Bristol-Myers Squibb (NYSE: BMY) is a profitable global bio-pharmaceutical company targeting an array of serious diseases and unmet medical needs. Earlier this month BMY announced plans to acquire Celgene (Nasdaq: CELG), who already has a multiple myeloma franchise, creating an innovative biopharma company.
In 2017 BMY generated $20.8 billion in revenue up 7% from 2016. Fifty-five percent of sales were in the United States, 24% in Europe, and 21% in the rest of the world. BMY has a market capitalization of ~$81 billion and traded last at $49.72 per share; down ~30% from its 52-week high of $70.05.The commercialization of oncology therapies have been a core focus for BMY and a large driver of revenue. In particular their immuno-oncology (I-O) drug Opdivo was established as a foundation therapy and has yet untapped potential. In 2017 alone Opdivo sales grew an impressive 31% reaching $4.9 billion. In this article I argue that Bristol-Myers Squibb through leveraging its novel oncology biologics and its acquisition of Celgene should capture a wide share of the Multiple Myeloma (MM) market over the next 5-10 years growing their valuation.
Bristol-Myers Squibb headquartered in New York City, NY focuses on four primary disease areas: Oncology; Immunoscience; Cardiovascular; Fibrotic Diseases. Heavy funding for Research and Development (R&D) has yielded 30 marketed pharmaceutical products. From the latest 10-Q net product sales are up 11.6% over the 9-month period ending in September 2018. Top earners for BMY (“Prioritized Brands”) have been Opdivo and Eliquis followed by Orencia, Yervoy, and Empliciti.
Since September 30th, 2017 total sales from prioritized brands generated $14.2 million, up cumulatively 83.4% in 9-months. Established brands bolstered revenue by bringing in another $2.4 million, yet their sales declined. The top ranking products in terms of sales are Opdivo and Eliquis. The former is a programmed death receptor-1 (PD-1) inhibitor (similar to Merck’s Keytruda) and is approved for 17 cancer indications. The latter is factor Xa inhibitor with three cardiovascular indications aimed at preventing or reducing the risk of stroke and blood clots in individuals with atrial fibrillation not induced from heart valve abnormalities.
Considering recent declines of Established Brand sales; Opdivo and Empliciti are going to be increasingly important drivers of earnings growth as the cancer market valuation continues to grow. Deep penetration and competitive combination therapies in Multiple Myeloma should contribute greatly to income growth and provide a layer of financial security.
BMY has an extensive clinical development pipeline including 38 compounds. For the sake of relevance and brevity I only included the small molecules and biologic compounds being pursued as cancer treatments. In the scope of MM clinical trials Opdivo (nivolumab) and Empliciti (elotuzumab) are two of the biologic compounds undergoing phase 2 or 3 clinical trials in various combinations with each other, other compounds, and in different stages and indications of MM.
Among the 6 big pharmaceutical companies I reviewed (Bristol-Myers Squibb, Amgen, Merck, Novartis, Roche, and AbbVie) BMY has one of the largest and most comprehensive clinical development program for MM. Since BMY is acquiring CELG I felt it redundant to delve into both and view them more as a single pharma entity.
Of these companies BMY is the only one targeting the precursor to MM (i.e. smoldering MM), newly diagnosed MM, as well as relapsed and refractory MM (RRMM). Roche also has extensive clinical involvement in MM, but more so working through and with other pharma companies. Eight of its 21 active or recruiting studies relevant to this discussion are in collaboration with BMY or CELG. In many of the trials Roche is not the sponsor or responsible party.
About Multiple Myeloma
Multiple Myeloma (MM) is not a common type of cancer, but it is the second most common type of blood cancer in the U.S. In 2018 approximately 30,770 adults will be diagnosed; 12,770 (41%) of them will die. The average 5-year survival rate is 50%. However, if caught in the very early stages the survival rate jumps to 71%. Unfortunately though, most people eventually relapse despite treatment underlining a need for more effective first line/early interventional treatments. Therefore, therapies that can achieve greater than 50% and 71% progression free survival rates after 5-years respectfully have high market penetration potential.
