After Opdivo's Failure, Is Merck a Better Buy Than Bristol-Myers?

By Markets Fool.com

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Image source: Getty Images.

Bristol-Myers Squibb's (NYSE: BMY) Opdivo failed to deliver the goods in a key lung cancer trial, causing Bristol-Myers' shares to plummet. The failure also prompted investors to rush into Bristol-Myers Squibb's competitors, includingMerck & Co. (NYSE: MRK). which markets Keytruda, a drug that works similarly to Opdivo. Does Opdivo's disapointment make Merck a better buy than Bristol-Myers?

Squaring off

Opdivo and Keytruda are already approved for use in previously treated non-small cell lung cancer patients (NSCLC) who have seen their disease return after chemotherapy, andboth companies are studying if their drugs are effective in previously untreated patients.

Merck reported data from a trial evaluating Keytruda instead of chemotherapy in previously untreated NSCLC patients in June, and the results were good enough that independent monitors recommended Merck's trial be halted early so that patients in the chemotherapy arm of the study could be offered Keytruda.

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The positive outcome of that trial sparked optimism that Bristol-Myers' trial of Opdivo in previously untreated NSCLC patients would similarly pan out. BothKeytruda and Opdivo inhibit PD-1 tokeep cancer from hiding from the immune system.

Unfortunately, investor optimism for Opdivo's trial proved to be unwarranted. Opdivo failed to significantly delay disease progression relative to chemotherapy, clearing the way for Keytruda to have the first-line NSCLC treatment market to itself.

Digging into the details

Keytruda's win and Opdivo's loss in untreated NSCLC patients may say more about the relationship of PD-1 expression and the efficacy of PD-1 inhibitors than it does about these individual drugs. That's because the two trials weredesigned quite differently from one another. The Keytruda study only involved patients with very high PD-L1 expression, while Opdivo's trial included patients with both low- and high-levels of PD-L1 expression.

Specifically, Keytruda's results came from its use in patients with PD-L1 expression equal to or greater than 50%, while Opdivo's results came from its use in a patient pool with PD-L1 expression greater than 5%. Since Opdivo's trial included results from both low- and high-expressing patients, the biggest takeaway from these diverging trial results is that PD-1 inhibitors efficacy appears to be highly correlated to PD-L1 expression.

Obviously, we won't know if that's true for sure until we see full results from Opdivo's trial (Bristol-Myers Squibb plans to release more information at a key conference later this year), but it wouldn't surprise me if Opdivo's efficacy in patients with 50% or greater PD-L1 expression matches up with Keytruda's.

Image source: Bristol-Myers Squibb

Irons in the fire

Even if the full analysis of Bristol-Myers Squibb's trial doesn't show that Keytruda's advantage over Opdivo was due to trial design, Keytruda's potential to be the go-to in this indication could be short-lived.

Bristol-Myers Squibb is conducting a trial that combines Opdivo with another one of its immunology drugs, Yervoy, and with chemotherapy, and those approaches may yield better response rates and progression-free survival data than Keytruda monotherapy.In June, Bristol-Myers Squibb presented phase 1b results showing that57% of lung cancer patientsin the Opdivo/Yervoy combination arm responded to the treatment, including 92% of patients with PD-L1 expression of 50% or higher.Results from a phase 3 trial of this combination could be available as early as 2018.

Although results can vary widely from indication to indication for drug combinations, the use of Opdivo/Yervoy in first-line metastatic melanoma is alreadythe single most prescribed therapy in the U.S. for that indication.

Additionally, AstraZeneca (NYSE: AZN) is developing its own PD-1 drug, durvalumab, and phase 3 studies combining durvalumab with another AstraZeneca drug, tremelimumab, in NSCLC could be available in 2018, too.

Tying it together

Non-small lung cancer represents 85% of the 224,000 lung cancer diagnosis every year in the U.S., and with five-year survival rates of less than 18%, there's a big, unmet need for new treatment options that work better.

The size of the NSCLC patient population and the fact that Opdivo and Keytruda carry six-figure price tags mean a lot of money is at stake in the indication, and therefore, Opdivo's trial failure shouldn't be ignored. However, investors may want to keep the positive impact for Merck of this failure in perspective, especially given all the ongoing R&D in the indication. Overall, while this is clearly a short-term win for Merck, the long-term winner has yet to be determined.

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Todd Campbell has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.