A Refreshing Voice At Bristol-Myers Squibb

Saturday, April 29, 2017

Source: Forbes

Drug giant Bristol-Myers Squibb started off the day announcing earnings for the first quarter of 2017. Financial analysts at investment banks forecast sales of $4.74 billion. Bristol delivered $4.93 billion. The Wall Street wonks expected adjusted earnings per share (earnings with one-time costs taken out, used by analysts to keep score) of 73 cents. Bristol beat that by a dime. Shares are up 3%.

The increase is driven not only by the magnitude of this beat, but by what caused it: sales of Opdivo, Bristol's breakthrough melanoma-and-lung-cancer drug, were $1.17 billion for the quarter, about $140 million higher than analysts expected. Sales of Eliquis, a blood thinner sold with Pfizer, were $1.1 billion, also about $100 million higher than expectations.

Opdivo's performance is particularly heartening because the drug--which had looked set to dominate in lung cancer--has suffered because a key clinical trial failed last August, while a competing study of Merck's Keytruda succeeded. Merck had lagged in this field. Both drugs, called PD-1 inhibitors, work by siccing the body's immune system on tumors. Merck had been behind, but now its Keytruda will be the first choice for newly diagnosed lung cancer patients. Over the past year, Merck shares are up 15% while Bristol's stock is down 23%.

But sales of Bristol's Opdivo are not dropping as quickly as expected, and the company even said on its earnings calls that, contrary to expectations, Opdivo sales could grow this year. One big question: is this because the overall market is growing faster, or because Merck is damaging Bristol less than expected?

Just as refreshing was the voice of Bristol's new research and development chief, Thomas Lynch. Previously a Harvard oncologist, Lynch has made a career of figuring out how to target lung cancer drugs based on genetic differences. This is one place that Bristol appears to have stumbled: Merck had limited its study to patients whose tumors expressed a protein that predicts the PD-1 drugs will work. That may be one of the main reasons Merck's Keytruda succeeded and Bristol's Opdivo failed.

"I don't think we're going to find enormous differences between the PD-1 drugs," Lynch said while pleasantly jousting with analysts on Bristol's earnings conference call today. He cautioned the analysts not to expect any company to have a single answer in lung cancer--meaning that even if Merck wins, there could be space for Bristol. One big question will be whether the PD-1's turn out to work better with chemotherapy or other immunotherapy drugs, like Bristol's Yervoy.

New immunotherapy competitors could emerge from rivals like AstraZeneca. (Astra also announced earnings today; they were bad. It's desperate for a hit, and will have immunotherapy data later this year.)

Lynch resisted an opportunity to blame the existing Bristol team for past failure, calling his regulatory people "beyond reproach." But he did seem to open up the door to new diagnostic tests, name-checking partnerships with diagnostic firms like Grail and Foundation Medicine. He said the company may need new expertise in clinical trials and tumor biology. The drug pipeline, Lynch said, is not going to develop itself.

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