MM is cancer of plasma cells (i.e. Lymphocytes) originating in the bone marrow. White blood cells are the most common type of lymphocyte consisting of T-cells and B-cells which play central roles in the body’s immune response. Mature B-cells become plasma cells that produce pathogen-specific antibodies called immunoglobulins (IGs) that attack and kill invading germs. They form a type of cellular memory allowing them to recognize foreign cells (pathogens) targeting them preemptively for destruction. MM is characterized by uncontrolled growth of B-cells and corresponding abnormal antibody production called “M-proteins“.
Smoldering Multiple Myeloma (SMM) is the precursor to full blown MM. At this stage the disease is asymptomatic and patients appear and feel healthy. However, internal abnormalities can be used to diagnose SMM including: High levels of plasma cells in the bone marrow; high levels of monoclonal IGs in the blood (M-proteins); elevated levels of Bence Jones proteins in the urine. Yet, at the same time people with SMM have normal serum cell counts, calcium levels, and organ function. Not everyone with SMM will develop MM. For those that do it can take months to years.
Treatment approaches for MM depend on the disease stage (SMM-stage 3). In general, treatments consists of combination therapies involving 2-3 compounds along with chemotherapy. Common compounds used in the 21st century have been bortezomib (a first-generation proteosome inhibitor), lenalidomide (new era biologic that attacks MM cells, supports T-cell and NK cell activity, and prevents production of new MM cells), and dexamethasone (A steroid with anti-inflammatory effects). Elotuzumab, nivolumab, daratumumab (Owned by Janssen Pharmaceutica), and pomalidomide (owned by Celgene) are very effective novel compounds developed in the past decade.
Out of 6 of the big pharma companies referenced only BMY [in collaboration with Celgene] has an advanced clinical trial targeting patients with high-risk SMM. The objective of this phase 2, open label, single group (51 participants), study is to determine the proportion of high-risk SMM patients that remain progression free after 2 years of treatment with BMYs’ Empliciti (elotuzumab) in combination with lenalidomide and dexamethasone. The premise is based on recent research suggesting early interventions in SMM can delay or prevent disease progression to MM.
Elotuzumab is a first-in class immunostimulatory antibody. It is orally active and works through complimentary dual actions by binding to SLAMF7 receptors on the surface of plasma Natural Killer (NK) cells and Myeloma cells. In doing so natural killer cells are activated and subsequently recognize and bind myeloma cells tagged by elotuzumab for destruction via antibody-dependent cellular cytotoxicity. Lenalidomide (owned by Celgene) has multifaceted anti-myeloma effects. On the one hand it activates an immune response by T-cells and NK cells facilitating apoptosis (cell death) of myeloma cells, and antiangiogenesis (prevention of cancerous blood vessel regrowth). The final ingredient ‘Dexamethasone’ augments the effects of the other two compounds. Specifically, Dexamethasone reduces inflammation by preventing healthy white -blood cells from traveling to areas where myeloma cells cause damage. In high doses it actually kills myeloma cells. Most therapies we will discuss though utilize low does dexamethasone for its synergistic interactions with other compounds.
Some insights into the potential outcome can be inferred from ELOQUENT-2. This phase 3 study testing the efficacy of the same combination of compounds in RRMM. Four-year follow up data showed a sustained reduction in the risk of disease progression and death of 29%, and an improved progression-free survival rate (PFS) of 50% vs. 21% and 14% for lenalidomide + dexamethasone and lenalidomide alone, respectfully. Dosing started in March of 2011 and ended in September of 2014 making for ~3.5 years of treatment. The takeaway is adding elotuzumab unequivocally favored better clinical outcomes over lenalidomide + dexamethasone and lenalidomide only.
The collection of evidence suggests the combination therapy being investigated in SMM could be highly impactful. Remember, a key characteristic of SMM (i.e. pre-MM) is the production of Monoclonal (M)- antibodies. In other words, precancerous and cancerous B-cells produce a single type of defective anti-body lacking any functionality compromising the immune system. Considering this, and the individual mechanisms of actions of the three compounds a compelling argument is unveiled.
