Bristol-Myers Plunges On Surprise Opdivo Failure In Lung Cancer

Bristol-Myers Squibb (BMY) shocked Wall Street by announcing Friday that its new cancer drug Opdivo had failed a trial as a single therapy for newly diagnosed lung cancer patients.

The company released few details of the study, called Checkmate-026, but it said that it hadn’t met its primary endpoint of improvement in progression-free survival in patients with advanced non-small-cell lung cancer (NSCLC).

It was the first conspicuous miss for the drug since it launched in late 2014; it’s already been approved for six different indications in melanoma, kidney cancer, lymphoma and later-stage lung cancer after acing clinical trials. Bristol-Myers also reported positive data for Opdivo in front-line lung cancer in combination with another cancer drug, Yervoy, back in June.

The Checkmate-026 failure is good news for Merck (MRK), whose competing drug Keytrudasucceeded in a similar trial recently. However, Merck played it safer in the patient population it chose, targeting “high expressers” of the PD-L1 ligand, which both Keytruda and Opdivo target through inhibition of the PD-1 protein in cancer cells. Bristol-Myers went for a broader patient population, potentially winning a bigger market but increasing its risk of failure.

Bristol-Myers stock plunged 16% to 63.28 at the close on thestock market today, hitting a closing low not seen since late March.

Merck stock soared 10.4% to 63.86, breaking out of a long consolidation. It reached 64 intraday, its highest level since December 2001.

Evercore ISI analyst Mark Schoenebaum called the result “possibly the biggest clinical surprise of my career.” He noted that the potential market for both drugs is enormous.

“The first-line NSCLC market is likely greater than $12 billion all told, and Bristol-Myers was expected to outperform Merck in monotherapy on the basis of their likely-broader label (covering all expressers, rather than just high expressers),” Schoenebaum wrote in an email. “Consensus modeled $12 billion for Opdivo across all indications by 2021, with perhaps $7-8 billion of that coming from first-line NSCLC (between monotherapy and anticipated combination therapies).”

This puts more pressure on the Opdivo-Yervoy combo trial, called Checkmate-227, whose full results are due next year. In the meantime Merck, which up to now has held minority market share, has the field to itself.

“Similarly, we see an opportunity for improvement in market share for AstraZeneca‘s (AZN) durvalumab + tremelimumab, with this combination more likely to split the (immunotherapy) combo market evenly with Bristol-Myers’ Opdivo + Yervoy, but this is completely dependent on the result of MYSTIC (AstraZeneca’s clinical trial),” wrote Leerink analyst Seamus Fernandez in a research note. “Without a doubt, Merck is in the catbird seat for at least the next 12-18 months.”

SunTrust Robinson Humphrey downgraded Bristol-Myers’ stock to neutral from buy and cut the price target to 68 from 86.

07 – August – 2016