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Bristol-Myers' Revolutionary Cancer Drug Suffers A Big Blow

Bristol-Myers Squibb's (NYSE: BMY) Opdivo is approved to treat some patients who see their lung cancer return following chemotherapy, but a key trial evaluating Opdivo's use in previously untreated patients recently came up short. The news caused Bristol Myers shares to tumble and competitor Merck & Co.'s (NYSE: MRK) shares to jump. Does Opdivo's failure mean Merck's Keytruda is the better cancer immunotherapy? Maybe not.

In this episode of The Motley Fool's Industry Focus: Healthcare podcast, analyst Kristine Harjes and contributor Todd Campbell discuss a key difference in how these two drugs were studied in lung cancer patients. Harjes and Campbell also weigh in on a unique, new "money-back-guarantee" that's being offered by GlaxoSmithKline (NYSE: GSK) on a drug used to treat an ultra-rare disease. A full transcript follows the video.

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This podcast was recorded on Aug. 10, 2016.

Kristine Harjes: This episode of Industry Focus is brought to you by Rocket Mortgage by Quicken Loans. Rocket Mortgage brings the mortgage process into the 21st century with a fast, easy, and completely online process. Check out Rocket Mortgage today at quickenloans.com/fool.

Welcome to Industry Focus, the podcast that dives into a different sector of the stock market every day. We're talking healthcare today, August 9th. My name is Kristine Harjes, and I'm happy to welcome Motley Fool healthcare contributor Todd Campbell to the show via Skype. What's new, Todd?

Todd Campbell: Hi, Kristine! How are you today?

Harjes: I'm doing great!

Campbell: Are you excited to talk about some of the interesting trial results last week?

Harjes: Yes, absolutely. We have a really cool show coming up. But before we dive into it, I have something also very exciting to announce. That is that the lovely Alison Southwick of The Motley Fool Answers podcast set up a voice mail box, where you, our listeners, can call in and leave us a message. While, of course, we're always looking for feedback on how we can make the show better, I want to use it to offer you guys the chance to be on Industry Focus.

Here's how it'll work: Todd and I are looking to do a show on pet healthcare. This was a suggestion that came through our Motley Fool podcast Facebook page, which you should definitely join if you're not already a part of it. What we need from you is your best tale -- no pun intended -- of the craziest thing that you've had to take your pet to the vet or hospital for. Tell us, what did Fido eat, or whatever your best story is. Or, alternatively, tell us a tip you have for saving money on pet care. I know there have got to be a lot of good money-saving tips out there. Shoot for about 60 seconds or less. Hopefully we'll get some great messages that we can play on air. The number to call in to is 866-677-3665, which, oddly enough, spells 866-MRS-FOOL. I'm not really sure why. Many thanks in advance. I can't wait to hear what you guys have to say.

With that out of the way, Todd, as you alluded to, we have some really interesting stuff to cover today. GlaxoSmithKline has announced a money-back guarantee payment structure for a gene-therapy drug, which is the first time that we're seeing something like this happen. But first, we wanted to talk about a type of cancer drug called PD- 1, particularly in light of some disappointing recent news out of Bristol-Myers Squibb.

Campbell: Yeah, Kristine, this surprised everybody. Bristol-Myers is one of a few different companies that are developing or have developed drugs that can inhibit PD-1. Basically, what we're talking about here is, anything that we can do to help the immune system better find and destroy cancer is a good thing.

Harjes: Yeah, one of cancer's worst tricks is that it can just hide from the immune system. They have a really elaborate way of doing this. PD-1 is one of the ways that researchers have found to work around that and expose these cells in order to have the immune system be able to attack them.

Campbell: Exactly. If you take drugs like Bristol-Myers' Opdivo, it will basically stop cancer from being able to use that pathway to hide from the immune system. What we've found so far in trials up to this point is that Opdivo is very successful in helping the body get rid of cancer -- in kidney cancer, in various other cancers. It's even been shown to be helpful in treating recurrent non-small cell lung cancer. That's important because there's a trial that unfortunately just failed that Bristol-Myers was running, and that trial was for first-line use in treatment naive lung cancer patients. Unfortunately, Opdivo did not deliver the goods in this trial.

Harjes: It's important to note that this was a trial for front-line treatments, so the very first therapy that you would get. And one of the reasons that it was so shocking is because a competitor, Merck, which has a very similar PD-1 drug called Keytruda, met its primary and secondary endpoints in a trial for Keytruda as a monotherapy for advanced non small-cell lung cancer less than two months ago. With Bristol failing in its own trial, that's the first time these two have generated completely different clinical outcomes in the same indication.