A full-out multi-pronged attack is launched while MM is in its infancy. Elotuzumab leads an assault tagging defective B-cells (pre-myeloma cells) and preventing the production and accumulation of M-proteins. Concurrently Lenalidomide asserts anti-tumor effects through enhancing immune system functions and immune surveillance through activation and proliferation of CD4/A+ T-cells, NK cells, and NKT-cells. Concurrently lenalidomide promotes cell-death of pre-myeloma cells and inhibits growth of cancerous blood vessels. Dexamethasone can be thought of as backup supporting the activity of the latter compounds. By preventing healthy white blood cells (T-cells & B-cells) from clustering with pre-MM cells it enables them to continue production of antibodies needed to maintain normal immune functions and supply T-cells to join the assault on pre-MM cells. Additionally, it can kill pre-MM cells through synergistic interactions with the other two compounds.
Remember, most people relapse after the initial treatment, and most the time MM is not caught until stage 2 or 3. An efficacious treatment for SMM and improved screening practices could change the MM treatment paradigm. If BMY and CELG lead the way with a superior combination therapy (elotuzumab, lenalidomide, dexamethasone) for treating SMM it could become a preferred first-line treatment for SMM, stage-1 MM, and even RRMM pending clinical investigations. With regards to the SMM-CX we predict at least 75% of patients will remain progression free after two years and their will be limited off-target effects.
Merck (NYSE: MRK), Amgen (Nasdaq: AMGN), Roche (OTCMKTS: RHHBY) and Bristol-Myers Squibb have either a phase 2 or 3 clinical trial investigating their own respective combinations of biologics and small molecules on newly diagnosed/previously untreated MM patients. While they all target newly diagnosed or previously untreated individuals; treatment regimes, and experimental designs differ while most have the same or similar primary end-points.
The objective of MRK’s phase 3 study, in collaboration with Amgen and Celgene is to compare the efficacy of conventional chemotherapy (cyclophosphamide, dexamethasone plus thalidomide ) in 4420 MM patients with a newer treatment regimen consisting of cyclophosphamide, dexamethasone, and lenalidomide with or without carfilzomib. We are already familiar with dexamethasone and lenalidomide. Cyclophosphamide is an immunosuppressant inhibiting protein production through direct DNA-RNA interactions. It seems this compound suppresses protein production (i.e. antibodies) in plasma cells with limited specificity. Carfilzomib is a protease inhibitor with greater specificity than its progenitor bortezomib. By irreversibly binding to the 26S and and 20S proteasomes in plasma cells it inhibits proliferation of malignant plasma cells and promotes cell death. However, similar to cyclophosphamide, carfialzomib appears to indiscriminately target the 20S constitutive proteasome and immunoproteasome. In general, indiscriminate drugs are less effective than targeted ones because they weaken bodily functions, such as the immune system in this case. Thus, the latter combination should have greater efficacy but more off-target effects than new era compounds. Consequently there is a greater chance for adverse events and higher patient dropout rates compared to a more targeted approach like the one BMY deployed in its SMM-CX and ELOQUENT series.
Amgen’s clinical trial in newly diagnosed MM patients is a dual phase 1b and phase 2 study consisting of 113 patients. The objective of the the phase 1b portion is to determine the safety and maximum tolerable dose (MTD) of oprozomib and dexamethasone administered in combination with lenalidomide or oral cyclophosphamide. The phase 2 portion was constructed to estimate the objective response rates (ORR) and complete response rates (CRR) of the combination therapies. Secondary objectives involve forming a better understanding of the pharmacokinetic (PK) of oprozomib relative to its administration with dexamethasone and oral cyclophosphamide or lenalidomide. Oprozomib and Carfilzomib both orally active small molecules characterized as a second-generation proteosome inhibitors with greater specificity than the first-generation bortezomib. The duo has demonstrated greater specificity in clinical studies in squamous cell lung cancer; but it does not appear their activity is restricted to malignant cells (i.e. there should be more off-target effects than a targeted therapy).
Roche Holdings (OTCMKTS: RHHBY) is one of the worlds largest pharmaceutical companies with a market capitalization of ~$222 billion. Three out of the nine clinical trials in newly diagnosed/previously untreated MM are in collaboration with CELG. Of those, one study is investigating if high dosing is necessary during initial treatment in the era of novel drugs like lenalidomide in combination with the first-generation drug bortezomib. This is really more salient to optimizing dosing procedures. In the second and third clinical trials CELG is actually the sponsor and responsible party. RHHBY appears to be the collaborator. Five of the remaining studies are testing several combination therapies (Included compounds: daratumumab, bortezomib, lenalidomide, ixazomib, thalidomide, and dexamethasone) in different patient demographics . The objectives in the sixth study is to determine the maximum tolerable dose (MTD) of weekly carfilzomib and the associated very good partial response (VGPR) and complete response (CR), which again plays into optimization of dosing procedures. One study in particular appears to rival BMY’s elotuzumab, lenalidomide, dexamethasone combination therapy.
