Merck Could Gain from Bristol's Poor Drug Trial Results

The negative results from Bristol's CheckMate-026 study will give competing immuno-oncology drugs time to catch up to Opdivo. In CheckMate-026, Opdivo failed to improve progression-free survival in first-line lung cancer (the largest market in immuno-oncology) versus chemotherapy in patients expressing PD-L1 levels at greater than or equal to 5%, a more challenging cutoff point than that in Merck's recently announced positive Keytruda results in this indication. While Merck targeted patients with PD-L1 expression at greater than or equal to PD-L1 levels of 50%, we won't know whether Opdivo worked at that cutoff point until the complete dataset is revealed. Nevertheless, we believe Merck will have a longer first-mover advantage in the first-line lung cancer market, as Bristol may need to wait for data from Checkmate-227 (data likely in mid-2017) to file Opdivo in first-line lung cancer. As a result, we are increasing Merck's market share in lung cancer and reducing Bristol's share.

Over the long run, combinations will be key, and Bristol holds one of the best positions in combination therapy, so we remain confident in Bristol's long-term leadership in immuno-oncology. Besides Merck, both AstraZeneca and Roche slightly benefit from Opdivo's setback, as the companies will report first-line lung data with their immuno-oncology drugs in 2017, helping them catch up to Opdivo.

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