Campbell: Right, and you could see the market reaction to that news -- it was to knock Bristol-Myers down by about 20%, and for investors to flock instead to Merck. What's interesting about this is that, since both of them have the same target, PD-1, why is it that Keytruda worked where Opdivo didn't? As investors, we have to remember that sometimes the devil is in the details. It's important to dig a little bit deeper. When you do that, you start to see why Keytruda won while Opdivo didn't.

Harjes: And that had everything to do with trial design.

Campbell: Yeah. Basically, people who are looking at this story now have to understand, when Bristol-Myers set up their trial, they did it to study the efficacy of this drug in patients that were expressing greater than 5% PD-1. Keytruda's trial was designed to evaluate patients expressing 50%, not 5%.

Harjes: Yeah. That's a huge difference.

Campbell: Very high-expressing PD-1 patients.

Harjes: Yeah. It almost doesn't come as much of a shock when you look at that particular detail.

Campbell: What I would be really interested to see, they didn't release the full data set from the Bristol-Myers trial yet. That's going to come out later on this year. But I'll be very interested to see if they break out the response rates and the efficacy by PD-1 expression.

Harjes: They would have to, I would think.

Campbell: Yeah. It would not shock me at all if they showed similar response rates to Keytruda in the high-expressing patients. That being said, the trial wasn't powered, it wasn't designed to look at these high-expressing patients. So, it's kind of irrelevant. I don't think they would be able to file for a label expansion in the high-expressing patients based on this trial. I guess we'll have to see how that all fleshes out.

Harjes: You always want to be wary of post-hoc analysis. Really, what you're seeing here is just a case of Bristol being a little bit too ambitious. It was probably an easier target to hit just those with greater than 50% expression, but they wanted to go for a broader indication, and they missed the mark.

Campbell: Absolutely. That, of course, raises the big question, Kristine -- what should investors do now? Should they continue to walk away from Bristol-Myers? Should they embrace Merck? Where do we go from here?

Harjes: So, Opdivo has, thus far, been the winner between these two drugs. Opdivo brought in about $840 million in sales in the second quarter of 2016. That was up almost 600% year over year, compared to $314 million for Keytruda. However, Keytruda also did get some really positive press that the drug was able to rid former President Jimmy Carter of detectable tumors from his melanoma that has spread to his brain. This makes headlines as a miraculous cure, and there was a lot of really positive press for Merck.

Campbell: Yeah, Opdivo has some advantages as far as testing advantages over Keytruda in some cases. A lot of people think that maybe is why people have embraced that drug as opposed to Keytruda. Investors probably should realize that this is going to be a short-term hit to Bristol-Myers' earnings next year. Analysts have already cut $0.20 off their forecasts for next year. They've added $0.08 to Merck's estimate for next year. But both of these companies -- this is not a deal-breaker or deal-maker for either one of these companies. Keytruda is probably going to be able to benefit from capturing, maybe, $1 billion extra in sales. That's certainly not chump change. But we have to recognize, too, that this was just one trial that's going on in this patient population. There are other trials that are occurring right now that could basically make this a non-event a year from now.

Harjes: Right. There are dozens of clinical trials going on for Opdivo. This was, as you mentioned, just one of them. Something else I'll point out is there are other PD-1s being developed. AstraZeneca has one. I think the broader question that is raised here has to do with class-wide perceptions of a therapy. This is the PD-1 class. I think it's pretty easy to think, a little bit misguidedly, that any drug in this class is going to have the same type of clinical results and the same type of real life efficacy. That might not exactly be true. This is important to remember because this is not the only drug class that has multiple drugs. You also have your PCSK9 inhibitors, SGLT2 inhibitors. We've talked about a lot of different targets that fall under this class category. And people often assume that the effects that one shows are class-wide. They're not always. It's a good reminder for investors looking at the healthcare space, to take the drugs individually and actually look at the different results that they post.

Campbell: Right. And to consider the trial design. You're right, two months ago, Keytruda's positive result in their trial, a lot of people probably didn't dig in to see if there might be differences in the Opdivo's trial with design. Yes, investors shouldn't just assume that because there's one drug that works that has the same target, that another one will as well.

Harjes: Right. We are halfway through our show, and that means it's time to turn our attention to the other topic du jour, which is gene therapy, specifically a GlaxoSmithKline gene therapy that promises your money back if it doesn't work. 

