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Can Bristol-Myers Squibb Squeeze $3.6 Billion From Its Nektar Therapeutics Deal?

By Cory Renauer - Feb 20, 2018 at 9:19AM

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Bristol-Myers will pay through the nose for a minority stake in a cancer drug in its early clinical stage. Here's why it could be worth the risk.

Bristol-Myers Squibb Co. (BMY -1.38%) recently signed a huge deal with Nektar Therapeutics (NKTR 2.90%) to secure a minority stake in an experimental drug that produced some interesting data last fall. In short, it looks like Nektar's candidate could revive sales of Opdivo.

Opdivo has been Bristol's lead growth driver since it launched the cancer therapy a few years ago, but its trajectory has started to flatten out. Let's look at reasons Bristol-Myers was so eager to sign a deal with Nektar to gauge the chances of it paying off in the years ahead. 

Gold dollar signs falling out of an open giant red-and-white capsule

Image source: Getty Images.

Problem solved?

Bristol-Myers recorded $4.9 billion in Opdivo sales last year, but its rapid ascent since launching in 2014 is starting to sputter. Fourth-quarter sales of the drug were just 4% higher than the prior-year period. Now that Opdivo comprises around 25% of total sales for the company, overall growth could be hard to come by if Bristol-Myers can't reignite its launch.

Opdivo belongs to a class of drugs that don't fight cancer directly; they just block PD-L1 on the surface of tumor cells from shutting down local immune system attacks. Unfortunately, Opdivo and related drugs don't seem to work so well when patients' tumor cells don't have much PD-L1 on their surface. Bristol paid through the nose to get its hands on Nektar's candidate because patients without much PD-L1 on their tumor cells responded well to Opdivo in combination with NKTR-214 during the first part of a mid-stage clinical trial.

The first part of the Pivot-2 study enrolled 36 patients with melanoma, kidney cancer, and lung cancer and then treated them with different dosages of Nektar's NKTR-214 and Opdivo. Some patients were in stage 3 and others were in stage 4. Some patients had progressed after treatment with standard drugs, and others hadn't been treated yet. With so much variation among a small sample size, the Pivot-2 trial data was a little hard to interpret. What everyone noticed, though, was that tumors shrank for 26 of 36 patients regardless of their PD-L1 status.

Three scientists, mouths agape, in a laboratory looking at a test tube filled with pink liquid and celebrating.

Image source: Getty Images.

Hooray for Nektar

Last year, Merck & Co. (MRK -0.01%) recorded surging sales of its PD-1 checkpoint inhibitor, Keytruda, driven by an approval to treat new lung cancer patients with tumors considered strongly PD-L1 positive. Only about 25% of patients have strongly PD-L1 positive tumors, but there were enough to help boost Keytruda sales 172% higher in 2017 to $3.8 billion.

If NKTR-214 really can make Opdivo or Keytruda work for patients across the board as well as it does for those with high PD-L1 expression, Bristol-Myers was right to lock down exclusive rights to develop the candidate for 20 indications across nine tumor types.

Bristol paid Nektar a cool $1.0 billion up front and bought around 5% of the biotech's shares for another $850 million. Nektar remains eligible for $1.78 billion in various milestones plus a big 65% of any global profits NKTR-214 generates if it eventually launches. Although Nektar remains eligible for the lion's share of profits, it's on the hook for less than one-third of development expenses.

Clearly, Nektar had the upper hand in these negotiations. Keytruda and Opdivo are the current class leaders, but RocheAstraZeneca, and Pfizer market their own anti-PD1 drugs that they'd like to expand to wider populations as well. I'd say there's a slim chance of seeing a direct return on Bristol's investment in NKTR-214 from the drug itself. If it opens up Opdivo to a much larger patient population, though, the overall benefit would be worth the big up-front expense.

Next steps

Bristol-Myers Squibb has 14 months to begin registration enabling studies in more than 20 indications. That means we can expect a lot of pivotal trial data from Opdivo, Yervoy, and NKTR-214 in the quarters ahead.

Unfortunately for Bristol, Keytruda's popularity in the first-line lung cancer setting is on the rise now. Earlier this month, independent data monitors peeked into a pivotal first-line lung cancer trial with Opdivo plus Yervoy to perform a futility analysis. According to Bristol, researchers noted what looks like a highly significant survival benefit, but the company didn't back its claim with any figures.

While we wait for Opdivo plus Yervoy data, investors will want to keep an eye open for results from the expanded, 330-patient stage of the Pivot-2 study. With much larger groups, we'll get a better idea of whether Nektar's candidate can kick Opdivo's sales growth back into high gear when the expansion phase wraps up, probably in October.

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Stocks Mentioned

Bristol Myers Squibb Company Stock Quote
Bristol Myers Squibb Company
$75.96 (-1.38%) $-1.06
Merck & Co., Inc. Stock Quote
Merck & Co., Inc.
$92.09 (-0.01%) $0.01
Nektar Therapeutics Stock Quote
Nektar Therapeutics
$3.91 (2.90%) $0.11

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