The Importance Of The Nektar Therapeutics Deal For Bristol-Myers Squibb

by Trefis Team
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Bristol-Myers Squibb (NYSE:BMY) and Nektar Therapeutics’ agreement over the NKTR-214 drug came into effect yesterday. The collaborative agreement between the two companies was first announced in February. While many on the street were expecting a buyout deal for Nektar, BMY’s deal appears to be even sweeter for Nektar, with $1.85 billion in cash, which includes $850 million for an equity stake in exchange for a 35% revenue split on NKTR-214. There’s another $1.78 billion in milestones, taking the total potential deal value to a whopping $3.63 billion, a record deal of such kind. In this note, we discuss the importance of this deal for BMY. We have created an interactive dashboard that shows the importance of the Oncology segment and Opdivo for BMY. You can adjust forecasts to see how changes would impact the overall revenue and profit structure.

Opdivo Is Key Growth Driver For BMY, NKTR-214 Will Help Maintain Its Leadership Position

The importance of the Nektar deal for BMY can be attributed to its reliance on the Oncology segment. BMY’s future growth is linked to a large extent to its Oncology segment, and Opdivo to be precise. According to our estimates, Oncology is the company’s only segment with solid revenue growth visibility in the coming years, while we forecast the other segments to see revenue declines, as patents for many drugs within the other segments have expired or are going to expire in the near term. Oncology’s contribution to the company’s overall revenues and profits is expected to be roughly 45% in 2018, and north of 60% in the medium to long run.

Now, BMY already has a solid position in the immuno-oncology market with Opdivo, which raked in $5.4 billion in sales in 2017. However, the overall immuno-oncology drug market could be as as big as $35 billion, and the company is looking to increase Opdivo’s penetration. The drug was initially approved for melanoma, but was granted several approvals later, including lung cancer, metastatic renal cell carcinoma, metastatic melanoma, hodgkin lymphoma, head and neck cancer. Opdivo is currently being tested under different combinations under phase 3 trials. The drug’s patent is protected through 2026-2027, and we expect peak sales of nearly $6.5 billion. Overall, Opdivo is likely to remain the  key driver for the company’s future.

The deal with Nektar will grant BMY a period of exclusivity for a development program covering 20 indications involving 9 tumors, matching NKTR-214 with Opdivo and Yervoy combinations. NKTR-214 is an important therapy designed to spur cancer-fighting T cells directly in the tumor micro-environment and also increase expression of PD-1 on these immune cells. Given these properties, and the extended use case with combinations of Opdivo and Yervoy, NKTR-214 appears to be a roadmap for BMY in maintaining its leadership role in the immuno-oncology market. The massive payout from BMY’s end is understandable given its reliance on the immuno-oncology portfolio and expected decline across other segments, amid the loss of patent exclusivity.

Our price estimate of $60 for Bristol Myers Squibb implies a discount of over 10% to the market.

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