Shares of relatively unknown biotech company MyoKardia (MYOK) jumped overnight after Bristol Myers Squibb (BMY 2.62%) agreed to pay a steep premium to acquire the clinical-stage biotech and its pipeline of cardiovascular drugs.

Over the past several years, we've seen some high-profile cardiovascular drug launches produce disappointing sales. Bristol Myers Squibb's recent decision to pay a steep premium for MyoKardia and its pipeline of new cardiovascular drugs thus might seem a little bonkers. Yet there's a good chance this $13.1 billion deal will work out well for investors in the long run.

A person stuffing cash into a physician's pocket.

Image source: Getty Images.

It's good to be first

It's hard to sell pricey new cardiovascular drugs when most people can get the job done with cheap generics, but this isn't the case with MyoKardia's lead candidate, mavacamten. Its intended patients have a chronic debilitating condition called hypertrophic cardiomyopathy (HCM), and there aren't any effective treatment options yet.

The most common symptom of HCM is difficulty breathing, but there's a lot of variation among patients. Muscle fibers inside the hearts of people with HCM become enlarged for a variety of potential reasons, including a handful of inherited mutations occurring across several different genes.

HCM is often diagnosed when patients are in their 40s and 50s. An estimated 0.2% of the population is affected by the condition. If mavacamten becomes an available option for this underserved population, the 11-figure price Bristol Myers Squibb offered could seem like a relative bargain.

Way ahead

In early 2021, MyoKardia intends to submit an application for the treatment of symptomatic obstructive HCM, a subset that includes around two-thirds of the overall HCM population. If mavacamten receives a widely expected approval before the end of next year, it will be the only available treatment option for this patient population for a few years, at the very least.

Chances of approval are good. During the pivotal Explorer-HCM study, 37% of patients treated with mavacamten achieved predetermined peak oxygen consumption levels, compared to only 17% of patients that were randomized to receive a placebo. 

Mavacamten isn't the only new drug candidate intended to treat HCM in clinical trials, but it is miles ahead of its closest potential competitor, CK-274 from Cytokinetics (CYTK -1.10%). In January, Cytokinetics began a phase 2 trial with CK-274 to determine the right dosage strength to move into a pivotal trial that probably won't begin until after Bristol Myers Squibb has a chance to launch mavacamten.

Beyond obstructive HCM

Consensus sales estimates for mavacamten as a treatment for the underserved HCM community suggest Bristol Myers Squibb shareholders can expect annual sales of the drug to reach $1.9 billion in 2026. In addition to underserved HCM patients, Bristol Myers Squibb executives are also looking at mavacamten's potential as a treatment for the larger population of heart failure patients.

Bristol Myers Squibb will also receive danicamtiv, a clinical-stage candidate designed to increase the heart's strength while contracting without affecting its ability to relax between contractions. Before the end of the year, MyoKardia will begin enrolling patients with genetic dilated cardiomyopathy into a phase 2 study with danicamtiv. In 2021, the company expects to begin trials with danicamtiv for patients who have systolic heart failure and persistent atrial fibrillation.

What's ahead for Bristol Myers Squibb?

The big pharma's latest acquisition is large enough to raise eyebrows, but it isn't an act of desperation. The company expects adjusted earnings to reach between $6.10 and $6.25 per share this year. Reaching expectations would translate to a year-over-year gain of 32% for Bristol Myers Squibb. 

In addition to mavacamten's potential addition to total sales in the years ahead, Bristol Myers Squibb shareholders can look forward to increased sales of Opdivo and Yervoy (the latter of which is a new mesothelioma treatment that recently received FDA approval). The company's recently launched multiple sclerosis drug, Zeposia, recently delivered positive phase 3 results as a treatment for ulcerative colitis that will probably result in an important label expansion next year.