Global Pharmaceuticals
I-O Agents Set to Unlock First-Line NSCLC
February 09, 2016

RESEARCH TEAM
Vamil Divan, MD
(212) 538-5394
[email protected]
Lee Guo, MD
(212) 538-3527
[email protected]
Anamaria Sudarov, PhD
(212) 325-1287
[email protected]

Muriel Chen
(212) 538-6395
[email protected]
European Pharma Team
44 207 888 0304
creditsuisse.pharmateam@
credit-suisse.com
CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS

Bottom Line: With BMY’s Opdivo and MRK’s Keytruda already making an impact in immunooncology (I-O), investor interest has been intensifying on the timing and likelihood of success for those
two products (as well as competitors from ROG and AZN) in the large first-line non-small cell lung
cancer (1L NSCLC) indication. In this note, we analyze some of the important similarities and
differences between the approaches different companies are taking in 1L NSCLC. We are confident
both Opdivo and Keytruda will hit on the primary endpoint of progression free survival (PFS) later this
year, but believe the size and time to follow up for BMY’s CheckMate 026 may give it an advantage,
while MRK KEYNOTE 024 has the advantage in terms of PFS of only including patients with tumors
that are strongly expressing PD-L1. Overall, we assume a probability of success (POS) of 75% for
MRK and 65% for BMY to hit the primary PFS endpoint in their study, but BMY may be able to
leverage a positive study into a wider label if additional cuts of the data at lower PD-L1 cutoffs are also
positive, thereby maintaining its strong leadership position in the overall lung cancer market. In
conjunction with this note we lower our BMY target price to $75 (from $78) to better reflect riskadjusted revenues for the 1L NSCLC setting but reaffirm our Outperform rating. We maintain our
Neutral rating on MRK with a target price of $56.
MRK and BMY both likely to hit PFS, but PD-L1 cutoff impacts POS and crossover risk. The
POS for CheckMate 026 (Opdivo) and KEYNOTE 024 (Keytruda) showing positive PFS results
depends in part on the level of PD-L1 expression in the primary tested population. MRK is only
recruiting patients whose tumors are >50% PD-L1 positive, while BMY is including all levels of PD-L1
positivity, but limiting the primary endpoint to the subgroup of patients that are strongly PD-L1 positive
(we believe >10%). This may improve the POS for KEYNOTE 024 on PFS but impact its ability to
show an overall survival (OS) benefit given the impact of crossover for patients who progress on
chemotherapy but do well after switching to Keytruda, thereby improving survival of the comparator
group that started on chemotherapy. We believe CheckMate 026 is also likely powered to see a
statistically significant PFS benefit in patients with PD-L1>10%, though it is possible (~30% POS) for
the trial to read out positive for the PD-L1>1% population (and thereby give BMY a much broader
label) if we exclude the impact of EGFR mutations and assume a standard deviation more in line with
historical chemotherapy norms.
Study size, length of follow up and impact of crossover also important to monitor.
CheckMate 026 includes 535 patients and completed enrollment in mid 2015, giving a minimum of
about 16 months of follow up in all patients prior to study completion that is expected in Nov 2016. In
KEYNOTE 024, on the other hand, there are only 300 patients and enrollment ended in ~Oct 2015,
leaving ~9 months of minimum follow up prior to study completion in June 2016, potentially impacting
the ability of the Keytruda arm to separate from the comparator arm on PFS and/or OS.
BEYOND INFORMATION™
Client-Driven Solutions, Insights and Access
DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, AND THE STATUS OF NON-US
ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm
may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
First-Line NSCLC the Looming Large Commercial Opportunity for I-O
In 2H16, we expect to see top-line results from both BMY’s CheckMate 026 and MRK’s KEYNOTE 024 comparing Opdivo/Keytruda
to the standard of care chemotherapy in 1st line non small cell lung cancer (NSCLC)
Current timelines give MRK a slight edge with KEYNOTE 024 scheduled to complete in June and CheckMate 026 in November
– Both studies are event-driven so actual study completion may vary slightly from these dates depending how quickly patients progress
– We do not assume any interim analyses prior to study completion since both studies use PFS as the primary endpoint and previous FDA
guidance has discouraged interim PFS efficacy analyses since the magnitude of effect can often be overstated
We believe CheckMate 026 should be powered sufficiently to detect a statistically significant PFS benefit in the >10% PD-L1+ group
– We estimate a POS of ~65% for the >10% PD-L1+ cohort but a POS of only ~30% for the >1% PD-L1+ cohort
We estimate that Keynote 024 trial has a ~75% chance of meeting the primary PFS endpoint
– We feel inclusion of only strongly PD-L1+ patients makes it more likely to succeed despite being a smaller study and having shorter follow up
Overall survival (OS) remains key for I-O products and we believe both agents, despite crossover risk, have a good chance (relative
to historical NSCLC products) of showing a statistically significant OS benefit
– We believe CheckMate 026 has a ~65% chance to delivering an OS benefit over the entire length of the trial, with an estimated HR of 0.750.85. However, at first look, we expect only a median of 18-months follow up so we see ~50% POS the OS data will be significant then
– Given MRK is recruiting a more targeted >50% PD-L1+ patient population known to have strong responses to PD1 therapy, the impact of
crossover is likely to be more significant in Keynote 024. We anticipate a ~55% POS of OS with an HR estimate of 0.8-0.9. In addition, the
POS drops to 30% at the 12-month follow up mark that we expect in June 2016 (based on enrollment timelines) with a significant likelihood
the data will not yet be mature enough
While the main focus of our note is the data from MRK and BMY expected later this year, we also present study designs of other
PD1/PD-L1 agents in development for 1L NSCLC, notably from ROG, AZN and Merck KGaA/PFE
– While we await the release of data from these various studies, we note each trial is designed and recruited differently with the resulting data
likely to shape the future NSCLC market
Question and Comments?