A phase 3 study sponsored by Janssen Research & Development is comparing daratumumab in combination with lenalidomide, and dexamethasone vs. lenalidomide, and dexamethasone only. Daratumumab is an antibody that binds to the overexpressed CD38-protein on myeloma cells triggering cell death. In November of 2016 daratumumab was approved in combination with lenalidomide and dexamethasone, or dexamethasone and bortezomib for patients with MM that had at least one prior treatment. Approval was based on a 63% and 61% reduction in the risk of disease progression and death when daratumumab (16 mg/kg) was added to the treatment regime in POLLUX (lenalidomide and dexamethasone) and CASTOR (daratumumab, bortezomib, and dexamethasone with bortezomib and dexamethasone) studies respectfully. In Janssen’s ongoing phase 3 study daratumumab 16 mg/kg is administered weekly for 8 weeks, then bi-weekly for 16 weeks, and finally every 4 weeks until the study ends or treatment becomes toxic. The estimated primary completion date is December 22, 2019 and the study began February 16, 2015. Lenalidomide and dexamethasone are being administered concurrently at their own respective doses and frequencies. Overall the study seems to have a high chance of success. Sixteen mg/kg of daratumumab and the dosing schedule implemented has been identified as the optimal treatment regimen. We anticipate approval of this combination for the proposed indication. We are confident there will be a PFS of at least 60% and Objective Response rate (OR) of 40% or better considering the results from CASTOR and POLLUX are in patients with RRMM, and that newly diagnosed MM patients response rates have improved dramatically with the advent of novel compounds (such as daratumumab and lenalidomide).
BMY is actively recruiting for their phase 2 study in patients newly diagnosed with MM eligible for stem cell transplant. Similar to the phase 2-CX in SMM the combination therapy being tested consists of sequential dosing regimens of elotuzumab, lenalidomide, and dexamethasone in various orders and combinations. In this single arm, multi-centered, open-label, study with 53 participants the goal is ascertain the feasibility and tolerability of the therapy through induction, consolidation, and maintenance phases in stem-cell transplant-eligible patients. Patients will be subjected to 4 twenty-eight day treatment cycles in the induction phase followed by collection of stem-cells and subsequent autologous stem cell transplantation (ASCT). Consolidation Therapy will also consist of 4 twenty-eight day cycles followed by a 24 month maintenance phase.
The primary outcome is the percentage of patients who are able to endure 4 induction cycles and fit to subsequently begin autologous stem-cell transplantation. Secondary outcomes include CRR, ORR, overall survival (OS), occurrence of adverse events, and progression-free survival rates over 3-years.
ASCT is the preferred treatment approach for younger patients. From information available at clinicaltrial.gov all we know is that the 53 participants are adult men and women who had at most 1 previous cycle of therapy for emergent control, serum (blood) M-protein concentrations 1≥g/dL, urine M-protein ≥200 mg/24 hours, and involved free light chain levels ≥10 mg/dL. According to statistics of MM incidence rates between 2013 and 2015 by cancer research UK, incidence rates increase substantially at age 50-54, and rise even more steeply from 60-69 with the highest incidence rates at age 85-89. It’s therefore reasonable to assume most patients are age 50 or older with potentially some younger outliers. Other than patients being newly diagnosed with MM, and having “adequate” kidney, blood, and liver function” we do not know much else about their physiology. A retrospective study that analyzed 320 MM patients who underwent ASCT between 1996 and 2012 found age was a significant prognostic factor; and those who received “new era” treatment regimens including bortezomib, thalidomide, dexamethasone, and lenalidomide had better response rates and prolonged PFS. The authors noted that novel compounds such as elotuzumab and second-generation proteosome inhibitors have demonstrated promising results in MM.
