I’m selling Bristol-Myers Squibb (BMY) out of my Jubak Picks portfolio ahead of Thursday’s report of first quarter earnings. I’m afraid that earnings will confirm what monthly sales reports from Bristol-Myers and competitors have outlined: That the company’s Opdivo cancer drug continues to lose market share among lung cancer treatments to drugs from Merck (MRK) and Roche Holding (RHHBY). That might not be a big deal–troubles with one drug, phfff–at another drug company or at another time, but Opdivo is critical to Bristol-Myers establishing the credibility of future growth with investors. Wall Street sees lung cancer as an estimated $10 billion to $15 billion market opportunity.
Way back in March 2016 Opdivo was seen as crushing its rivals in the market for PD-1 inhibitors to fight cancer. In April market researchers gave Bristol-Myers an 80% market share in the United States. At that point the battle was for a share in the market for second-line treatment for cancers such as non-squamous non-small cell lung cancer. That battle started to change in June of 2016 when Merck won U.S. Food & Drug Administration approval for expanded use of its Kaytruda drug for previously untreated non-small cell lung cancers and when, in August, Bristol-Myers reported that Opdivo had failed to reach the primary endpoint in a Phase III trial. At the time I wrote that the companies had picked two different paths to designing trials of their drugs. Merck had opted to enroll a smaller population with a higher expression of the PD-1 genetic marker key to the drug’s operation. Keytruda passed its trials with that smaller population. Bristol-Myers opted to design a trial with a larger population with a lower expression of the PD-1 genetic marker. If the drug passed that test, it would address a bigger population of potential patients. The risk, however, was that the drug’s efficacy would suffer since some of the population might not have the genetic marker. And that danger turned out to be real as Opdivo failed the Phase III trial.
Which gave Merck a huge leg up in the race to take market share in the first-line treatment of lung cancer among patients that had never used another cancer drug.
Bristol-Myers attempted to recoup by focusing its attention on the use of Opdivo in first-line treatment of lung cancer–lung cancer kills more people in the United States than any other cancer–in combination with other drugs. Â The company was testing Opdivo along with its drug Yervoy for PD-1 positive patients.
And Bristol-Myers announced a partnership with Incyte (INCY) to combine Opdivo and Incyte’s Epacadostat IDO inhibitor. (IDO, indoleamine 2,3-dioxygenase 1, is a key immunosuppressive enzyme that blocks the activation of T cells and thus facilitates tumor growth as cancer cells avoid setting off a response by the immune system.) This was quite a coup for Bristol-Myers because it was an effective end-run around Merck’s agreement with Incyte that gave Merck exclusive use of Epacadostat in certain cancer applications. (Bristol-Myers got around that agreement by using different populations and different PD-1 levels.) That Merck essentially accepted this arrangement was an indication that the drug industry’s assessment of Incyte’s Epacadostat as the best IDO inhibitor current in development had given Incyte a great deal of negotiating power.
But Bristol-Myers may have been too clever by half. Incyte now looks to be on the verge of combination trials with two other PD-1 partners, Roche and AstraZeneca (AZN).
And all this maneuvering has done is turn competition in the long-cancer market from hot to super hot. In that race Bristol-Myers continues to lose market share. In January 2017, for example, Opdivo lost 10 percentage points of share in the second-line lung cancer market to Roche’s Tencentriq.
This overall picture doesn’t provide much incentive to me for holding the stock through earnings on Thursday or indeed for the longer term. I’m selling these shares today with a 14.15% loss since I added them to the portfolio on January 22, 2016.
This sell leaves me way more exposed to biotech drug stocks than to Big Pharma stocks. Which is where I want to be under the Trump Administration’s FDA. I’ll explain why in a post later today, Tuesday, April 25.
