Image source: Bristol-Myers Squibb.
Though the pharmaceutical industry hit multiple stumbling blocks in 2015, Bristol-Myers Squibb (BMY -8.51%) was a ray of sunshine, and proved to be one of the sector's top performers. This is a point that Bristol-Myers' CEO Giovanni Caforio hit on repeatedly during his presentation at the Super Bowl of healthcare gatherings, the J.P. Morgan Healthcare Conference.
A new chapter
Presenting on Tuesday, Caforio spoke about what drove Bristol-Myers' success in 2015, and what he anticipates will be critical growth drivers for the company moving forward. But it was a comment Caforio made early in his 19-minute presentation -- one that I'd strongly encourage you to listen to -- that really set the tone.
Caforio, while describing his company's leading position in immuno-oncology, referred to Bristol's 2015 as "a new chapter, and the beginning of sustained growth for the company." Specifically, I honed in on his use of "sustained growth," which would be welcome following a three-year decline in revenue beginning in 2011 and extending through 2014. The driver behind that sustained growth? None other than its immunotherapy franchise, led by Opdivo.
Image source: Bristol-Myers Squibb.
All in on immuno-oncology
Opdivo and Merck's (MRK 2.93%) Keytruda are the two best-known checkpoint inhibitors. These anti-PD1 drugs are designed to disrupt the ability of cancer cells to hide from the immune system's T-cells. Thus, they allow a patient's own immune system to more efficiently recognize and destroy cancer cells. The results for both therapies have been phenomenal, with, in many instances, subsets of patients (often with high expression of the ligand PD-L1) demonstrating durable response rates of 50% or higher. Of note, most of these patients had progressed on one or more prior therapies.
As it stands now, Merck's Keytruda is approved to treat BRAF V600 metastatic melanoma and high-expressing PD-L1 patients in advanced non-small cell lung cancer (NSCLC). Opdivo has a slightly more encompassing go-ahead from the Food and Drug Administration to treat advanced melanoma, all second-line NSCLC patients (not just the high-PDL1-expressing patients), and second-line renal cell carcinoma (RCC).
What was really notable about Caforio's presentation is that he, unlike the leaders of many of his similar-sized peers, was willing to discuss the early market share of his company's key product. According to Caforio, Opdivo has snagged roughly 70% of the second-line market for the lesser common advanced squamous NSCLC, approximately 60% of the market for the more common non-squamous NSCLC, and more than 50% of the market in second-line renal cell carcinoma. Merck's previously noted its dominance in metastatic melanoma treatment among high PD-L1 expressing patients, but it's pretty obvious that Opdivo is handily outperforming Merck's Keytruda in terms of total immuno-oncology prescriptions in the early going.
Image source: Bristol-Myers Squibb.
Caforio also pointed out that there are eight additional immuno-oncology products being developed in its pipeline beyond its three approved products -- Opdivo, Yervoy, and Empliciti -- and that there are some 50 ongoing trials studying 25 different tumor types (five of which should have data readouts in 2016). These are absolutely dominant statistics that should give cancer patients (and Bristol-Myers' investors) hope, and they should strike fear in the company's competitors.
For instance, second-line and higher RCC is becoming a crowded space, and Opdivo snagging at least half of market share in the second-line indication has to be at least somewhat worrisome to Exelixis (EXEL -0.76%). Exelixis recently filed for marketing authorization approval in the U.S. and EU for Cometriq after it demonstrated a statistically significant improvement over the placebo in terms of progression-free survival for second-line RCC. The difficulty for Exelixis may be found in product adoption. In essence, if Opdivo is working well and/or has a more favorable safety profile, it could be difficult to get physicians to prescribe Cometriq instead. These are challenges Exelixis and many other oncology competitors across numerous cancer types may face in the coming months and years.
Life beyond immuno-oncology
Although it might be hard to fathom given that Bristol-Myers Squibb has its own pipeline built around Opdivo, Caforio did also address products and opportunities that were beyond immuno-oncology.
If there was one product he particularly honed in on, it would have to blood-thinner Eliquis, which is a drug co-developed by Bristol-Myers and Pfizer (PFE -3.85%).
Image source: Bristol-Myers Squibb.
The data is pretty clear that Eliquis is on pace to become the world's leading new oral anticoagulant. It's racking up about half of all new-to-brand market share among cardiologists, which is as much as competitors Xarelto, Pradaxa, and Savaysa are doing combined, and in a year it's closed from being about 30 percentage points behind Xarelto in U.S. new-to-brand market share for all physicians to roughly 10 percentage points behind.
Why are physicians so keen on Eliquis? Aside from it having one of the top marketing budgets, which is really helping get the word out among consumer and physicians, Eliquis patients also exhibited fewer strokes, less major bleeding, fewer hemorrhagic strokes, and fewer deaths in trial in a double-blind, head-to-head study versus warfarin, a mainstay blood-thinner for more than a decade. Eliquis' success will continue to be dependent on its label-expansion opportunities, but investors in Bristol-Myers and Pfizer would be wise to closely monitor the progress of this oral anticoagulant.
Should Bristol-Myers Squibb be on your radar?
Of course, the big question is whether or not Bristol-Myers Squibb should be on your investment radar in 2016 and beyond.
Image source: Bristol-Myers Squibb.
Looking toward the future, I can see a path where Bristol-Myers actually does accelerate its revenue growth to around 10% per year by the end of the decade. While that growth would be driven partially by existing drugs, I see Opdivo and other immuno-oncology agents packing most of the punch.
The problem is this: By fiscal 2018 Bristol is only projected to earn $3.60 a share, meaning it's valued at 17 times its full-year earnings some three years from now. It's always possible it could trounce those estimates and earn more, but it otherwise implies a PEG ratio of around two (or higher), depending on the year you use for the calculation. PEG ratios around or above two often signal fairly valued or even overvalued businesses.
Ultimately, I'm not willing to toss Bristol-Myers to the side as an investment, because Opdivo and Eliquis are exciting compounds. But I'd wait for the company to bring another one or two surefire blockbusters to the table before considering an investment in what appears to be an already fairly-valued company.
