(Reuters) - Merck & Co Inc MRK.N, faced with patent expirations and increasing development costs for its high-profile Keytruda cancer immunotherapy, reassured investors on Thursday with a 2017 profit forecast roughly in line with Wall Street expectations.

Shares of Merck were up nearly 3 percent at $63.90 after the U.S. drugmaker also reported fourth-quarter earnings that matched analysts’ expectations.

Despite acknowledging a need to hold down costs, Merck said it was charging ahead with Keytruda development, with about 430 studies ongoing in a wide variety of cancers and combinations with other therapies.

Merck forecast 2017 earnings of $3.72 to $3.87 per share, excluding special items. Analysts on average were expecting $3.85 per share. The company gave a revenue outlook of $38.6 billion to $40.1 billion, compared with analysts’ expectations of $40.04 billion.

“We are actually implying EPS growth despite the headwinds of loss of exclusivity and (foreign exchange) and the other challenges that we face,” Chief Executive Officer Ken Frazier told analysts on a conference call.

Merck expects unfavorable foreign exchange rates to sap 2 percent from 2017 global sales.

Frazier said Merck was in the market for deals to augment its early to mid-stage drug development pipeline if the price is right. Such moves are not contingent on tax reform or changes to U.S. healthcare laws being discussed by President Trump and Congress, he added.

The logo of Merck is pictured in this illustration photograph in Cardiff, California April 26, 2016. REUTERS/Mike Blake/Illustration/File Photo

In 2017, Merck will face generic competition for cholesterol drugs Zetia and Vytorin, antibiotic Cubicin and its Nasonex nasal spray in the United States and for Remicade, its big-selling arthritis drug, in Europe.

But the U.S. drugmaker is confident it can solidify its leading position for Keytruda in lung cancer, by far the largest oncology market, and that it has the potential to become a foundational therapy in other cancers as well.

Last summer Merck leapfrogged Bristol-Myers Squibb BMY.N as the perceived leader in the market for potentially game-changing drugs that spur the immune system to fight cancer, when Keytruda extended survival among previously untreated lung cancer patients. Bristol's rival drug, Opdivo, failed to do so.

Keytruda is now approved as a first-option treatment for non-small cell lung cancer patients whose tumor cells display a high level of the PD-L1 protein the drug targets, as well as for patients whose cancer has progressed after other treatments.

Merck said there has been a significant acceleration of PD-L1 testing, a clear indication of heightened interest in use of Keytruda in first-line lung cancer.

In May, Merck may also get U.S. approval for Keytruda with chemotherapy in first-line lung cancer, opening it up to many more potential patients.

Edward Jones healthcare analyst Ashtyn Evans forecast annual Keytruda sales would reach $7 billion by 2020.

She said there was relief that Merck’s 2017 forecast was not lower “because they really need to put a significant amount of investment behind Keytruda.”

Fourth-quarter Keytruda sales more than doubled from a year earlier to $483 million, with 40 percent coming from melanoma, its initial approval, and 30 percent from lung cancer.

Sales of diabetes drugs Januvia and Janumet grew 4 percent to $1.5 billion despite intensifying competition.