Bristol-Myers suffers $21 bln self-inflicted wound

August 5, 2016

The author is a Reuters Breakingviews columnist. The opinions expressed are his own. 

Bristol-Myers Squibb has suffered a $21 billion self-inflicted wound. That’s how much value investors wiped off the pharma firm on Friday morning after its trial to greatly broaden the use of one of its most promising cancer drugs failed. It was an unnecessarily risky move for Bristol, whose immunotherapy has been outselling Merck’s. The stumble will allow its more cautious rival to clean up.

Bristol’s Opdivo and Merck’s Keytruda are shaping up to be the biggest blockbusters ever for the pharma industry. The drugs have proven to be effective against forms of lung, skin, kidney and other cancers by cutting the brakes on the immune system’s response. In the second quarter, Bristol sold $840 million of Opdivo – almost seven times as much as the same period last year.

Taking on tobacco has provided the most glittering prize. Sales of Opdivo, Keytruda and related drugs for lung cancer will exceed $20 billion in 2022 according to Cowen. The biggest chunk of this will come from previously untreated patients.

The key to bringing in even more revenue stems from showing such drugs work on more forms of cancer and using these treatments earlier. Merck took a relatively safe path. It proved in June that Keytruda worked in untreated non-small cell lung cancer patients whose tumors had at least 50 percent of cells producing a protein called PD-L1. Various trials have shown that the success of Keytruda and Opdivo is highly linked, but not entirely, to having cells that produce this protein. There aren’t, though, too many patients with such a high amount of PD-L1.

Bristol went for the kill. Its drug already sells over two times as much as Merck’s, and it designed a trial to widen this lead, targeting patients with tumors with just 5 percent or more of cells producing PD-L1. That’s a far harder target to hit, but would also have opened up a lot more patients to treatment.

Bristol will now probably have to wait until 2018 to hit back at its rival. That’s when a trial of Opdivo in combination with another drug for treating lung cancer should report. Earlier trials suggest this is a remarkably effective way to treat the disease. Until then, Merck has a clear path to gain market share – and the $11 billion added to its market value Friday morning implies shareholders agree. It’s a pricey therapy for Bristol’s hubris.

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You win some, you lose a few. Investors are too short sighted.

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