Bristol-Myers Squibb (NYSE:BMY) announced some interesting news last week about its promising lung cancer drug candidate. After analyzing early findings of a clinical trial featuring a combination of its two immuno-oncology drugs, Yervoy and Opdivo, Bristol-Myers found that the drug combo met its primary endpoint of improving life expectancy in lung cancer patients.

While this is good news for Bristol-Myers, the Yervoy-Opdivo drug combo could become a potential competitor to Merck & Co's (NYSE:MRK) own lung cancer therapy, Keytruda, which is the current leader in the lung cancer market. While shareholders had previously counted on Merck dominating this area, some have become worried that Bristol-Myers' new drug could mean that Merck faces a new pharmaceutical competitor sooner than otherwise anticipated.

A medical professional holding an x-ray image showing malignant growths in the lungs.


Analyzing the clinical trial results

Bristol-Myers presented data in a meeting in Barcelona with the European Society for Medical Oncology that demonstrated around 40% of patients with advanced non-small cell lung cancer (NSCLC) were alive after two years after taking an initial treatment of the Yervoy-Opdivo combination. This was an improvement over traditional chemotherapy treatments, in which only 33% of patients survived after two years.

These results compliment earlier findings presented at the American Society of Clinical Oncology back in June that showed the same drug combination is effective in treating melanoma, a dangerous form of skin cancer. Overall five-year survival rates were at 52% for patients taking Yervoy-Opdivo, in comparison to 44% who were taking just Opdivo and the 26% taking Yervoy alone. In comparison, the historical five-year survival rate for melanoma patients has been between 15% and 20%.

Can it beat Merck's cancer drug?

The Yervoy-Opdivo drug combination would be a direct competitor to Merck's Keytruda, which has already emerged as one of the top cancer drugs in the market. Currently, Keytruda is approved by the Food and Drug Administration for treating 22 different types of cancer, including advanced cervical, esophageal, kidney, bladder, and lung cancer. According to a recently published report from the research group GlobalData, Keytruda is expected to become the single best-selling drug in the entire world by 2023. Annual sales are projected to hit $22.2 billion by 2025, compared to the $7.2 billion in revenue generated by Keytruda back in 2018, according to research firm GlobalData.

Looking specifically at Keytruda's effectiveness in treating lung cancer, it's uncertain whether Bristol-Myers' results are that much better. Earlier this year, Merck announced that a trial with 550 participating lung cancer patients showed equivalent, if not superior, results. Around 23.2% of patients who were only taking Keytruda survived after five years, in comparison to the historical five-year survival time for patients with the disease (closer to just 5%). While the Bristol-Myers trial showed a greater survival chance, its trial was only on a two-year time frame compared to Merck's five-year time frame.

Why Keytruda first surpassed Opdivo

Keytruda was first approved back in 2014 by the FDA as a treatment for melanoma. In the years following the approval, Merck's drug quickly overtook Bristol-Myers' main melanoma treatment at the time, which was just Opdivo, as the preferred treatment option. By July 2018, Keytruda ended up eclipsing Opdivo in sales as a lung cancer treatment due precisely to higher survivability percentages for patients.

Since then, Bristol-Myers has been working to improve its Opdivo therapy to regain its position as the top lung cancer treatment option, which resulted in the recent Yervoy-Opdivo drug combination. There's always a percentage of patients who react better to one drug than another, and Yervoy-Opdivo could fulfill a role as a secondary treatment for a minority of patients who don't respond well to Keytruda. However, it's uncertain whether Bristol-Myers' drug combo has what it takes to become the primary treatment option for lung cancer patients.

Should Merck investors be worried?

While Bristol-Myers' results are impressive, it's too early to tell whether Yervoy-Opdivo will end up outperforming Keytruda in specific areas like lung cancer and melanoma. Even if Bristol-Myers' drug combination ends up becoming the preferred therapy in the next few years, Keytruda still will remain dominant in the other 20 cancer areas for which the FDA has approved it.

Although Merck investors should keep an eye out for further developments in the upcoming months, there's not much to worry about at present. Keytruda is involved in 1,000 other ongoing trials spread out over 25 different types of cancer, and it could easily receive approval from the FDA to treat other types of cancer. While competing drug candidates in the realm of specific cancer types are to be expected, what makes Keytruda stand apart are its breadth and scope as an all-around cancer treatment.

Although shares of Merck fell in response to the news, the long-term prognosis of the company hasn't changed much. The company is trading at a hefty 33.9 price-to-earnings ratio (P/E), well above Bristol-Myers' 18.1. Merck also has a slightly lower dividend yield, 2.67% in comparison to Bristol's 2.98%. While Merck is doing well at present, its stock is trading at a high premium compared to many of its competitors.

Both Bristol-Myers and Merck will be releasing their quarterly earnings in the upcoming days, much to the anticipation of shareholders and analysts alike. Investors should pay close attention to these results as well as to the management conference calls with analysts, where these recent clinical trial results and their implications will likely be major talking points.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.