Image source: Getty Images.

What happened

According to data from S&P Global Market Intelligence, shares of global drug giant Bristol-Myers Squibb (BMY -0.39%) tumbled 15% in 2016, meaning it underperformed the broad-based S&P 500 by nearly 25 percentage points. The catalyst for Bristol-Myers' fall is ironically the reason it's rallied so successfully in previous years: Opdivo.

So what

In particular, the CheckMate-026 study involving cancer immunotherapy Opdivo wound up stinging Bristol-Myers and its shareholders twice in 2016.

CheckMate-026 was designed to examine Opdivo as a monotherapy treatment for treatment-naive patients with advanced non-small cell lung cancer (NSCLC) whose tumors had PD-L1 expression of at least 5%. Considering how successful Opdivo had been in metastatic melanoma, second-line renal cell carcinoma, and second-line NSCLC, Wall Street pegged Opdivo for success. Unfortunately, that's now the way the cookie crumbled. In August, Bristol-Myers Squibb announced that Opdivo had missed its primary endpoint of a statistically significant improvement in progression-free survival (PFS), and its secondary endpoint of median overall survival.

Image source: Merck.

It was a crushing blow considering that Opdivo's biggest rival, Merck (MRK 0.38%), with cancer immunotherapy Keytruda, met its primary endpoint in first-line NSCLC patients whose tumors had PD-L1 expression of at least 50% in the KEYNOTE-024 trial. Keytruda wound up cutting the risk of disease progression or death by 50% versus the placebo.

Amazingly, things got even worse in September when Bristol-Myers Squibb released the primary data from CheckMate-026. What Wall Street and investors saw was a drug that didn't even come close to outperforming the chemotherapy placebo. Median PFS was only 4.2 months for the Opdivo group compared to 5.9 months for patients with platinum-based doublet chemotherapy. Furthermore, the hazard ratio of 1.15 implied favorability toward the chemotherapy arm, not the Opdivo arm. The last straw was the median overall survival data, with a modest edge of just 1.2 months (14.4 months vs. 13.2 months) for the Opdivo arm over the placebo. 

Needless to say, Opdivo won't be nabbing a label expansion to first-line NSCLC anytime soon.

Now what

CheckMate-026 was clearly a crushing blow, but there's so much more to Bristol-Myers that Wall Street may be overlooking.

Image source: Bristol-Myers Squibb.

One of the most important things to realize is that drugs can react completely different to certain cancer types and cancer stages and as a monotherapy versus a combination therapy. We've witnessed dozens of ongoing cancer immunotherapy studies from Bristol-Myers, Merck, and other drug giants, and combination therapies have appeared to work better than monotherapies. Thus, Opdivo's failure in first-line NSCLC as a monotherapy may not be such a bad thing after all.

What's more, Opdivo is probably going to remain a foundational therapy in numerous indications for years to come. It's currently the leading market share drug in second-line renal cell carcinoma, and it has solid market share in second-line NSCLC. One failed study doesn't mean Bristol-Myers or investors should pack up the suitcase on Opdivo.

Beyond Opdivo, Bristol-Myers and Pfizer (PFE 1.59%) are raking in the dough hand over fist because of oral anticoagulant Eliquis, which has a number of label expansion opportunities. Worldwide revenue soared 90% year over year in Q3, and for Bristol-Myers, they're now on track for more than $3.5 billion annually.

Now sporting a reasonably low PEG ratio of 1.1, Bristol-Myers Squibb should be on the radar of both growth and value investors.