Merck Could Get Help From Its Second-Tier Drugs

Summary:

• Top products including Keytruda and Gardasil face U.S. patent cliff in 2028 and need backup.
• Future blockbuster Reblozyl notched a formulary win.
• WELIREG, Prevymis and Verquvo are well placed among top U.S. insurers and Prevymis could secure label expansions.

Merck (NYSE:MRK), a large (~$275 billion market cap) biopharmaceutical company, announced its financial results for the fourth quarter of 2022 on February 2. The company highlighted full year 22% sales growth, which came courtesy of top earners Keytruda and Gardasil; the duo generated $27.8 billion and 47% of the company’s total annual revenues (Table 1). While EPS and revenues beat Wall Street estimates, the outlook for 2023 was less upbeat, leading to several downward revisions and a D- from the Quant System. This was expected, courtesy of erstwhile #3 product Lagevrio ($5.7 billion) anticipated to wind down in this year to $1 billion along with the Covid-19 threat. Sans the antiviral, 2022’s growth was only 12%, lower than 2021’s 15%. Yet the mixed earnings report was followed by a 5% rally as investors turned defensive as inflation fears mount and there is no end in sight for the year-long Russia-Ukraine war. Whether such gains are sustainable in the short-to-middle term is questionable.

Table 1. Merck Quarterly Product Sales

	2021				2022
	1Q	2Q	3Q	4Q	1Q	2Q	3Q	4Q	4Q (U.S.)
TOTAL SALES	$10,627	$11,402	$13,154	$13,521	$15,901	$14,593	$14,959	$13,830	$6,279
PHARMACEUTICAL	9,238	9,980	11,496	12,039	14,107	12,756	12,963	12,180	5,871
Oncology
Keytruda	3,899	4,176	4,534	4,577	4,809	5,252	5,426	5,450	3,378
Lynparza (Alliance)	228	248	246	268	266	275	284	292	157
Lenvima (Alliance)	130	181	188	206	227	231	202	216	154
Reblozyl (Alliance)				17	52	33	39	41	36
Vaccines
Gardasil	917	1,234	1,993	1,528	1,460	1,674	2,294	1,470	262
ProQuad/M-M-R II/Varivax	449	516	661	509	470	578	668	526	387
RotaTeq	158	208	227	213	216	173	256	139	66
Pneumovax 23	171	152	277	292	173	153	131	145	82
Vaqta	34	56	48	41	36	35	64	39	23
Hospital Acute Care
Bridion	340	387	369	436	395	426	423	441	257
Prevymis	82	93	96	100	94	103	114	118	52
Dificid	27	34	54	60	52	66	77	67	57
Primaxin	65	60	70	65	58	64	63	54	13
Noxafil	67	66	64	62	57	60	62	58	1
Invanz	57	48	53	45	52	46	50	40	25
Cancidas	57	54	56	45	53	42	43	36
Zerbaxa	(8)	(1)	(2)	10	30	46	43	49	1
Cardiovascular
Adempas/Verquvo (Alliance)	74	74	100	94	72	98	88	82	85
Adempas (Merck territories)	55	74	59	63	61	63	57	57
Virology
Lagevrio				952	3,247	1,177	436	825
Isentress	209	192	189	178	158	147	161	167	78
Neuroscience
Belsomra	79	78	81	80	69	69	62	59	19
Immunology
Simponi	214	202	203	206	186	181	173	166
Remicade	85	75	73	67	61	53	49	44
Diabetes
Januvia	809	784	852	878	779	756	717	561	290
Janumet	486	477	487	514	454	476	417	353	97
Other Pharmaceutical	554	512	518	533	520	479	564	685	351
ANIMAL HEALTH	1,418	1,472	1,417	1,261	1,482	1,467	1,371	1,230	396
Livestock	819	821	864	791	832	826	829	814	188
Companion Animals	599	651	553	470	650	641	542	416	208
Other Revenues	(29)	(50)	241	221	312	370	625	420	12

Click to enlarge

Everyone who follows Merck is aware that the oncology behemoth Keytruda and vaccine stalwart Gardasil face loss of exclusivity in 2028 (along with Lymparza and Zerbaxa). Longs should hope for continued growth from the rest of the product line, and possibly some key acquisitions, to make up for the huge potential shortfall. Meanwhile, since few patients can afford to pay for these brands out of pocket, formulary placement is critical for greater accessibility, especially for products recently launched in the past few years.