But first, a quick message from today sponsor. This episode of Industry Focus is brought to you by Rocket Mortgage by Quicken Loans. If you've ever bought a home, then you know how frustrating and time-consuming getting a mortgage can be. Rocket Mortgage bring some mortgage approval process into the 21st century by taking all the complicated, time-consuming parts of applying for a mortgage out of the equation. With Rocket Mortgage, you can easily share your bank statements and pay stubs at the touch of a button, helping you get approved in minutes for a custom mortgage solution that's been tailored to your own financial situation. And, you can do it all on your phone or your tablet. So, if you're looking to refinance your mortgage or buy a home, check out Rocket Mortgage today at quickenloans.com/fool. Equal housing lender, licensed in all 50 states, NMLS consumeraccess.org #3030.

Let's turn our attention back to gene therapy now. Todd, what do we need to know?

Campbell: This is just a really interesting story, especially given how much everybody has talked about cancer drug pricing over the course of the last couple years. I think it's probably not brand-new news to our listeners that most cancer drugs that are getting approved today are hitting the market with six-figure price tags. When we talk about that, we have to also then talk about the expensive drugs that are being developed for other diseases as well, including rare diseases. What I found really fascinating about this story is that GlaxoSmithKline just won approval for a drug called Strimvelis over in Europe. It's going to be sold in Italy. As part of the negotiation with Italy to provide this drug to patients, they agreed that if the drug doesn't work, they'll refund the cost. That is pretty interesting, especially when we start thinking about how that could be used in other disease classes or indications like cancer.

Harjes: Absolutely. Strimvelis is $665,000. That's the list price for one-time treatment. That is over $0.5 million. But, Glaxo says, but, this is something that you only need to do once. When you look at what it treats, it's a rare disease called ADA-SCID, also known as "The Bubble Boy disease," because the immune system doesn't properly defend the body against infections, so patients are essentially forced to live in a sterile environment, hence the Bubble Boy name. Glaxo tested this in 18 children, and they found that with 15 of them, a single therapy of Strimvelis was enough to cure them. But then, you have the three children that it didn't work for.

Campbell: Right. And what Italy said is, "Listen, this is a very expensive drug, and it's not going to work every time. If you want us to pay $665,000 for this treatment, you have to be willing to give the money back if it doesn't work in those three patients." I think they're estimating that one out of every six patients that's treated will end up getting a refund. That's pretty fascinating. But the other thing that jumps out to me, Kristine, from the story, is, wow, it was really only tested in 18 children? And that just shows you how rare this disease is. I think they estimate that there's only about a dozen people in Europe -- all throughout Europe -- that are born with this condition every year.

Harjes: And if you run the numbers using that, if you have 12 children a year that are born with this disease in the EU, treating all of them would result in about $8 million of revenue. Then, if you refund one in six, which is based on your three out of 18 that didn't have a result, that's only $6.65 million in revenue, which is just not going to move the needle for Glaxo. Really, when I look at this story, I think it's painting Glaxo in a pretty positive light that they are researching a disease that's really not going to make them much money, and they're saying that they're so confident in it that they're going to give the money back if their therapy doesn't work.

Campbell: It's a fascinating step in what could be a very new model that gets rolled out globally for paying for drugs -- especially as these drugs get more and more expensive. Italy has been a pioneer in these types of arrangements. This is the first arrangement they've made. They've actually been working on pay-for-performance deals since 2007. They did a bunch of these deals with cancer drug makers back in 2010. Not exactly the same thing, not full 100% refunds, but getting back price discounts for when the drugs don't work as well as maybe "advertised." 

What I think this does say about Glaxo, and maybe the broader research into the use of gene replacement or gene-type therapies, is that companies are willing to investigate novel payment structures or reimbursement structures if it means being able to get a larger price for their product down the road. Glaxo is probably thinking the long game here. They're working on some cancer drug therapies with a small company named Adaptimmune. These are early-stage trials for gene-based TCR therapies, total receptor therapies, that, who knows. Maybe those would come out targeting small patient populations and have similar pricing arrangements in the future, as well. It's a very interesting story. We're going to have to keep an eye on it. It could make a big shift in how this industry operates.

Harjes: I think this is Glaxo simply getting their hands a little bit dirty in this new pricing model, and also in gene therapy, which should be poised to become a lot more broadly used than just this one drug in Italy. There's drugs coming soon for hemophilia, brain diseases, eye diseases. Definitely something to watch going forward. 

That's going to do it for your Healthcare edition of Industry Focus. I'm really looking forward to hearing all of your pet health voice mails. As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. For Todd Campbell, I'm Kristine Harjes. Thanks for listening, and Fool on!

Kristine Harjes has no position in any stocks mentioned. 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.