Merck’s Keytruda Just Suffered A Large Setback

Juan de la Hoz, SeekingAlpha

October 31, 2017

Merck withdrew its European application for Keytruda as a first-line lung cancer treatment, due to regulatory issues, an overall negative long-term development.


The stock was down 8%, including after-hours trading, partly due to the negative news.


Merck reported higher adjusted EPS, and raised its guidance for the rest of the year.


Revenue was below analyst expectations due to a drug production shortage, which forced the company to borrow stock from the CDC. The ‘lost’ revenue will be recognized by 2018.


Merck (NYSE: MRK) reported third-quarter results last Friday. Results were generally mixed, with the stock down 8%. Financial results were adequate, with some lingering negative effects from a June cyber attack. Although Keytruda remains an incredibly successful and fast-growing drug, failing to gain European market access is a large setback. Besides directly reducing future earnings growth, it seems to have dampened the bull/growth perception around the company in the recent past.

Financial Results


Revenue growth decreased 2% YoY, and was $220 million below analyst expectations. Growth was lower than expected mainly due to a production shortage, to quote from the call:


In addition, we borrowed $240 million of GARDASIL from the CDC stockpile to fulfill shipments in the quarter. The borrowing was driven in part by the temporary production shutdown resulting from the cyberattack, as well as overall higher demand than originally planned. The revenue will ultimately be recognized as we replenish the stockpile, which we currently anticipate will occur in the second half of 2018.

Besides the above, the cyber-attack also directly reduced sales by $135 million, and increased expenses by $175 million, during the quarter.

Posted in: R&D, Regulatory

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