A Consolation Prize for Bristol Myers Squibb

Several years ago, Bristol-Myers had a solid lead in the immuno-oncology race with its two blockbuster drugs, Opdivo and Yervoy. Not too far behind was Merck’s Keytruda, also approved for melanoma. Then in a stunning series of setbacks that we have outlined in this publication, Keytruda kept winning battle after battle and took the lead from Bristol-Myers. Lurking in the background though was a potential time bomb for Merck as Bristol and one of its partners in the immuno-oncology development business, ONO Pharmaceuticals, filed for a patent infringement against Merck, claiming that Keytruda violated some of its key patents. After a year or two of bad news for Bristol-Myers and this ensuing battle, Merck and Bristol have settled the dispute. While lucrative for Bristol, the settlement was in the range that analysts expected. Merck will pay Bristol an upfront payment of $625 million and pay royalties of 6.5% of Keytruda’s sales through the year 2023, and 2.5% for the next three years thereafter. Bristol and ONO will split the royalties 75/25.

The In Sickness and Wealth portfolio holds shares in Merck, and we are relieved that the settlement wasn’t higher. Still, given that Keytruda’s sales for 2017 are projected to exceed $4 billion, it will be a bonanza for Merck and a terrific stream of income for Bristol and ONO; by 2022 sales are expected to be $10 billion.

Merck’s stock has been hanging just below its all-time high price, while Bristol is down substantially – 30 percent plus – from its highs. Adding more pain to Bristol’s oncology efforts, the FDA has accepted Merck’s filing for a Keytruda + Chemotherapy combination therapy in the first-line fight in certain lung cancers (non-small cell lung cancer). With this FDA nod, it will give Merck substantial lead in the market going forward. And this is why Keytruda will become a far greater blockbuster than originally thought.

Merck will not be able to sit still though; Roche has launched a new bladder cancer drug, and Astra Zeneca is hoping for FDA approval later this year for one of its PD-1 inhibitors. This race continues to get more exciting each quarter that passes by.

Leave a Reply