Bucking the Trend Bristol-Myers Squibb Co. (NYSE:BMY) has sprinted to an early lead in the race to sell a new class of cancer treatment by bucking the trend toward precision medicine.
In 2015 alone, the FDA approved five new drugs for certain patients with metastatic lung cancer. Two of these are the checkpoint inhibitors pembrolizumab (Keytruda) and nivolumab (Opdivo). Before distinguishing Keytruda and Opdivo, note that drug companies historically seek to maximize profits by selling medicines to as many patients as possible, regardless of perceived effectiveness. But lately, health insurers are pushing to improve the odds that a costly drug will show promising results. As such, biotech firms and big pharma companies are trying to find personalized treatment modalities that target specific characteristics of each patient's cancer. This targeting process can be done by pairing new therapies with diagnostics tests, and then identifying the type of patient who derives benefit from the tested drug.
Precision medicine may be the way of the future, but for now, Bristol-Myers Squibb Co. looks to profit from conventional methods. Despite the trend toward precision medicine, Bristol has sidestepped the targeting process, and continues to employ the mass-marketing approach of old.
This divergent strategy seems to paying off as some 60% of new lung-cancer patients are prescribed Bristol's monoclonal antibody nivolumab ( marketed as Opdivo). Oncologists have found that the diagnostic tests required for precision medicine waste valuable time, and instead prescribe Opdivo without identifying patients who actually benefit from the therapy. Meanwhile, Merck & Co. (NYSE: MRK), Bristol's chief cancer-drug competitor, has stuck to the "precision medicine" strategy by marketing Keytruda (pembrolizumab) monotherapy, which like Opdivo, treats lung-cancer and melanoma. Unlike Bristol, Merck (NYSE: MRK) does not allow Keytruda to be prescribed to just anyone. Before prescribing Keytruda, doctors test for PD-L1-positive patients, as the drug is meant to treat these individuals.
Moving forward, Merck intends to familiarize doctors with the PD-L1 diagnostic test as a means of preventing wasteful spending on a drug that could potentially provide patients nil benefit (Opdivo). From a doctor's perspective, the Opdivo versus Keytruda decision boils down to a cost versus time analysis. As stated, prescribing Opdivo saves critical time otherwise wasted on conducting the diagnostic tests required for Keytruda. However, if Opdivo is not effective for the patient, then saved time simply translates to wasted money. By the numbers, it is clear that doctors value time over money. Last year, Opdivo amassed $2.1 billion in sales, while Keytruda only generated $566 million. Financial analysts predict that Opdivo could generate $23 billion in sales by 2020.
Financial Aspects In More Detail
Bristol-Myers Squibb Company (NYSE: BMY) stock increased +2.32% to $72.83 on 5/16/2016. During the past 52 weeks, BMY stock had a minimum value of $51.82 and a maximum value of $73.06. According to data from S&P Global Market Intelligence, BMY's stock increased 13% in April, reaching a 17-year high. Netting out interest, tax depreciation, and amortization, BMY has earned $4.98 billion over the past 12 months. Analysts project BMY stock to reach a maximum price target of $100, albeit a minimum price target of $48. The median price target for the stock is $76.5, and the average $75.77, both exceeding its current market value. If BMY stock reaches its maximum target value, stockholders look to realize a 60% gain. Financial analysis credit BMY's recent success to the sheer dominance of Opdivo, its cancer immunotherapy "wonder" drug, and better-than-expected first-quarter results.
For the first-quarter of FY16, Bristol-Myers reported $4.39 billion in revenue, a 9% increase from the prior quarter, and a whopping $704 million in Opdivo sales. Earnings per share improved to $0.74 from $0.71 (prior-year period). Significantly, Wall Street only expected $0.65 in earnings per share, and $120 million less in total sales. Conversely, BMY's worldwide revenue forecast went from mid-single digit % growth to low-single digit % growth. This decrease in growth rate could be due to Abilify's expiring patent, causing the drug's sales to plummet 94%. Also, Bristol-Myers lost its North American rights to Erbitux in a deal restructuring with Eli Lilly.
Investors should note that the Opdivo train probably hasn't left the station just yet. In addition to recent FDA approvals for advanced melanoma, second-line advanced renal cell carcinoma, and second-line advanced non-small cell lung cancer (NSCLC), Opdivo is subject to dozens of current monotherapy studies and combination trials for solid tumors.