Click here to contact the US Pharma Team
Sources: FDA Guidance on NSCLC, Company data, Credit Suisse estimates
2
I-O Agents Set to Unlock First-Line NSCLC
Ongoing Monotherapy Studies for BMY and MRK to Read Out in 2H 2016
The authors of this report wish to acknowledge the contribution made by Selvakumar Nallasamy, an
employee of CRISIL Global Research and Analytics, a business division of CRISIL Limited.
CRISIL Limited is a third-party provider of offshore research services to Credit Suisse.
Question and Comments?
Click here to contact the US Pharma Team
3
Historical Context
First Things First: What the Historical Data Tells Us
In addition to our trial-specific analyses, we examined 15 historical oncology trials across five indications to develop greater
context around the clinical POS for first line NSCLC
Specifically, we sought to answer 3 key questions:
1. What is the probability of a study demonstrating a statistically significant OS benefit in the first line setting given
it has demonstrated an OS benefit in 2nd line?
Among the data collected, depending on indication, trials that demonstrated a OS benefit in 2nd line had a 33-60%
probability of success of demonstrating a stat sig survival benefit in 1st line
Specific to NSCLC, the POS drops to 20% with only Gilotrif demonstrating statistically significant OS in both 1L
and 2L populations
PFS results were more consistent with nearly all products within NSCLC demonstrating a statistically significant
PFS benefit in 1L studies if a statistically significant benefit was previously shown in 2L
2. How well does 2L data translate to the 1L setting?
~80% of surveyed trials had a better treatment response in 2L than in 1L with an average hazard ratio (HR) delta
of 0.1
We believe this likely reflects patient and trial characteristics, including which includes a heterogeneous patient base and a
higher proportion of cross-over risk
3. How big of an impact can crossover be?
Among the surveyed trials, crossover occurred in approximately 64% of treated patients, with some trials
showing close to 80% crossover
Overall, we continue to believe this remains the most significant risk in the 1L NSCLC trials as patients in the chemotherapy
control group are likely to be quickly switched to PD1 agents once they progress
Question and Comments?
Click here to contact the US Pharma Team
Sources: LUX Lung 3, 8, Profile 1014, RECORD-3, CALGB Avastin trial, PALOMA-1, CRYSTAL trial, FDA Product Labels, Credit Suisse analysis
4
Overview
Methodology
Key Scenario and Treatment Assumptions Used in Trial Analyses
Chemotherapy trials
1.
Trials specific to chemotx
naive patients
To select the studies used in our analysis, we ran the literature
through these 3 filters, to find relevant studies to analyze
Trial specific to
NSCLC histology
Opdivo or Keytruda
PFS Assessment
Results from Phase 2 studies are used. Adjustments
are made for differences in patient characteristics
Chemotherapy
2.
Selected trials were then
separated by endpoints
Historical chemotherapy trials within NSCLC
are used. Histology specific data was preferred
Non-crossover
OS Assessment
Hazard functions were determined for
a range of chemotherapy responses
3.
Power
calculations were
then performed
using historical
responses for IO
and chemo
regimens.
Combining the
scenarios results
in our effective
clinical POS
Cross-over
Possible crossover responses are modelled to determine a range of
possible values. Hazard functions are then determined for the effective range
Question and Comments?
Click here to contact the US Pharma Team
Sources: JCO (2008). 26(21); Ann Oncol (2007). 10; JCO (2010). 28(11). J Thorac Oncol (2011), 6(11); Company data, Credit Suisse analysis
5
How the POS is Calculated
Methodology
We Use a Quantitative Approach to Better Approximate the Clinical POS
While almost all clinical trials have at least a 80% power (or 80% POS), the calculation is often based on a fixed effect
size while actually power is a function of all possible effect sizes
Old Approach: Fixed Effect Size
New Approach: Based on Distributions of Effect Sizes
Clinical POS
To evaluate the clinical POS for Opdivo and Keytruda in 1L NSCLC, we use a new approach allowing for a distribution of effect
sizes (derived from historical studies) and their likelihood to determine the cumulative power of the study
We believe this provides a more robust assessment of the real clinical POS, hopefully accounting for the variability
in trial design, treatment factors and patient factors
Question and Comments?
