Bristol-Myers vulnerable to takeover after setback in cancer drug

Washington

AT a Chicago convention jammed with thousands of doctors in 2015, a buzz of excitement rippled through the hall as a researcher revealed data showing that a Bristol-Myers Squibb Co drug cocktail had remarkable success in fighting a deadly form of skin cancer.

It was a high point in the development of promising cancer treatments known as immunotherapy that have the potential to radically change the course of the disease and generate billions of dollars in sales. And Bristol- Myers stood at the forefront with its drug, Opdivo, with high hopes of dominating the market by treating other forms of cancer as well.

That euphoria has worn off.

In the past year, Bristol-Myers has seen US$37 billion in market value wiped out after it gambled - and lost - on a clinical trial of Opdivo that could have made it a treatment in the lucrative market for new lung cancer patients. Its top rival, Merck & Co, is now viewed by investors as the favourite in that race.

Last week, coming out of the same cancer research meeting that seemed so promising two years ago, Bristol- Myers shares continued to slide as talk swirled about a possible sale, and were down about 4 per cent.

"This is a blisteringly fast race for patients," said Seamus Fernandez, an analyst at Leerink Partners who rates the Bristol-Myers stock "outperform". He called the company's decision on lung cancer "a major misstep".

At least one prominent investor wants Bristol-Myers to expand its immune-therapy portfolio as much as possible or consider a merger with another drugmaker to accomplish that, according to a person with knowledge of the shareholder's thinking.

Analysts have mentioned Pfizer Inc as a potential suitor, along with Novartis and Gilead Sciences.

Bristol-Myers is urging patience as it awaits scientific data on a host of combination therapies - including mixing Opdivo with other medicines. That would expand the market for Opdivo, the company's best-selling drug and a key to its oncology programme.

Cancer has become increasingly important to Bristol-Myers, which shed its diabetes unit in 2013. The company's website lists just one new drug in a late-stage trial - for cancer.

"We are addressing cancer from all angles and our deep understanding of cancer biology and industry-leading pipeline will enable us to identify the right treatment, for the right patient, at the right time," said Audrey Abernathy, a spokeswoman.

Bristol-Myers's cancer business had fallen into a dry spell before the company went on a deal-making spree over the past decade. Its 2009 purchase of Medarex, which was developing Opdivo, changed that. The drug, which harnesses the body's own immune system to attack tumours, now accounts for almost 20 per cent of Bristol-Myers's US$19.4 billion in annual revenue.

Opdivo's success in treating melanoma had investors hoping that the company would have similar results in lung cancer, a field with vastly more patients. Other rivals - including Merck - saw the same potential and were developing similar drugs.

As New York-based Bristol-Myers geared up for a race, it had a choice. It could go for a wide group of lung cancer patients who had a low level of a tumour protein that indicated the drug might help them or it could build a trial around a narrower group - and smaller market - of patients with high concentrations of the biological signal.

It also decided to have the trial measure whether its treatment stopped patients' tumours from getting worse, instead of whether the drug actually helped them live longer - the gold standard in cancer research. That was in hopes of showing positive results sooner than Merck, one of the people said.

In August, Bristol-Myers was stung when the trial failed to pave the way for Opdivo to be used on its own for many more lung cancer patients. The news sent its shares plummeting 20 per cent over two days.

Five months later, the drugmaker said it wouldn't seek accelerated US Food and Drug Administration approval for paring Opdivo with another drug, Yervoy, a sign that the trial results for that combination may also be underwhelming.

Meanwhile, Merck's Keytruda, a similar drug, is now being tested in more than half of the 1,000 immunotherapy trials underway. It's on track to outsell Opdivo in 2018, according to analysts' estimates compiled by Bloomberg. That's a reversal from last year, when Keytruda's sales were less than half of Opdivo's.

Merck benefited by taking a narrower approach than Bristol-Myers. It studied its drugs in a smaller population of cancer patients - those who had biomarkers indicating that the treatment was more likely to succeed.

"Merck has clearly won the battle in lung cancer," said Alex Spira, an oncologist at the Virginia Cancer Institute who oversees the institute's early-stage trial programme.

Merck, which declined to comment, is just one competitor Bristol- Myers needs to worry about. Roche Holding AG and AstraZeneca plc are also in the race to develop treatments.

Bristol-Myers chief science officer Thomas Lynch said the company remains committed to developing first- line treatments for lung cancer, which will come from combinations of different drugs. WP