Bristol-Myers Squibb's Kidney Opportunity Is Bigger Than Some Thought

• In a report issued Tuesday, Morgan Stanley analyst David Risinger and his team reiterated an Overweight rating on Bristol-Myers Squibb Co (NYSE: BMY)
• The experts assure that investors seem to have largely overlooked Opdivo’s substantial kidney cancer opportunity, focusing on lung cancer instead.
• Shares of Bristol-Myers are down more than 1 percent on Tuesday.

According to the report, investors see the kidney cancer (RCC, renal cell carcinoma) market as a crowded one, and are thus underappreciating Opdivo’s sales potential. However, expectations should rise soon, as the upcoming data will drive investors’ attention to the fact that prevalence in RCC is twice that of Melanoma – Opdivo’s and Yervoy’s first indication. Opportunity for the drug in this field is considerable, especially given that it seems to be more effective than other immune-oncology competitors.

The Estimates

Morgan Stanley continues to model sales of $17.5 billion for 2016, above consensus of $16.8 billion, and earnings of $2.47 per share – 10 percent higher than consensus.

However, analysts believe encouraging survival data in RCC will help drive consensus higher. Taking into account Yervoy global sales in melanoma hit $1.3 billion in 2014, the firm estimates Opdivo “could generate peak RCC sales at least that amount, because RCC has double the prevalence but will be a more crowded market.”

The Cancer Opportunity

A couple of months ago, Bristol-Myers released positive top-line kidney cancer data, but investors did not seem to care much, focusing instead on lung cancer. Moreover, this Saturday, the company will present further details of the Phase 3 CheckMate-025 trial, and Morgan Stanley expects to see “highly compelling survival data.”

Importantly, the analysts add, “for Opdivo a 2L indication in RCC may be almost as good as a 1L indication in terms of market opportunity.”

Thus, “Opdivo could be endorsed via NCCN treatment guidelines” in the fourth quarter of the year and approved for 2L RCC by early 2016. Consensus points to a 2016/2017 launch.

Disclosure: The author holds no stakes in any of the securities mentioned above.