Click here to contact the US Pharma Team
Sources: MD Anderson Bayesian Conference 2012, Company data, Credit Suisse estimates
6
Managing Crossover
Methodology
We Adjust the Overall Survival Results to Attempt to Account for
Crossover Risk
Patient crossover, particularly in clinical trials in
oncology, makes it difficult to detect and attribute
improvements in OS to the experimental treatment
100%
– This is due to a stronger than predicted control response
as a result of a proportion of patients crossing over to the
investigative treatment once they progress on the control
We utilized simulated survival data from historical studies to
evaluate different crossover outcomes to try and determine
a cumulative probability of success
While we expect CheckMate 026 and KEYNOTE 024 to
show positive results on PFS, the impact of crossover could
limit the impact seen on OS
– We believe this is especially true for KEYNOTE 024
since MRK has only enrolled patients whose tumors
strongly express PD-L1 while BMY has enrolled patients
with any level of PD-L1 positivity
0%
Time
(months)
Question and Comments?
Click here to contact the US Pharma Team
Sources: Credit Suisse analysis
7
Assessing POS
Methodology
Band Ranges are Used to Graphically Represent Clinical POS for
Overall Survival
100%
% Survival
90%
80%
Opdivo (All Patients)
70%
Opdivo (Estimated Value)
Opdivo
(all patients)
Average Chemo
60%
All Patients (Cisplatin/Gem)
50%
All patients (Cis/Pem)
Potential impact
of crossover
on control arm
40%
30%
20%
Chemo
Carbo/Gem
Nivo Crossover Impact
TP>50% Crossover
10%
Nivo-1st line Crossover
CS Modelled
Crossover
0%
0
3
6
9
12
15
18
21
24
27
30
Time (months)
We have chosen to illustrate our OS statistical analysis with graphical
bands representing the range of possible values. Specifically overlapping
bands represent areas where the data is likely not statistically significant.
Therefore, POS estimates are determined by the area of the band that
does not overlap with the comparator treatment.
Question and Comments?
Click here to contact the US Pharma Team
Sources: Company data, Credit Suisse estimates
8
Trial Design
Opdivo
CheckMate 026 Uses a 1:1, Open-Label Design, With PFS in Patients
With Strong PD-L1+ Expression as the Primary Endpoint
Opdivo 3mg/kg q2weeks
Primary Outcome:
PFS in patients with strongly PDL1+
expression (up to 33 months)
Open-Label, 1:1 design
Stage IV or Recurrent
PD-L1+ NSCLC
N of patients: 535
Chemotherapy
Secondary Outcome:
Overall Response Rate
Overall Survival
PFS in patients with any PD-L1+ expression
Primary Completion Date: November 2016
Gemcitabine
Cisplatin
Carboplatin
Paclitaxel
Pemetrexed
While BMY has not released the exact population
considered to be PD-L1+ strong expressers, given
previous cut-offs and anticipated discontinuation rates,
we assume the strong expressers to be patients whose
tumors have PD-L1 expression greater than 10%
Question and Comments?
Click here to contact the US Pharma Team
Sources: Clinicaltrials.gov, Company data, Credit Suisse analysis
9
Recruitment Criteria
Opdivo
Recruitment Criteria Should Limit the Variability Seen in CheckMate 026
Opdivo CheckMate 026
Inclusion criteria
ECOG Status <1
Histologically confirmed stage IV or recurrent NSCLC
Measurable disease by MRI or CT
PD-L1+ performed at central lab
A centrally adjudicated diagnosis should limit the patient variability within the trial
Exclusion criteria
Known EGFR mutations which are sensitive to available targeted inhibitor therapy
Known anaplastic lymphoma kinase (ALK) translocations
Untreated CNS mets
Previous malignancies
Active, known or suspected autoimmune diseases
Of note, the trial is excluding patients who have known EGFR mutations. We see this an positive
as EGFR patients are known to more responsive to chemotherapy than immunotherapy
Question and Comments?
Click here to contact the US Pharma Team
Sources: Clinicaltrials.gov, Company data, Credit Suisse analysis
10
PD-L1+ >10%
Progression Free Survival
Opdivo
We See a ~65% POS for Opdivo to Hit the Primary PFS Endpoint in
CheckMate 026 in Patients with PD-L1+>10%
Cohort
Opdivo (PD-L1>10%) (EGFR included)
Patient #
PFS
SD (est)
Source
20
5.68-7.23
7.50
CheckMate 012 study
6.27-7.23
7.54
CheckMate 012/ CS analysis
5.48
2.20-4.57
Historical chemotherapy trials
Opdivo (PD-L1>10%) (EGFR excluded)
Chemotherapy (includes multiple trials and regimens)
Partially excluding impact of EGFR
population, including impact of
increasing sample size and
historical data
100%
90%
80%
Clinical POS
70%
40%
Including impact of
EGFR population and
excluding impact of
increasing sample size
30%
25%
60%
50%
989
85%
Excluding impact of the EGFR population
and including impact of increasing
sample size and historical data
65%
Estimated
Hazard
Ratio
0.55-0.64
20%
10%
0%
Bear Case
Base Case
Bull Case
PDL1>10%
While mPFS results from CheckMate 012 suggest a reasonable POS for the 1L studies, our analysis of historical NSCLC trials demonstrate
that almost all of the products that showed PFS benefit in 2L also worked well in 1L
The major confounder in CheckMate 012 (the trial used for our analysis) is patients with EGFR mutations were included. These patients have
a significant impact on the outcome, particularly in a proof of concept trial, and as such we have attempted to control for this confounder
Overall, the clinical POS range is quite wide, reflecting the significant impact of activating mutations on a small Phase 2 trial
We believe our base case of 65% is appropriate, and likely to reflect the risk/reward potential in this population
Question and Comments?