Coverage for 5 select products was explored at the 15 largest health insurance companies in the U.S. overall. Combined, these payors control 59% market share, with 38 million covered lives as of 2021. Vaccines are readily available, while LAGEVRIO is distributed by the U.S. Government; these are excluded from the search. Reblozyl, a global collaboration with Bristol Myers Squibb (BMY) from which Merck receives a 20%-24% royalty based on sales levels; Verquvo, which is Adempas repurposed for heart failure; and Zerbaxa, reintroduced in Q4 2021 after being recalled in 2020, are included. The most common plan was examined when possible and are specified in Table 2. If the insurer offered non-Medicare prescription drug plans (“PDP”) in a state Marketplace (Obamacare), the most populous state was chosen (California > Texas > Florida). Humana (HUM) doesn’t do Exchanges, so their Medicaid plan and that of Blue Cross and Blue Shield of Texas are the only ones in the survey.

How to read Table 2:

Tier # Higher Tiers have higher cost share. Drugs in Tier 4 or higher (in 5+-Tier plans) are non-preferred brands and may also include drugs recently approved by the FDA or specialty drugs and may need special handling.

Sp Specialty drugs are used to treat difficult, long-term conditions and may need to get filled through a specialty pharmacy.

PA Prior authorization is the process of obtaining approval of benefits before certain prescriptions may be filled.

NF A non-formulary drug is not included on a plan’s Drug List. Exception processes such as PA or Step Therapy could be available to request coverage for a NF drug.

x Not Covered drugs are specifically excluded from coverage by the terms of the plan. Patients likely won’t get any reimbursement will have to pay out-of-pocket for these drugs.

Table 2. 2023 Coverage of select Merck Products at 15 largest health insurance companies in the U.S.

