Bristol-Myers Squibb’s $1.6 Billion On New Drug Deals Is Well Spent

Bristol-Myers Squibb (NYSE:BMY) recently entered a couple of agreements worth $1.6 billion to bolster its immuno-oncology drugs portfolio. The first was its decision to acquire Flexus Biosciences, which is involved in the development of novel oncology drugs, for $1.25 billion. ^[1] Out of this, $450 million is contingent upon Flexus achieving certain development milestones. ^[1] With this acquisition, Bristol-Myers Squibb will get rights to Flexus’ top drug under development – F001287, as well as access to its IDO/TDO discovery program. ^[1] IDO/TDO inhibiting drugs decrease the production of kynurenine, thus empowering the body’s immune system to target tumors with higher efficacy. The second deal is essentially a research collaboration with Rigel Pharmaceuticals. With this move, Bristol-Myers Squibb will gain development and marketing rights to Rigel’s TGF beta receptor kinase inhibitor pipeline.

The crux is that the company is making some significant moves to expand in a market with strong growth potential. Cancer drugs have traditionally been much less effective as compared to drugs catering other therapeutic areas. Besides, there are numerous types and sub-types of cancer which warrant development of very specific drugs. These factors indicate that there is a huge untapped market provided R&D efforts result in novel and effective techniques. It makes sense for the company to invest in this area. Immuno-oncology, in particular, is where most of the funding is likely to go. Let’s take a look at how this market is expected to shape up.

Our current price estimate for Bristol-Myers Squibb stands at $52.70, implying a discount of about 15% to the market.

See our complete analysis for Bristol-Myers Squibb

The market for immuno-oncology drugs can be as big as $35 billion according to some estimates. There is a huge opportunity to profit from successful drugs given that small-molecule R&D productivity has declined during the last decade. Given their focus on biologics and relatively strong immuno-oncology pipelines, Merck (NYSE:MRK), Bristol-Myers Squibb and Roche Diagnostics are expected to be front runners.

Bristol-Myers Squibb has already launched an immuno-oncology drug Nivolumab for treatment of Melanoma, which could garner as much as $6 billion in peak sales. Also, last year, the company collaborated with CytomX Therapeutics to develop immuno-oncology drugs. However, others aren’t behind.  Roche has developed several biologics that induce the immune system to treat cancer. Three of its major biologics, Rituxan/MabThera, Avastin and Herceptin,  are used for treating a variety of cancer forms including blood cancer, breast cancer and colorectal cancer. The company is also testing a new PDL1 inhibitor drug MPDL3280A for  the treatment of advanced melanoma, lung cancer and kidney cancer. Additionally, Merck has launched its immuno-oncology drug Keytruda, which could be a blockbuster.

The race is on, and Bristol-Myers Squibb is taking it seriously.

View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research

1. Bristol-Myers Squibb To Expand Its Immuno-Oncology Pipeline with Agreement to Acquire Flexus Biosciences, Inc., BMY Press Release, Feb 23 2015 [↩] [↩] [↩]