Another Cancer Drug Deal, It’s Bristol-Myers Squibb This Time

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It appears that lately cancer related drug approvals and deals have been the highlights of the U.S. pharmaceutical industry. Last week, Bristol-Myers Squibb‘s (NYSE:BMY) shares benefited slightly from positive clinical trial results for its lung cancer drug Opdivo (Nivolumab). And now, the company has signed a deal with Five Prime Therapeutics to test a combination of Nivolumab and latter’s FPA008. Under the deal, Merck will make an upfront payment of $30 million to Five Prime and also finance its phase 1 clinical trials. [1] We note that last week Pfizer (NYSE:PFE) signed a research deal with Merck KGaA for developing a cancer drug, and Johnson & Johnson (NYSE:JNJ) entered an agreement with Geron for developing a blood cancer candidate. Additionally, Roche Holdings (NASDAQ:RHHBY) received the FDA approval for expanded usage of its blockbuster drug Avastin. The takeaway is that going forward, the market valuation of pharmaceutical companies will notably depend on how their investments in oncology, or more specifically immuno-oncology, pan out. Due to increased competition from generics and loss of patent exclusivity for several key drugs, the industry is exploring new growth avenues. Cancer therapeutics stands amongst the most promising ones. The sheer variety of cancer types and the lack of effective treatment options make it a great opportunity, albeit a challenging one.

Our current price estimate for Bristol-Myers Squibb stands at $36.

See our complete analysis for Bristol-Myers Squibb


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The FDA in the U.S. has granted breakthrough status to Bristol-Myers Squibb’s drug Nivolumab for advanced melanoma and has agreed to review the license application on priority basis. The review is likely to be completed by the end of March 2015. Additionally, the EMA (European Medicines Agency) is going to accelerate the review and assessment of nivolumab for treatment of advanced melanoma as well. These developments are encouraging for Bristol-Myers Squibb, which earlier had fast tracked clinical trials of nivolumab due to successful results. We currently estimate that cancer drugs account for almost 30% of Bristol-Myers Squibb’s value, making it one of the leading players in this arena. This is based on our expectation that the segment will see its sales grow from roughly $3 billion in 2013 to close to $4.6 billion by the end of our forecast period. However, this is still very small when compared to oncology business of market leader Roche. There is a meaningful upside potential if Bristol-Myers Squibb can garner at least $6 billion from oncology drug sales in the next 5 years. Successful adoption of Nivolumab will be key to this incremental growth.

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Notes:
  1. Five Prime hitches onto Bristol-Myers’ blockbuster-in-waiting immunotherapy, FierceBiotech, Nov 24 2014 []