Deutsche Bank Comments on Bristol-Myers Squibb (BMY) Opdivo News; Analyst Says Merck (MRK) Not Guaranteed to be Alone in Front-Line Setting

August 5, 2016 11:25 AM EDT
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Deutsche Bank analyst Gregg Gilbert commented on Bristol-Myers Squibb (NYSE: BMY) and Merck (NYSE: MRK) following news BMY's Opdivo failed to meet the primary endpoint for CHECKMATE-026. In his view, the news is clearly positive for Merck and negative for Bristol-Myers, but he said Merck is not guaranteed to be alone in the front-line setting.

"We need more time to fully assess the implications of this move and thus are not changing our ratings or estimates here (both rated Hold), but this news is clearly positive for MRK and negative for BMY, as evidenced by the early trading action today," said Gilbert.

"Based on the intra-day moves thus far, BMY has lost $22B in market cap, while MRK has gained $11B. These seem like very large moves in value for news with still uncertain implications, but it underscores the relevance of immuno-oncology (IO) as an investment theme. We cannot comment on what it means for other IO players, but we would remind investors that this debate will broaden out to include several companies in the coming years," continued the analyst. "As a reminder, our official estimates are not tied to a tumor-specific model, and our Keytruda (MRK) estimate is $3.9B in 2020, and our Opdivo (BMY) estimate is $9.3B in 2020. Based on our recent note (“Opdivo/Keytruda in 1st-line lung: tortoise vs. hare?” dated 4/5/16), we had estimated that the potential US market size of 1L lung in the high expressor population (PDL expression >50%) at about $2.5B or perhaps $5B globally. While we previously expected MRK to receive approval in 1L lung later this year, with BMY a few months behind, it now appears that MRK will be alone as a monotherapy for some time."

Gilbert added, "BMY’s Checkmate-227 study, which is looking at Opdivo + Yervoy in PDL1 positive patients and Opdivo + chemo in PDL1 negative patients, could read out in late 2017/early 2018 and could have implications for how 1L patients are treated. Finally, we are not sure exactly when and where the full Checkmate-026 results will be made available, but it will be interesting to see if NCCN guidelines eventually include Opdivo use in high expressors even though Checkmate-026 did not achieve its endpoint (data may look good on the high expressor population). In other words, MRK is not guaranteed to be alone in the front-line setting."

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