BMS talks up Celgene merger to divert Opdivo disappointment

In the wake of bad news from its closely watched immuno-oncology portfolio, Bristol-Myers Squibb executives did their best Thursday to talk up the six near-term product launches they’re expecting from the company's $74 billion merger with Celgene. But they faced a tough audience, as analysts pressed the company for details on how the merger would drive reliable revenue and earnings growth for the long term.

Investors were focused on that bad news, which is that BMS withdrew its application to the FDA for a combination of its immuno-oncology drugs Opdivo and Yervoy in the treatment of a subset of previously untreated lung cancer patients. The prospect of the company not being able to expand Opdivo’s potential market in lung cancer only exacerbates the ongoing challenge it’s facing as it competes with Merck’s blockbuster Keytruda.

The news overshadowed BMS’ otherwise strong fourth-quarter sales, which grew 10% year over year to $5.97 billion. Interestingly, that performance was largely driven by better-than-expected sales of Opdivo, which came in at $1.8 billion, versus the average analyst estimate of $1.47 billion, according to Refinitiv. BMS’ fourth-quarter adjusted earnings of 94 cents per share exceeded the average expectation of 85 cents, according to Zacks investment research.

But some analysts found reason for concern in BMS’ 2019 guidance, which the company spelled out in more detail than it had in the past. It confirmed its 2019 GAAP EPS guidance of $3.75 to $3.85, adding the assumption that revenues will grow by the mid-single digits, excluding any impact from the Celgene merger.

Credit Suisse analyst Vamil Divan dashed off a note to investors pointing out that the revenue-growth guidance was below the consensus estimate of 7%. And during the earnings call, Steve Scala of Cowen & Co. asked for the underlying "dynamic" that would explain the muted sales-growth expectations.

Chief Financial Officer Charlie Bancroft attributed the growth forecast to a number of factors, including the loss of revenue from a Sanofi alliance that ended in 2018. The two had partnered on the promotion of bloodthinner Plavix and Avapro, a blood pressure drug. In 2012, they revamped the agreement, stipulating that it would end in 2018.

BMS’ executives reiterated much of what they said when the company announced its merger with Celgene last month, namely that it’s counting on those near-term product launches from the deal to turbocharge revenue growth. The company is particularly excited about two of those medicines, both of which are CAR-T cell therapies: Liso-cel to treat B-cell blood cancers, and bb2121 for multiple myeloma.

During the call, BMS’ commercial chief, Christopher Boerner, said Liso-cell has the potential to pass the two CAR-Ts that are already on the market to treat B cell cancers, Novartis’ Kymriah and Gilead’s Yescarta. That’s because in clinical trials Liso-cel (formerly JCAR017) has produced low rates of cytokine release syndrome (CRS), a dangerous side effect that often requires Kymriah and Yescarta patients to be treated as inpatients so they can be monitored, he said.

Boerner said BMS is equally optimistic about bb2121, the multiple myeloma CAR-T that Celgene has been developing with Bluebird Bio. In clinical trials, bb2121 has demonstrated an overall response rate of 96% in previously treated late-stage patients, versus a response rate of 29% to 59% for standard treatments.

Overall, Celgene’s CAR-T platform "is an important and differentiated capability driving value for the combined company," Boerner said. "We view CAR-T as a very exciting opportunity for our oncology franchise given the unprecedented efficacy data that has been demonstrated with this modality."

Boerner acknowledged that the company’s high hopes for the treatments are conditioned on its ability to differentiate them in the market and to work with payers to establish appropriate reimbursement plans for them. But Kymriah and Yescarta have both struggled to gain footholds in the market—an issue one analyst pointed out during the call.

Boerner said he’s confident that Liso-cel’s safety profile could help BMS overcome the payment hurdles. Existing CAR-Ts have struggled "in large part because of the profile of these drugs," he said, specifically their need to be administered on an inpatient basis. "One of the things we find really exciting about particularly an asset like Liso-cel is that with no significant toxicities, with a CRS rate that’s significantly lower than both Kymriah and Yescarta…patients could potentially be monitored in the outpatient setting." That would lower the overall cost for insurers, which could give Liso-cel a leg up when it comes to access, Boerner said.

But the success of the BMS-Celgene marriage is also dependent on Revlimid, Celgene’s $8-billion-a-year multiple myeloma drug, which is facing a key patent challenge. If Celgene loses that battle, low-cost Revlimid copies could be on the market as soon as 2021, delivering BMS a revenue blow of $3 billion that year and $7.5 billion the following year, Credit Suisse analysts estimate.

During the earnings call, BMS executives said they had taken a conservative approach to assessing the Revlimid risk. And Giovanni Caforio, M.D., chairman and CEO of BMS, repeated a line he has returned to many times since the Celgene merger was first announced: The value of the deal should be viewed independently of Revlimid’s future prospects.

In addition to the potential for those six products to launch in the next two years, the merger is giving BMS "a pipeline that will continue to advance and will generate incremental launch opportunities between now and 2025," Caforio said. "So I think beyond the contribution of individual components, the breadth of growth opportunities … is what’s really complementary and exciting about the new company."

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