Click here to contact the US Pharma Team
Sources: JCO (2008). 26(21); Ann Onc (2007). 10.1093; JCO (2010). 28(11); J Thor Onc (2011), 6(11); Company data, Credit Suisse estimates 11
PD-L1+ >1%
Progression Free Survival
Opdivo
Positive Results in PD-L1>1% Population Reflects Additional Upside,
But Likelihood of Success Is Lower (~30%)
Cohort
Opdivo (PDL1>1%) (EGFR included)
Patient #
PFS
SD (est)
Source
28
3.78-7.23
7.50
CheckMate 012 study
5.13-7.23
7.54
CheckMate 012/ CS analysis
5.48
2.20-4.57
Historical chemotherapy trials
Opdivo (PDL1>1%) (EGFR excluded)
Chemotherapy (includes multiple trials and regimens)
50%
Partially including the impact
of the EGFR population and
including the impact of
increasing sample size
45%
40%
Clinical POS
35%
30%
25%
20%
15%
10%
989
43%
Excluding impact of the
EGFR population and
including the impact of
increasing sample size
30%
Including the impact of
the EGFR population and
excluding the impact of
increasing sample size
8%
5%
0%
Bear Case
Base Case
Bull Case
PDL1>1%
Question and Comments?
Click here to contact the US Pharma Team
Sources: JCO (2008). 26(21); Ann Onc (2007). 10.1093; JCO (2010). 28(11); J Thor Onc (2011), 6(11); Company data, Credit Suisse estimates 12
Overall Survival
Opdivo
We Estimate a 50% POS for OS Initially and Up to 65% Over Time
Estimated data-cutoff
100%
% Survival
90%
80%
Opdivo (All Patients)
70%
Opdivo (Estimated Value)
Opdivo
(all patients)
Average Chemo
60%
All Patients (Cisplatin/Gem)
50%
All patients (Cis/Pem)
Potential impact
of crossover
on control arm
40%
30%
Chemo
Carbo/Gem
Nivo Crossover Impact
20%
TP>50% Crossover
10%
Nivo-1st line Crossover
CS Modelled
Crossover
0%
0
3
6
9
12
15
18
21
24
27
30
Time (months)
We used a 18-month median cut-off for our initial OS analysis. This is based on total 3-year trial period (2013-2016) with a 1.5
year patient recruitment period and a 1.5-year follow-up period
Specifically our analysis demonstrates that at the 18-month cut-off mark, there is a 50% chance that the trial will be statistically
significant. That begin said, it is also possible that the data will not be mature enough for a statistical conclusion
When we examine the OS benefit throughout the entire length of the trial, our POS increases to approximately 65%
For the magnitude of benefit, we estimate a HR of 0.75-0.85 (at study cut-off), which takes into account the large proportion
of crossover that is likely to occur within the trial
Question and Comments?
Click here to contact the US Pharma Team
Sources: JCO (2008). 26(21); Ann Onc (2007). 10.1093; JCO (2010). 28(11); J Thor Onc (2011), 6(11); Company data, Credit Suisse estimates 13
BMY
Valuation
BMY Highly Leveraged on 1L NSCLC, Representing a Spread of
Potentially $35/Share, With Risk/Reward Skewed to the Upside
$100
Spread: $13
$90
Price Target ($)
$80
Spread: $20
$77
$90
$75
Stock price
(02/08) $60.72
$70
$60
48% Upside
$55
10% Downside
$50
$40
$30
$20
$10
$0
Not Approved
in 1L Setting
Approval in
PDL1>10%
Current
Price Target
Approval in
PDL1+ (all)
*Note that 1L NSCLC represents ~$1.9Bn of 2020 probability adjusted revenues in our BMY model, or 7.5% of total company sales
Question and Comments?
