Merck & Co. (MRK.N) beat Wall Street’s sales estimates by almost a billion dollars in the second quarter, and raised its sales and earnings forecast as its blockbuster cancer drug Keytruda is on pace to become a US$10-billion-a-year product.

• The company now predicts 2019 sales of US$45.2 billion to US$46.2 billion (up from US$43.9 billion to US$45.1 billion) and adjusted earnings per share of US$4.84 to US$4.94 (up from US$4.67 to US$4.79).  

Key Insights

• Cancer blockbuster Keytruda has dominated the market for a new type of oncology treatments that use the immune system to attack tumors. It sold US$2.63 billion in the second quarter. While the drug has years of profitable life ahead, its success has also raised questions about Merck’s follow-up act.
• The answer to that challenge may fall to a new CEO. Merck is preparing for the eventual departure of Chief Executive Officer Kenneth Frazier and research and development leader Roger Perlmutter, who led the company during Keytruda’s development and launch. The company has begun to look internally for a new leader when the two men eventually step down.
• Keytruda’s success is another blow to Merck’s biggest rival in the field, Bristol-Myers Squibb Co. Last week Bristol-Myers said that its drug, Opdivo, had failed a major trial in lung-cancer patients.

Market Reaction

• The shares rose 3.3 per cent in trading before the markets opened in New York. The stock is up eight per cent this year so far, after outperforming every other stock on the Dow Jones Industrial Average in 2018 with a 36 per cent gain.
• The company’s profits are up 56 per cent from a year ago. Net income was US$2.67 billion in the quarter, compared with US$1.71 billion a year prior.