Rank	Commercial health insurance plans	Reblozyl	WELIREG	Prevymis	Zerbaxa	Verquvo
1	Kaiser Permanente [Southern CA Commercial HMO 3-Tier]	x	x	4	x	x
2	Elevance Health (Anthem) National Drug List 5-Tier	NF PA Sp	NF PA	NF PA Sp	NF	NF PA
3	Health Care Service Corporation
	BCBS Illinois Basic Drug List	x	x	x	x	3
	BCBS Montana Basic Drug List	x	x	x	x	3
	BCBS New Mexico Basic Drug List	x	x	x	x	3
	BCBS Oklahoma Basic Drug List	x	x	x	x	3
	BCBS Texas Basic Drug List	x	x	x	x	3
4	UnitedHealth [CA Traditional 4-Tier]	x	4 PA	2 PA	x	4 PA
5	Centene [Health Net Essential Rx Drug List]	x	x	x	x	x
6	CVS Health (Aetna Standard Opt Out)	x	x	3	x	2
7	GuideWell (Florida Blue) ValueScriptRx	x	5 PA Sp	5	x	5 PA
8	Blue Cross Blue Shield of Michigan [BCN HMO]	x	5 PA	4	x	4 PA
9	Highmark Healthcare Reform Comprehensive 3-Tier Incentive	3	3 PA Sp	3	x	3 PA
10	Blue Cross of North Carolina Enhanced 5 Tier	x	4	5	medical	3
11	Humana Rx5	medical?	x	x	x	3
12	Blue Cross and Blue Shield of Alabama Blue Saver Bronze	x	6 PA	4	x	3 PA
13	Blue Cross Blue Shield of Massachusetts	4 PA	4	2	3	2
15	Independence Health Group [Value formulary 5-tier]	x	5 PA	5	x	4 PA
Rank	Health Insurance Marketplace plans	Reblozyl	WELIREG	Prevymis	Zerbaxa	Verquvo
1	Kaiser Permanente [CA Marketplace]	x	x	4	x	x
2	Elevance Health (Anthem) CA Select Drug List	NF PA Sp	NF PA	NF PA Sp	NF	NF PA
3	Health Care Service Corporation
	BCBSIL 6 Tier HIM Drug List	x	6	x	x	3
	BCBSMT 6 Tier HIM Drug List	x	6	x	x	3
	BCBSNM 6 Tier HIE Drug List	x	6	x	x	3
	BCBSOK 6 Tier HIM Drug List	x	6	x	x	3
	BCBSTX STAR & STAR Kids	x	2 Sp	2	x	2
4	UnitedHealth Group [TX QHP Standard]	x	NF	NF	x	NF
5	Centene [Health Net CA Essential Rx Drug List]	x	x	x	x	x
6	CVS Health (Aetna Health Exchange Plan: CA)	x	x	3	x	2
7	GuideWell (Florida Blue) ValueScriptRx	x	5 PA Sp	5	x	5 PA
8	Blue Cross Blue Shield of Michigan [BCN HMO]	x	5 PA	4	x	4 PA
10	BCBS North Carolina Essential Q	x	5	6	medical	3
11	Humana [FL Medicaid Preferred Drug List]	x	x	x	x	x
12	Blue Cross and Blue Shield of Alabama Blue Saver Bronze	x	6 PA	4	x	3 PA
14	Molina Healthcare [CA Marketplace]	x	x	x	x	x
Rank	Medicare Prescription Drug Plans	Reblozyl	WELIREG	Prevymis	Zerbaxa	Verquvo
1	Kaiser Permanente	x	5	5	5	x
2	Anthem Blue Cross MedicareRx [B5]	x	5 PA	5	x	x
3	Health Care Service Corporation
	BCBS Illinois Blue Cross MedicareRx Basic	x	5 PA	5	x	x
	BCBS Montana Medicare Advantage Classic PPO	x	5 PA	5	x	3
	BCBS New Mexico MedicareRx Basic	x	5 PA	5	x	x
	BCBS Oklahoma MedicareRx Basic	x	5 PA	5	x	x
	BCBS Texas MedicareRx Basic	x	5 PA	5	x	x
4	UnitedHealth [AARP MedicareRx Walgreens PDP]	5 PA	5 PA	5 PA	4 PA	x
5	Centene [Wellcare Value Script PDP]	x	5 PA	x	x	x
6	CVS (Aetna) [SilverScript Choice PDP]	x	5 PA Sp	5 PA Sp	x	3
7	GuideWell (Florida BlueMedicare Premier Rx)	x	5 PA	5	x	x
8	BCBS of Michigan Prescription Blue PDP Select	x	5 PA	5	x	x
9	Highmark Performance Formulary	3	3 PA Sp	3	x	3 PA
10	BCBS North Carolina Blue Medicare Rx Standard	x	5 PA	5	x	x
11	Humana Basic Rx Plan PDP	x	5 PA	5 PA	x	x
12	BCBS Alabama BlueRx Essential	x	5 PA	5	x	x
13	Blue Cross Blue Shield of Massachusetts	x	5 PA	5 PA	x	3
14	Molina Medicare Choice Care (HMO)	x	5 PA	5 PA	x	3
15	Independence Keystone 65 Basic Rx HMO	x	5 PA	5	NF	4

Click to enlarge

WELIREG, Prevymis and Verquvo all have excellent coverage, the latter likely owing to insurers’ familiarity with Adempas. In January’s BMY article, it was noted that Reblozyl (a projected $4 billion earner) would have a smoother path to blockbuster status if coverage extended beyond 2 lists. Even the hospital-based antibiotic Zerbexa was on more. Fortunately for Merck, the anemia drug secured placement this month on #9 Highmark’s commercial and Medicare plans, although patients may have higher copays due to the non-formulary/specialty tier.

To conclude, none of these secondary products are currently bringing in more than $200 million annually in the U.S., and thus won’t budge the Guidance. However, these drugs are positioned to deliver greater sales once they are approved for more indications. First up for review by the FDA is the cytomegalovirus prophylactic pill Prevymis (also available as injection); the Agency will decide on the first of two supplemental new drug applications (“sNDAs”) on June 5, for use in high-risk adult kidney transplant recipients. The second sNDA aims to extend Prevymis’ authorized use in adults from 100 days to 200 days after receiving an allogeneic hematopoietic stem cell transplant, thereby doubling revenue. Until then, there are probably better choices among Big Pharma (e.g., BMY) than Merck for a defensive healthcare sector stock in a bear market. The A+ in Profitability is artificially buoyed by Lagevrio’s past performance. Without it, the Growth and Value Quants which are already graded ‘D’ are likely worse.

---

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

---