Click here to contact the US Pharma Team
Sources: Thomson Reuters, Company data, Credit Suisse estimates
14
BMY
Valuation
Our Analysis Suggests a Risk-Adjusted Target Price of $75/share
90%
OS in PDL1+
population
65%
76%
5%
Meets Stat Sig
PFS in PDL1+
population
PFS in strongly
expressing
Not mature
0%
*equation used is
P(OS or PFS) = P(OS)+P(PFS) – P(OS)*P(PFS)
90%
50%
10%*
35%
Fails to meet
2% * $77 = $1.54
No Approval
2% * $55 = $1.1
2% * $55 = $1.1
10%
24%
Approval in PDL1+
0% * $88 = $0.00
Approval in
PDL1>10%
14% * $77 = $10.8
No Approval
2% * $55 = $1.1
Meets Stat sig
OS in entire
population
50%
90%
44% * $90 = $39.6
Approval in
PDL1>10%
5%
or
Meets Stat Sig
Approval in PDL1+
Not mature
100%
Approval in PDL1+
No Approval
* - While under normal circumstances an OS hit given a PFS miss is highly unlikely, the phenomenon
of “pseudo-progression” in immunotherapy makes this scenario a small possibility
2% * $90 = $1.80
32% * $55 = $17.6
Price Target = $75
Question and Comments?
Click here to contact the US Pharma Team
Sources: Company data, Credit Suisse estimates
15
Trial Design
Keytruda
Keynote 024 Has Similar Trial Design But Included Only Patients with
Tumors That Strongly Expressed PD-L1
Keytruda 2mg/kg q3weeks
Primary Outcome:
PFS (up to 2 years)
Open-Label, 1:1 design
Stage IV or Recurrent
PD-L1+ NSCLC
N of patients: 300
Secondary Outcome:
Overall Response Rate
Overall Survival
Chemotherapy
Primary Completion Date: June 2016
Gemcitabine
Cisplatin
Carboplatin
Paclitaxel
Pemetrexed
Question and Comments?
Click here to contact the US Pharma Team
Sources: Clinicaltrials.gov, Company data, Credit Suisse analysis
16
Recruitment Criteria
Keytruda
MRK Used More Restrictive Recruitment Criteria than BMY, Requiring
Tumors to Be Strongly Expressing PD-L1
Keytruda KEYNOTE 024
Inclusion criteria
ECOG Status <1
Histologically confirmed stage IV or recurrent NSCLC lacking EGFR or ALK translocation
and received no prior systemic chemotherapy
Measurable disease by MRI or CT
Life expectancy of at least 3 months
PD-L1+ strongly expressing as determined by IHC at a central lab
Exclusion criteria
EGFR sensitizing mutation and/or ALK translocation
Receiving systemic steroid therapy <= 3 days prior to first dose of study drug or receiving
any other form of immunosuppressive medication
Expected to require any other form of systemic or localized antineoplastic
therapy during the study
Received prior systemic cytotoxic chemotherapy, biological therapy, major surgery
within 3 weeks of first dose of study drug
Untreated CNS metastases
Previous malignancies
Active, known or suspected autoimmune diseases
Question and Comments?
Click here to contact the US Pharma Team
Sources: Clinicaltrials.gov, Company data, Credit Suisse analysis
17
Progression Free Survival
Keytruda
We Estimate the KEYNOTE-024 Study has a 75% Chance to Hit PFS
Cohort
Patient #
PFS
SD (est)
Keytruda (TP 1-49%)
34
4.42
11.54
Keytruda (TP >50%)
20
12.50
11.54
7.50
11.54
Keynote 001/ CS estimates
5.48
2.20-4.57
Historical chemotherapy trials
Keytruda (TP>50%) – CS estimates, which take into
account sample size and dosing differences
Chemotherapy (includes multiple trials and regimens)
100%
90%
989
While a more selective recruitment criteria does
increase the clinical POS, a different dosing
regimen and higher patient variability creates a
wide range of hazard ratios
Source
Keynote-001 study
88%
80%
Clinical POS
70%
67%
60%
Estimated
Hazard
Ratio
0.46-0.77
50%
40%
30%
20%
10%
0%
Low end of estimate
High end of estimate
Question and Comments?
Click here to contact the US Pharma Team
Sources: JCO (2008). 26(21); Ann Onc (2007). 10.1093; JCO (2010). 28(11); J Thor Onc (2011), 6(11); Company data, Credit Suisse estimates 18
Overall Survival
Keytruda
Crossover Risk Higher for Keytruda but POS Still ~55% Over Time
100%
PDL1>50% %Alive
90%
Estimated Value
80%
All Patients (Cisplatin/Gem)
% Survival
70%
All patients (Cis/Pem)
Potential impact
of crossover
on control arm
60%
50%
Carbo/Gem
Keytruda
(PDL1>50%)
Chemo
Average Chemo
TP>50% Crossover (2nd line)
40%
30%small # of patients, short
Given the
follow-up and different dosing in earlier
20%
studies, Keytruda OS was estimated by
combining
10%OS values for TP>1% and
TP>50%. We believe this represents an
0%estimate and likely captures
appropriate
0
3
6
9
response variability
in greater
context
TP>50% First Line
TP >1% Crossover
CS Modelled
Crossover
Estimated data-cutoff
12
15
18
21
24
27
30
Time (months)
Given the targeted nature of the trial (recruiting only TP>50%) and the high clinical efficacy of PD1 agents within
this patient group, we expect crossover risk to be higher in the Keynote study, with a significant portion of patients
quickly switching to PD1 therapy
Our analysis suggests at the 12-month cut-off mark, there is a 30% chance the OS will be statistically significant
given the crossover risk
When we examine the OS benefit throughout the entire length of the trial, our POS increases to approximately 55%
For the magnitude of benefit, we estimate a HR of 0.8-0.9, which again takes into account the large proportion
of crossover that is likely to occur within the trial
Question and Comments?