Data presented at the 2017 ASH Conference from a phase 2b study demonstrated that maintenance therapy with elotuzumab and lenalidomide after ASCT improved response rates observed with induction therapy in patients with MM. Seventeen out of 68 patients who received the combination during maintenance therapy saw improved response rates. Twenty-percent experienced either complete responses (CR), or stringent complete responses (sCR). Moreover, the progression-free survival rate (PFR) after 2-years was estimated at 88%. Sheeba Thomas, MD, professor, Department of Lymphoma/Myeloma, MD Anderson Cancer Center, Houston stated:
“This improvement in response is no doubt the combined effect of stem cell transplant together with lenalidomide-elotuzumab,” she said. “The number of patients achieving CR may in fact be underestimated due to elotuzumab interference with electrophoretic measurements. Nineteen of 33 patients not achieving CR had GK paraproteins, and 17 of the 19 were in [very good partial response] VGPR.”onclive.com
Based on the previous studies and data discussed we predict at least 25% and 55% of patients will have a CR/sCR and ORR respectfully; in addition to a PFS rate of at least 70% after 3-years. Based on relevant observations from a 2014 study at least 80% of patients should endure 4 induction cycles followed by ASCT.
Clinical Trials In Relapsed & Refractory MM
BMY has 5 active or recruiting clinical trials in phase 2 or 3 testing combinations of elotuzumab (Empliciti) and Nivolumab (Opdivo) with other compounds such as Celgene’s Pomalidomide (Pomalyst) and Lenalidomide (Revlimid) in RRMM.
MRK has two phase 2 clinical trials for this indication. One (CX-ID NCT03168438) is a two-arm study investigating the safety and efficacy of NY-ESO-1ᶜ²⁵⁹T (autologous T-cells engineered to have an affinity-enhanced T-cell receptor that recognizes the cancer-testis antigens NY-ESO-1 and LAGE-1) as a stand alone treatment, or in combination with pembrolizumab (Keytruda; a monoclonal antibody that enables the PD-1 pathway-mediated immune response to operate, in addition to asserting anti-cancer immune activity). A 2015 study demonstrated sustained antigen-specific antitumor effects in MM from treatment with NY-ESO-1ᶜ²⁵⁹T cells. In particular the phase 1/2 study achieved a PFS of 50% (10/20 patients) after 21.1 months and a survival rate of 75%. At day one-hundred 70% of the patients had either a near complete response (nCR) or CR and 10% had a VGPR. How long these responses are sustained is the more important question. CX-NCT03168438 has a similar study size (24 participants) and patient demographics. A notable piece of patient criteria is they have the HLA-A2 biomarker and their bone marrow is expressing NY-ESO-1 and/or LAGE-1a proteins; increasing the chances of study success in our opinion because it presents targets to hit that can weaken the diseases persistence. MRK’s second phase 2 study is testing pembrolizumab and daratumumab. In clinical trials daratumumab has been well tolerated and shown encouraging response rates.
RHHBY is involved in 7 clinical trials investigating various treatments for RRMM. However, only in one of them is RHHBY the sponsor and responsible party. In three (including ELOQUENT-2 and ELOQUENT-3) either BMY or CELG is the sponsor and or responsible party. ELOQUENT-2 looked at the difference in PFS and response rates when patients with RRMM were treated with lenalidomide and low-dose dexamethasone (Ld) only and when elotuzumab was added (Eld). At the four-year follow up in ELOQUENT-2 patients in the Eld group with a VGPR, PR, or CR had a 35% decreased in the risk of disease progression or death compared to the Ld group (P<.0208). These observed benefits in the Eld group were consistent across the total patient population and key subgroups including patients older than 75, patients 3.5 years past their diagnosis, and those with genetic susceptibilities. The post hoc analysis revealed that patients 3.5 years from their diagnosis and had only 1 prior line of treatment benefited the most. Clinical benefits dropped off markedly in patients less than 3.5 years from their diagnosis and had only 1 prior line of treatment. The reduction in risk of death and disease progression was only 15% but still favored the Eld group over Ld. Surprisingly, patients less than 3.5 years from diagnosis who received more than 1-line of treatment had only a 10% risk reduction. Eld remained favored over Ld. This could be explained by a more resistant MM variant in combination with, or without, genetic susceptibilities among those patients.
