CheckMate Miss Is A Game Changer; Credit Suisse Downgrades Bristol, Upgrades Merck

Bristol-Myers Squibb Co (NYSE: BMY) announced that the CheckMate-026 [CM-026] Study for Opdivo in non-small cell lung cancer [NSCLC] had missed its primary endpoint. Terming the announcement as “stunning,” Credit Suisse’s Vamil Divan said in a report that CM-026 was being perceived as a game changer and expectations had been high.

Limited Near-Term Upside For Bristol

Analyst Vamil Divan further wrote that the Study was expected to not only meet the primary endpoint, but potentially some important secondary endpoints as well. He downgraded the rating on Bristol-Myers Squibb from Outperform to Neutral, while reducing the price target from $86 to $63.

Related Link: Citi Doesnt' See Merck's Lung Cancer Success Lasting Long

“Longer-term impact less clear, but we expect it will take time to see upside for BMY,” Divan wrote. Although the company is pursuing a number of other combination approaches, data from these is currently more limited and “it is more difficult for us to give the company the benefit of doubt at this point until we see more.”

Merck To Benefit From Bristol Woes

The failure of CM-026 to meet the primary endpoint means that Merck & Co., Inc. (NYSE: MRK) would likely benefit from the immune-oncology (I-O) opportunity. The company’s Keytruda would be “the dominant first mover into the 1L NSCLC setting, at least in the 25-30% of patients whose tumors have >50% expression of PD-L1,” the analyst noted.

There could also be “some spillover effect into later lines of therapy,” since physicians may start preferring Keytruda “in 2L/3L for 1-50% expressers (after chemotherapy) if that is what they are using in high expressers in 1L.”

Divan upgraded the rating on Merck from Neutral to Outperform, while raising the price target from $62 to $73. The EPS estimates for FY2 and FY3 have been raised from $3.70 to $4.06 and from $4.06 to $4.56, respectively.

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