Click here to contact the US Pharma Team
Sources: JCO (2008). 26(21); Ann Onc (2007). 10.1093; JCO (2010). 28(11); J Thor Onc (2011), 6(11); Company data, Credit Suisse estimates 19
MRK
Valuation
MRK Diversified Revenue Base Reduces Upside/Downside Potential
from 1L NSCLC Results
$70
$60
Spread: $4
$56
$58
$60
Price ($)
$50
$40
$30
$20
$10
$0
Not Approved
in 1L Setting
Current
Price Target
Approval in
PDL1>50%
*Note that 1L NSCLC represents ~$1.1Bn of 2020 probability adjusted revenues in our MRK model, or 2.5% of total company sales
Question and Comments?
Click here to contact the US Pharma Team
Sources: Clinicaltrials.gov, Company data, Credit Suisse analysis
20
I-O Agents Set to Unlock First-Line NSCLC
Several Other Players Also Pursuing I-O for 1L NSCLC
Question and Comments?
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21
Trial Design
Durvalumab
AstraZeneca 1L NSCLC Strategy Based on IO-IO Combo in PD-L1
Negative Patients
MYSTIC
durvalumab
Open-Label, 1:1:1 design
durvalumab + tremelimumab
Stage IV NSCLC
PD-L1 all comers
Chemotherapy
N of patients: 675+
Gemcitabine
Cisplatin
Carboplatin
Paclitaxel
Pemetrexed
Co-Primary Outcome:
PFS durva/treme (up to 36 months)
OS durva/treme (up to 36 months)
Secondary Outcome:
durva mono PFS
durva mono OS
ORR
DOR
Primary Completion Date: January 2017
AstraZeneca recently updated the trial design to
include OS as a co-primary endpoint
AstraZeneca believes the trial is sufficiently
powered to show file-able PD-L1+ durva mono
efficacy
AstraZeneca believe 66-75% of 1L pts are PD-L1Question and Comments?
Click here to contact the US Pharma Team
Sources: Clinicaltrials.gov, Company data, Credit Suisse analysis
22
Recruitment Criteria
Durvalumab
Recruitment Criteria Should Limit the Variability Seen in the Trial
durvalumab + tremelimumab
Inclusion criteria
WHO Status 0 or 1
Histologically confirmed stage IV NSCLC
Exclusion criteria
Known EGFR mutations
Known anaplastic lymphoma kinase (ALK) rearrangements
Untreated CNS metastases
Previous malignancies
Active, known or suspected autoimmune diseases
Of note, the trial is excluding patients who have known EGFR mutations. We see this an positive
as EGFR patients are known to more responsive to chemotherapy than immunotherapy
Question and Comments?
Click here to contact the US Pharma Team
Sources: Clinicaltrials.gov, Company data, Credit Suisse analysis
23
Trial Design
Atezolizumab
Roche Lead 1L NSCLC Strategy Based on IO+Avastin+Chemo in PD-L1
All-Comers
IMpower 150 (non-squamous)
atezo + Avastin + chemotherapy
Open-Label, 1:1:1 design
atezo + chemotherapy
Stage IV NSCLC
PD-L1 all comers
Avastin + chemotherapy
Primary Outcome:
PFS (up to 24 months)
Secondary Outcome:
OS
ORR
DOR
Primary Completion Date: January 2017
Non-squamous
N of patients: 1200
Carboplatin
Paclitaxel
Question and Comments?
Click here to contact the US Pharma Team
Sources: Clinicaltrials.gov, Company data, Credit Suisse analysis
24
Recruitment Criteria
Atezolizumab
Recruitment Criteria Allows for Patients with EGFR Mutations
Atezolizumab + Avastin + chemo
Inclusion criteria
ECOG Status 0 or 1
Histologically confirmed stage IV NSCLC
Biopsy available for screening
Measurable disease
Exclusion criteria
Untreated CNS metastases
Previous malignancies
Active, known or suspected autoimmune diseases
History of IPF
Of note, this trial includes patients who have known EGFR mutations.
EGFR patients are known to more responsive to chemotherapy than immunotherapy
Question and Comments?
Click here to contact the US Pharma Team
Sources: Clinicaltrials.gov, Company data, Credit Suisse analysis
25
Trial Design
Atezolizumab
Roche 1L NSCLC Strategy Based on IO+Chemo in PD-L1 All-Comers
IMpower 130 (non-squamous)
atezo + nab-paclitaxel + carboplatin
Open-Label, 1:1 design
Stage IV NSCLC
Non-squamous
chemotherapy
Primary Outcome:
PFS (up to 30 months)
Secondary Outcome:
OS
ORR
DOR
Primary Completion Date: July 2018
PDL1 all comers
N of patients: 550
Nab-paclitaxel
Carboplatin
Question and Comments?