BMY has taken the lead in ELOQUENT-3 in collaboration with CELG and ABBV. Here treatment with pomalidomide and low-dose dexamethasone with or without elotuzumab is compared in RRMM. The study objective is to determine if adding elotuzumab increases PFS and response rates in patients who had at least two prior lines of treatment and were refractory or had relapsed and were refractory to lenalidomide and a proteosome inhibitor. Pomalidomide has demonstrated great mechanistic versatility invivo and invitro. Its immunomodulatory effects boost T-cell and NK-cell mediated immunity and inhibit the production of inflammatory cytokines. Furthermore, its shown to inhibit proliferation of MM cells and cancerous blood vessels as well as stimulate tumor cell death (similar mechanism of action to lenalidomide). Importantly, it appears to interact synergistically with low-dose dexamethasone killing lenalidomide resistant MM cells. Initial follow up data was collected 9.1 months after therapy. The results overwhelmingly favored the elotuzumab group. The median PFS was 10.3 months compared to 4.7 months when patients were treated with pomalidomide and dexamethasone only (control group). That equates to a 54% reduction in the risk of disease progression. Keep in mind this was achieved after a 9.1 month follow period. The 63% and 61% reductions seen when daratumumab was added in POLLUX and CASTOR studies respectfully were after over 2-year follow ups. It will be interesting to see how PFS rates compare over time in ELOQUENT-3 relative to the aforementioned studies by Janssen Pharmaceutica. There were a few interesting details I noticed in the POLLUX and CASTOR patient criteria.
In PASTOR participants ages ranged from 33-88 with a median of 65 and had between 1-11 prior treatments. Also about ~50% of patients in both treatment groups were in stage 1 MM and only 15% had a prior treatment involving lenalidomide. Although, 44% had a prior treatment with an immunomodulatory drug (lenalidomide falls in this class) and proteosome inhibitor. The ages range was similar in CASTOR. However, MM disease stages were more equally dispersed across stage 1-3 and 45% had prior treatment with an immunomodulatory drug and proteosome inhibitor. An important discrepancy in CASTOR is that 49% of patients had only one prior line of treatment. Furthermore, in POLLUX and CASTOR the median PFS follow up periods were 13.5 and 7.4 respectfully compared to 4 years in ELOQUENT-2.
In ELOQUENT-2 forty-two percent of the 321 patients were less than 65 years old and 37% between 65-75. The remaining 21% were over 75. At the 4-year follow up period the Eld group had a median PFS of 19.3 months compared to 14.85 months in the Ld group (i.e. a 30% improvement) and an ORR or 78.5% vs. 65.5% (i.e. a 13% improvement) respectfully. An important distinguishment to be made is that the follow up period in ELOQUENT was ~2X longer than in POLLUX or CASTOR meaning more time for the disease status to change.
The same details are not available currently for ELOQUENT-3 except that patients needed to have at least 2 prior lines of therapy which included at least two sequential cycles of lenalidomide and a proteosome inhibitor. I do believe the study has a high chance of success and comparable efficacy of latter studies given pomalidomide has been shown to kill lenalidomide resistant cells, and a prerequisite of ELOQUENT-3 is patients were treated with lenalidomide and a proteosome inhibitor. The key implication of which is that the patients have at least in part lenalidomide resistant MM-cells. The question is how will these cells respond to pomalidomide?
NVS has 7 clinical trials for patients with relapsed and or refractory MM. Four of them however are using the first-generation and less-specific proteosome inhibitor bortezomib; Abbvie has 4 CXs, two of which use bortezomib and the other two are in collaboration with CELG and BMY; finally Amgen has 3 clinical trials targeting refractory or relapsed MM patients. One is a completed phase 2 study, the second is an active phase 3 study comparing the PFS of once weekly vs. twice weekly combination therapy of carfilzomib and dexamethasone in adults with relapsed and refractory MM, and the third is also an active phase 3 testing the same combination therapy in chinese patients.
BMY and CELG now branded as a mega innovative pharma company have an advantage in RRMM from investigating more sophisticated biologics and small molecules, as well as in the volume of clinical trials. The biggest threat for appears to come from Janssen Pharmaceutica, Amgen, and Merck who are further along in clinical development and have promising combination therapies. Yet, ultimately the superior therapy will gain the largest market share.
