limitations of owning only one target in the IO or IO combination panoply to date. We are also introducing peak HCV combination sales of $2.4 billion in 2020 and $1.9B in 2026."
The bullish remarks demand a few cautionary notes. Peak sales estimates--counting eggs from chickens as yet unborn--are notoriously unreliable. Analysts routinely miss their mark by billions of dollars, often because they're seeking favor with the companies they cover. As for hep C, Merck has already been trumped by Gilead ($GILD) and will likely be beaten to the market by AbbVie ($ABBV) and Bristol-Myers Squibb ($BMY) as well. And half of all late-stage drugs fail in the clinic.
But consider where Merck is coming from.
To recap: Merck is undergoing a major restructuring in R&D now driven largely by its long-term failure to produce any new blockbusters. A series of setbacks last year--from a rejection of its so-so sleep drug suvorexant as well as its second kickback on the anesthesia drug sugammadex--forced CEO Kenneth Frazier to rethink his reliance on a development crew that had a great tradition but a slow-motion track record on development. So a new R&D chief, a highly respected Roger Perlmutter, was brought back into the fold after being exiled from Amgen ($AMGN) and the company vowed to take a more outward-focused research strategy, full of bolt-ons and a global set of R&D teams scouting the talent.
Perlmutter, though, was handed an inside straight when he came on board. Merck was already hot on the trail of its immunotherapy drug, MK-3475, and Perlmutter was on hand to pull back the curtain at just the right time. And to his credit, he hasn't blown it. Merck is backing the drug with everything it has, recently unveiling a string of collaborations with a slate of high-profile companies to combine therapies. And there's a rolling submission underway for the first new drug application, which will be complete in the first half of the year.
Industry execs are fond of quoting a common formula for drug research. As Tufts University has noted, it routinely takes 10 years to develop a new drug. But you can stage a turnaround in a matter of months if you're lucky and good. One misstep, though, and it can all blow up much, much faster.
Special Report: The most influential people in biopharma today - Roger Perlmutter