Click here to contact the US Pharma Team
Sources: Clinicaltrials.gov, Company data, Credit Suisse analysis
26
Trial Design
Atezolizumab
Roche 1L NSCLC Strategy Based on IO+Chemo in PD-L1 All-Comers
IMpower 132 (non-squamous)
atezo + pemetrexed + carbo/cisplatin
Open-Label, 1:1 design
Stage IV NSCLC
Non-squamous
chemotherapy
Primary Outcome:
PFS (up to 30 months)
Secondary Outcome:
OS
ORR
DOR
Primary Completion Date: ???
PDL1 all comers
N of patients: 680
First patient enrollment due 1Q16
pemetrexed
Carboplatin or cisplatin
Roche has agreed with regulators that doctors can be
requested to use the minimal possible amount of
steroid, below the labelled indication for pemetrexed
Question and Comments?
Click here to contact the US Pharma Team
Sources: Clinicaltrials.gov, Company data, Credit Suisse analysis
27
Trial Design
Atezolizumab
Roche 1L NSCLC Strategy Based on IO+Chemo in PD-L1 All-Comers
IMpower 131 (squamous)
atezo + nab-paclitaxel + carboplatin
Open-Label, 1:1:1 design
atezo + paclitaxel + carboplatin
Stage IV NSCLC
PDL1 all comers
nab-paclitaxel + carboplatin
Primary Outcome:
PFS (up to 24 months)
Secondary Outcome:
OS
ORR
DOR
Primary Completion Date: February 2023
Squamous
N of patients: 1200
Carboplatin
Nab-paclitaxel
Question and Comments?
Click here to contact the US Pharma Team
Sources: Clinicaltrials.gov, Company data, Credit Suisse analysis
28
Recruitment Criteria
Atezolizumab
Recruitment Criteria Allows for Patients with EGFR mutations
Atezolizumab + nab-paclitaxel + carboplatin
Inclusion criteria
ECOG Status 0 or 1
Histologically confirmed stage IV NSCLC
Biopsy available for screening
Measurable disease
Exclusion criteria
Untreated CNS mets
Previous malignancies
Active, known or suspected autoimmune diseases
History of IPF
Of note, the trial includes patients who have known EGFR mutations.
EGFR patients are known to more responsive to chemotherapy than immunotherapy
Question and Comments?
Click here to contact the US Pharma Team
Sources: Clinicaltrials.gov, Company data, Credit Suisse analysis
29
Trial Design
Atezolizumab
Pfizer/Merck KGaA 1L NSCLC strategy in PD-L1+ Is Late
JAVELIN Lung 100
atezo + pemetrexed + carbo/cisplatin
Open-Label, 1:1 design
Stage IV NSCLC
PD-L1+
chemotherapy
Primary Outcome:
PFS (up to 30 months)
Secondary Outcome:
OS
ORR
EQ-5D-5L QoL
Primary Completion Date: February 2018
N of patients: 420
Gemcitabine
Cisplatin
Carboplatin
Paclitaxel
Pemetrexed
Question and Comments?
Click here to contact the US Pharma Team
Sources: Clinicaltrials.gov, Company data, Credit Suisse analysis
30
Recruitment Criteria
Atezolizumab
Recruitment Criteria Allows for Patients with EGFR mutations
Atezolizumab + nab-paclitaxel + carboplatin
Inclusion criteria
ECOG Status 0 or 1
Histologically confirmed stage IV NSCLC
PD-L1+ confirmed by central review
Measurable disease
Exclusion criteria
Known EGFR mutations
Known anaplastic lymphoma kinase (ALK) rearrangements
Untreated CNS mets
Previous malignancies
Known hypersensitivity reactions to antibodies
Question and Comments?
Click here to contact the US Pharma Team
Sources: Clinicaltrials.gov, Company data, Credit Suisse analysis
31
Disclosures
Companies Mentioned (Price as of 09-Feb-2016)
AstraZeneca (AZN.L, 3914.5p)
Bristol Myers Squibb Co. (BMY.N, $61.02, OUTPERFORM, TP $75.0)
Merck & Co., Inc. (MRK.N, $49.16, NEUTRAL, TP $56.0)
Merck KGaA (MRCG.DE, €72.0)
Pfizer (PFE.N, $29.1)
Roche (ROG.VX, SFr241.8)
Disclosure Appendix
Important Global Disclosures
I, Vamil Divan, MD, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and
securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this
report.
3-Year Price and Rating History for Bristol Myers Squibb Co. (BMY.N)
based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings
were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s
coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 12 -month rolling dividend yield. An Outperform rating is
assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between 5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for
Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July 2011.
Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications,
including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other
circumstances.
Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24
months or the analyst expects significant volatility going forward.
Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of
the sector* relative to the group’s historic fundamentals and/or valuation:
Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.
Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.
Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.
*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cov er multiple sectors.
BMY.N
Date
10-May-13
08-Oct-13
16-Dec-13
20-Dec-13
21-Jan-14
09-Feb-14
21-Apr-14
30-Apr-14
02-Nov-14
17-Dec-14
22-Jan-15
06-Feb-15
04-Mar-15
04-May-15
03-Aug-15
02-Nov-15
16-Dec-15
04-Feb-16
Closing Price
(US$)
40.49
46.60
50.88
53.37
54.59
50.33
50.51
50.09
58.19
59.19
62.09
59.67
65.67
65.32
65.34
65.75
70.71
59.70
Target Price
(US$)
55.00
56.00
60.00
63.00
62.00
61.00
59.00
65.00
66.00
69.00
68.00
70.00
75.00
78.00
76.00
81.00
78.00
Credit Suisse's distribution of stock ratings (and banking clients) is:
Rating
NR
O*
Global Ratings Distribution
Rating
N O T RA T ED
O U T PERFO RM
3-Year Price and Rating History for Merck & Co., Inc. (MRK.N)
Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market
that may have a material impact on the research views or opinions stated herein.
Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to
Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-andanalytics/disclaimer/managing_conflicts_disclaimer.html
Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be
used, by any taxpayer for the purposes of avoiding any penalties.
Method: Our $75 target price for Bristol Myers Squibb is based on 75% DCF (discounted cash flow) valuation of $76, for which we use a 7% WACC
(weighted average cost of capital) along with a 1.5% perpetuity growth forecast, an 25% relative P/E of $70 based on ~ 30 times earnings.
We see a high long term potential in I-O and believe BMY is well positioned to capture that, and therefore maintain our Outperform rating.
Risk:
Closing Price
(US$)
42.50
45.95
47.75
54.77
57.25
57.24
55.84
57.94
58.30
58.08
57.63
62.59
58.79
60.64
58.87
54.02
48.59
Target Price
(US$)
52.00
49.00
53.00
54.00
57.00
56.00
56.00
59.00
60.00
61.00
60.00
62.00
61.00
59.00
56.00
Of which banking clients (%)
Target Price and Rating
Valuation Methodology and Risks: (12 months) for Bristol Myers Squibb Co. (BMY.N)
* Asterisk signifies initiation or assumption of coverage.
MRK.N
Date
21-Feb-13
10-May-13
08-Oct-13
09-Feb-14
21-Apr-14
27-Apr-14
07-May-14
09-Jun-14
12-Jun-14
30-Jul-14
17-Dec-14
22-Jan-15
06-Feb-15
04-May-15
08-Jun-15
16-Dec-15
04-Feb-16
Versus universe (%)
Outperform/Buy*
56%
(36% banking clients)
Neutral/Hold*
31%
(29% banking clients)
Underperform/Sell*
12%
(42% banking clients)
Restricted
1%
*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, an d Underperform most closely correspond
to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.)
An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other indivi dual factors.
Rating
O
NR
N*
Key risks to our $75 target price and Outperform rating for Bristol Myers Squibb are twofold: (1) pipeline failures, particularly in the immunooncology space could cause estimates to come down; and (2) underperformance of core franchises could bring longer-term estimates on
these key franchises down.
Target Price and Rating
Valuation Methodology and Risks: (12 months) for Merck & Co., Inc. (MRK.N)
Method: Our $56 target price is based 75/25 blend of DCF valuation ($58) and relative valuation ($51). We use a 7% WACC along with a -1.0%
perpetuity growth forecast for our DCF valuation and apply 15.5 times our 2016 EPS estimate for relative valuation. Our Neutral rating is
based on a lack of upside from its core product franchise and pipeline potential according to our assessment.
Risk:
R
N
O U T PERFO RM
N O T RA T ED
N EU T RA L
REST RIC T ED
* Asterisk signifies initiation or assumption of coverage.
The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total
revenues, a portion of which are generated by Credit Suisse's investment banking activities
As of December 10, 2012 Analysts’ stock rating are defined as follows:
Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months.
Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.
Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.
*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which
consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractiv e, Neutrals the less attractive, and
Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s t otal return
relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most
attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-Japan Asia stocks, ratings
Key risks to our $56 target price and Neutral rating include (1) execution mis-steps (particuarly with the diabetes and vaccines franchises); (2)
pipeline failures, particularly with their osteoporosis and oncology franchises; and (3) higher than anticipated expenses.
Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target
price method and risk sections.
See the Companies Mentioned section for full company names
The subject company (BMY.N, MRK.N) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit
Suisse.
Credit Suisse provided investment banking services to the subject company (BMY.N, MRK.N) within the past 12 months.
Credit Suisse has managed or co-managed a public offering of securities for the subject company (BMY.N) within the past 12 months.
Credit Suisse has received investment banking related compensation from the subject company (BMY.N, MRK.N) within the past 12 months
Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (BMY.N, MRK.N) within the
next 3 months.
As of the date of this report, Credit Suisse makes a market in the following subject companies (BMY.N, MRK.N).
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