Multiple Myeloma Market Value
In 2015 the MM market was valued to be $7.5 billion. By 2024 its projected to reach $37.5 billion. That’s 31% of the total global cancer therapeutics market value in 2017 and 22% of the $172.6 billion global valuation anticipated by 2022. The rising capital opportunity in cancer therapeutics in driven by increasing incidence rates worldwide from lifestyle choices, smoking in particular, and environmental factors. Moreover, cancer patients are progressively living longer as treatments evolve extending the duration they remain on a therapeutic regimens to manage or combat cancer. Momentum in the MM market is expected to be stimulated by the development of novel therapies (like elotuzumab, daratumumab, pomalidomide, lenalidomide for example) and rising disease prevalence among the elderly.
The U.S followed by Europe has been the dominant player in this market largely because of the presence of pharma powerhouses including Celgene, Janssen Pharmaceutica, Novartis, Merck and Bristol-Myers Squibb according to a 2016 Grand View market research report. At the time of the report 50% of the MM market was dominated by Revlimid owned by Celgene, who BMY just acquired. Revlimid is presently engaged in numerous clinical trials for MM in combinations with Empliciti and Opdivo; which have gained their own respective traction’s in the global oncology market in recent years.
Because early MM (i.e smoldering MM) is asymptomatic it is difficult to detect. Often symptoms do not present themselves until the advance stages of the disease. However research efforts have strived to identify serum markers indicative of early or pre-MM. A primary care case-study published in 2018 found that combined use of full blood counts (FBC), erythrocyte sedimentation rate (ESR), or plasma viscosity (PV) and calcium in certain cases were effective for detecting early MM. About 10% of people with SMM progress to MM five years after the diagnosis. It was not until last few years that people with SMM even had treatment options. The first of them were PD-1 and CD38 protein inhibition (pembrolizumab and daratumumab respectfully). Given this gaping hole in the MM staging spectrum with only a few approved treatments their is room for BMY and CELG to steal market share from Merck and Janssen with their respective novel target therapies using elotuzumab and lenalidomide.
BMY Financial Overview
BMYs’ financial data is indicative of an increasingly profitable company. In the 3rd quarter of 2018 revenues increased 8% to $5.7 billion from $5.3 billion. Earnings per share (EPS) increased handsomely too more than 100% and 45% on a GAAP diluted and Non-GAAP diluted basis respectfully. Compared to the same quarter last year revenues in the U.S increased 13% while simultaneously decreasing marketing and administrative expenses 5%. Similarly prioritized brand worldwide sales boasted 91% growth cumulatively compared to the 3rd quarter in 2017. The biggest gainers being Opdivo (42%) and Eliquis (28%); Empliciti (5%) sales increased only marginally. BMY kicked up their guidance a notch for 2018 increasing non-GAAP expected EPS range about 7% to $3.80-$3.90. Not everything though in the ER was positive.
On the downside, established brand sales decreased significantly from 2017 to 2018. Sales from BMYs’ Sustiva Franchise took a thrashing declining 97% in the U.S and 61% worldwide. For the company’s Hepatitis C Franchise sales actually declined over 100%. While these product lines took the largest hits they were not exceptions. Sales from every single established brand product fell stifling the massive gains from prioritized brands and brought total sales revenue gains to only 8% and 13% Y/Y worldwide and in the U.S respectfully.
4-Year Financial Performance
Since 2014 BMYs’ cash position has remained relatively stable with the exception of a 57% drop from $5.6 billion to $2.4 billion from 2014 to 2015. It has since recovered to $5.4 billion as of September 30th, 2018. Total liabilities saw about an 8% decrease from 2014 to 2015 where it remained through 2016 and subsequently has increased 15% to $20 billion. Total stockholder equity has been stagnant over this time period reflective of a net flat share price performance over this period and currently sits at $13.8 billion compared to $14.9 billion in 2014. On a positive note, from 2014 to 2017 gross profit steadily increased 22% from $12.1 billion to $14.9 billion. Yet, net income declined a whopping 50% during the same period. This was probably due to increases in operating expenses and cost of product revenue outpacing revenue growth. More recently according the company’s most recent 10-Q net product sales increased 11% and cost of products sold decreased marginally .5% in the past 9-months.
