Coke Versus Pepsi of Drugmakers? Wall Street Doesn't Buy It

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(Bloomberg) -- Hours after markets closed on Bristol-Myers Squibb Co.’s worst day in more than a year, executives used a sugary analogy to explain to Wall Street why the drugmaker’s new cancer treatment would do just fine against its main competitor.

“Point blank, these are Coke and Pepsi in lung cancer, OK?” Bristol-Myers Chief Scientific Officer Thomas Lynch told a hotel ballroom packed with analysts and investors at a major medical conference in Chicago. Merck & Co.’s drug, Keytruda, had shown impressive results at the conference -- but Bristol-Myers was right there with it, Lynch said.

The analogy fell flat with an analyst at Sanford C. Bernstein & Co., Tim Anderson, who later pointed out that Coke commands about double the market share of Pepsi, just as Merck now appears to have a strong lead over Bristol-Myers in selling the drugs.

Second place isn’t where New York-based Bristol-Myers expected to be when its treatment, Opdivo, was first approved to treat melanoma in 2014, heralding a new era of drugs that help the body’s immune system kill tumors. The company hoped that success in treating skin cancer would lead to similar results in lung cancer -- which kills more Americans than any other malignancy and is the biggest market for cancer treatment.

Past clinical setbacks had led to speculation about whether Bristol-Myers might become a target for another drugmaker. Potential suitors mentioned by analysts have included Roche Holding AG, Novartis AG and Pfizer Inc. Last week, though, Pfizer CEO Ian Read described Bristol-Myers as “high risk” and “not worth paying the money for,” according to Citi analyst Andrew Baum. Pfizer spokeswoman Joan Campion declined to comment on Baum’s note.

On Monday, new data presented at the conference showed that Merck is likely to cement its lead over Bristol-Myers in lung cancer. Bristol-Myers’s study, which combines Opdivo with another of its cancer drugs, did met its goal. But Merck Keytruda showed what analysts called “practice-changing” results when used with chemotherapy.

After falling 7.8 percent on Monday, Bristol-Myers was down another 3.1 percent Tuesday -- the worst two-day slide in more than a year. The drugmaker is now valued at around $85 billion. That’s a far cry from July 2016, when Bristol-Myers hit at an all-time peak of almost $130 billion.

“The stock has pulled back quite a bit within the last week, so that’s still definitely something companies are looking at from a cost perspective,” Credit Suisse analyst Vamil Divan said in an interview in Chicago. “Potential buyers would have to digest where Opdivo has the best chance, though it will still be a big drug.”

Divan said that while a takeout remains possible, it’s less likely for now “given the question marks about their future in lung cancer among other things.”

‘Very Few Buyers’

"There are very, very few buyers out there," said Jeff Jonas, a portfolio manager at Gabelli & Co. who holds Bristol-Myers shares.

A buyer like Pfizer might be more interested in Bristol-Myers as a bargain, rather than an asset worth buying at a steep premium.

“The data lowers odds near term of a strategic being interested or willing to pay a big premium from here unless cost cuts are overwhelming,” Jefferies Group health-care strategist Jared Holz said in an interview.

As analysts peppered executives with questions about the latest data, Bristol-Myers Senior Vice President of Investor Relations and Public Affairs John Elicker brushed off the stock drop.

“How the market reacts is sort of how the market’s going to react,” he told the gathering of analysts and investors in Chicago. “And you’re probably better positioned to tell us why the market’s down than we are to tell you what the market missed.”

©2018 Bloomberg L.P.

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