Bristol-Myers Squibb Takes A Step Up On Cancer Drugs, But The Cost Tells A Different Story

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Jun 22, 2015
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  • Bristol-Myers is making giant steps towards launching its double immunotherapy program for the treatment of advanced melanoma.
  • The company's new products are highly priced and therefore won't be affordable to many cancer patients.
  • This could be the company's stumbling block with regard to making money from the product as some patients might opt for other alternatives.

A couple of weeks ago, the American Society of Clinical Oncology "ASCO" held the annual meeting for the year 2015, which ended on June 2. This year's meeting marked one of the most positive developments in the treatment of cancer, at least on the side of research with immunotherapy being at the center of it.

Bristol-Myers Squibb (NYSE:BMY) announced that the U.S. Food and Drug Administration (FDA) had accepted its application to use a combination of two immunotherapy drugs Yervoy (ipilimumab therapy) and Opdivo (nivolumab therapy) for the treatment of Metastatic Melanoma.

The two therapies combined together showed what Leonard Saltz, MD, from Memorial Sloan Kettering Cancer Center, New York City, termed as "truly remarkable results" for a disease that not long ago scientists thought would be untreatable. Shares of Bristol-Myers Squibb advanced 3% following the news, but later retracted as the frenzy cooled off after more details of the two therapies came out.

Now, while it is really positive news in terms of advances towards gaining FDA approval on a combination of the two therapies, the other side of the coin did not carry such fragrance. This is simply because every product must have a market to sell to, and most importantly the market must be able to buy the product.

What's the upside on Bristol-Myers Squibb's new therapies for treatment of advanced melanoma?

The combination of Yervoy and Opdivo showed impressive results with 61% response rate in patients with previously untreated advanced melanoma. Ideally, the drugs are designed to prevent cancer cells from hiding from the body's immune system, which then gives the body a fighting chance against cancer. Bristol-Myers Squibb also revealed that the two drugs achieved a 22% complete response rate.

Now, statistically, the American Cancer Society expects nearly 74,000 new cases of melanomas to be diagnosed this year, with about 42,670 of those being men and 31,200 being women. The organization also expects nearly 10,000 people to die from the disease this year.

Melanoma accounts for less than 2% of all skin cancer, but it is responsible for the majority of skin cancer deaths, and the rates of the disease have been rising over the last 30 years.

This potentially means "good business" for Bristol-Myers Squibb because at the moment, its cocktail of Yervoy and Opdivo therapies seems to be a likely rival to Merck & Co. (NYSE:MRK) Keytruda in treating advanced melanoma. Here we are talking of a disease that has reached a stage where all other types of treatment have failed, and hence patients in this category are looking at the last result.

Keytruda currently costs patients about $12,500 per month, which brings the annual cost for treating advanced melanoma per patient to about $150,000. The high cost of treating advanced melanoma has pushed the overall market for oncology drugs to the tune of $100 billion per year, which means Bristol-Myers Squibb could potentially rack in billions in revenues from the sale of its cocktail of therapies in the coming years.

To bring things into perspective, since 2011, there have been 6 approvals for oncology drugs. Pfizer's (NYSE:PFE) set the ground rolling in terms expensive pricing of immunotherapy drugs for the treatment of melanoma with Xalkori, which costs patients $11,500 per month. On the other hand Novartis' (NYSE:NVS) goes for $13,200 per month.

Therefore, it appears that patients have no choice but to buy these drugs at the astronomical prices they sell for.

Initially, Bristol-Myers Squibb had both Yervoy and Opdivo approved independently for the treatment of melanoma, but now the cocktail of the two therapies will be used to treat advanced melanoma, which means that the company will be opening another stream of revenue on its books.

Keytruda, which was approved last year, is expected to generate $1.5 billion in sales for Merck in 2017, which again can be used to scale out how much Bristol-Myers could expect in revenues from Yervoy and Opdivo cocktail in the treatment of advanced melanoma.

This is generally good news for shareholders, but when you look at the monthly cost of Bristol-Myers Squibb's proposed cocktail of therapies in comparison to what is already in the market, the company might find it little hard finding buyers for the program.

Bristol-Myers Squibb's advanced melanoma treatment will cost nearly double the price of Keytruda

Bristol-Myers Squibb will not be bringing entirely new drugs into the market. These drugs, Yervoy and Opdivo have been in the market for some time now treating melanoma.

Now, the cost of Opdivo alone goes to the tune of $120,000 per year. However, in the latest trials, and based on calculations by Katz, who is one of the doctors leading in the attack on astronomical drug prices, the cost of using it for a median progress-free survival "PFS" of 2.9 months was $158, 282. On the other hand, the cost of nivolumab (Opdivo) for PFS of 6.9 months was $103,220.

In summary, the cost of the combination of the two therapies for PFS of 11.4 months stood at a staggering $295,556. That is nearly $300,000 per year, and could probably be the Achilles of the new therapies once they hit the market.

While patient's with Medicare could pay as little as $60,000 per year for the treatment (20%), those without Medicare will likely rule out spending $300,000 when they have an alternative of spending half that amount by using Keytruda.

On the positive side, the results showed that patients lived four times longer free of the disease after using the cocktail of the two therapies as compared to when they used Yervoy alone. That's pretty encouraging for patients, but the pricing also encourages other drug makers to focus on setting high prices for their products.

For instance, the $150,000 a year Keytruda therapy involves taking 2mg/kg of the drug. Additionally, the company is now running another trial for 10mg/kg, which is expected to give better results in treating melanoma. However, the cost of the new dosage is estimated to cost about $83,000 per month.

Indeed the cost of cancer drugs has been skyrocketing since Erbitux by Eli Lilly (NYSE:LLY) and Bristol-Myers. Erbitux, developed by ImClone Systems for the treatment of colon cancer, came out at a cost of more than $100,000 per year 11 years ago. This is not about to change unless companies find cheaper ways of developing cancer treatment therapies, which then could lower the cost of drugs manufactured.

So what is the way forward?

In truth, companies are looking to grow incomes from their cancer-related drugs by netting higher margins on pricing. However, is it not obvious that if indeed they made the cost of these drugs cheaper they could leverage what they lost from pricing with volume?

Overall, there are roughly 1.6 million new cancer diagnoses in the U.S. every year and nearly 600,000 die every year from the disease, which means 1 in every 4 deaths reported in the country is as a result of cancer. Most of these deaths come because some patients are not willing to undergo chemotherapy, while others simply cannot afford treatment.

However, now companies are introducing new treatment methods such as immunotherapy which patients might find more acceptable than chemotherapy. Additionally, big pharma companies are now joining hands to come up with products that can be used together for various immunotherapy programs, a good example being Keytruda/Xalkori combination.

This lowers the risk associated with product developments per company because of the obvious synergetic benefits and the ability to leverage on the massive cash flows held by partnering companies. This again could help companies to lower the cost of cancer treatment in the near future.

However, the main challenge now lies with the drug manufacturers in determining whether to go for the marginal benefits, or volume sales. With high prices, cancer drugs will net a high margin, which means the companies do not need high volume sales to break even.

However, low cost could also help the companies sell more and hence net profits in the long run, and with cancer being a chronic disease, they will definitely have time to achieve the required volume to break even.

Conclusion

The bottom line is that Bristol-Myers has definitely taken a huge step forward with regard to treating advanced melanoma by combining Yervoy and Opdivo.

However, the cost of the combined therapies is astronomical and would not prompt immediate interest among most cancer patients especially for those without Medicare. Some patients will take their chances with the available cheaper options like Keytruda while others will choose to go for the painful chemo.