Right off the bat a concern is big concern is whether: a) BMY will be able to sustain revenue growth of prioritized brands, not only for Opdivo and Eliquis, but the other products as well. Much of this hinges on the company’s success in realizing the “untapped” value in both biologics by expanding their approvals into new indications. More than that, Opdivo and Eliquis must prove superiority to rival therapies being developed by other pharmaceutical companies. And b) manage to reverse the downward revenue spiral of established brands. Another threat is lower priced generic therapies that may emerge. To drive this point home even further investors should realize that as of the latest ER prioritized brands represent over 90% of BMYs current revenue. Accomplishing this may not be enough either if operating expenses and cost of product revenue is not kept in check such that BMY can sustain long-term net income growth. More on this note the company must simultaneously be able to succeed in clinical trials and the development and commercialization of new small molecule and biologics. Negative outcomes whether it be missing endpoints or not hitting them decisively enough for the market or receiving CRL’s from the FDA could negatively impact the share price.
With regards to the MM market it is imperative that BMY establishes its combination therapies consisting of elotuzumab, lenalidomide, and dexamethasone as preferred lines of treatment for SMM and RRMM. The biggest threats to CELGs’ and lenalidomide current domination of the MM market is novel compounds by Roche, Janssen Pharmaceutica (owned by Johnson and Johnson), Amgen, and Merck including: Daratumumab, oprozomib, carfilzomib, NY-ESO-1ᶜ²⁵⁹T and, pembrolizumab. Another thing to consider is that BMY just engaged in a $74 billion deal to buy CELG. This could prove to be a fruitful investment over time giving BMY a competitive edge, but on the flip side BMY is now exposed to risks associated with CELGs’ commercial and operational performances. For a more comprehensive overview of BMYs risk factors investors should review the company’s 2017 form 10-K.
Through tailored combination therapies involving elotuzumab, lenalidomide, dexamethasone, and pomalidomide BMY could capture a dominant share of the MM market. Especially considering Celgene’s historic domination in MM empowered by commercialization of Revlimid (lenalidomide) and Pomalyst (pomalidomide) and that BMY is to acquire them. From 2016 to 2017 Revlimid sales rose 17% to $8.2 billion and pomalidomide sales jumped 23% to $1.6 billion.
Of BMYs’ prioritized brands Empliciti (elotuzumab) has seen minimal growth. In the 9-months leading up to September 30th, 2018 sales only grew 6% compared to 37% for Opdivo during the same period. If BMY and CELG are able to commercialize the combination therapies discussed for SMM, newly diagnosed MM, and RRMM sales of Empliciti could skyrocket. Based on my evaluation of the compounds mechanisms of action and clinical trial designs there is a high chance of approval and achievement of comparable, if not superior efficacy to standard treatments, with very minimal off-target effects given the compounds specificity. How early treatment can begin for MM is dependent on how early it can be detected. Advancements in screening procedures has enhanced the timeliness in which SMM and MM can be diagnosed. BMY seems the first with a treatment for SMM. The same compounds could also prove to be equally effective for newly diagnosed patients thereby increasing their capitalization in the emerging MM market. Of course they are not alone. Promising treatments by Janssen Pharmaceutica, Merck, Amgen, and Roche are also in the running.
Recent sales growth of BMYs’ Opdivo and Eliquis demonstrates superiority and demand in their respective marketplaces. It also reflects successful strategic execution by BMYs’ management and marketing teams. So long BMY continues to innovate competitive treatments capable of withstanding pressure from generic options, and grow the reach of prioritized brands while keeping operating expenses in check, they should become increasingly profitable. Penetration by Empliciti into the MM market, expansion of the presence of Pomalyst and Revlimid, and garnering approval in new indications, will boost revenues further and help compensate for waning establish brand sales. With regards to establish brands; its imperative BMY finds a way to reverse the sales trend or execute promptly and effectively on bringing MM therapies to market, expanding into new indications, and innovating new products. Overall MS Money Moves is bullish on the future valuation of BMY and rate them a buy with a 12-month price target of $70.
I wrote this article myself and it reflects my own opinions. I was not compensated to write it and have no relations with any company discussed.
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