Mkt. Cap Price Cons. Current EPS Estimates Previous Est.Company Name Ticker (MM) Rating Price Target Next FY 2014 2015 2016 2015 2016 AstraZeneca PLC AZN LN £49,305.8 BUY 3,922.50p 5,600.00p $4.24 $4.28 $4.22 $4.23 $4.22 $4.21Bristol-Myers Squibb BMY $96,514.9 HOLD $57.88 $59.00▼ $1.83 $1.85 $1.93 $2.16 $1.93 $2.18Merck & Co. MRK $144,125.4 HOLD $51.17 $57.00▼ $3.51 $3.49 $3.55 $3.82 $3.53 $3.82Pfizer** PFE $193,273.8 BUY $31.34 $47.00 $2.08 $2.26 $2.07 $2.33 $2.07 $2.34Roche ROG VX CHF218,115.9 BUY CHF257.00 CHF300.00▼CHF14.06 CHF14.29 CHF13.84 CHF15.49 CHF13.84 CHF15.45** Franchise Pick
Target | Estimate Change
Global | Healthcare | Pharmaceuticals August 27, 2015
PharmaceuticalsImmuno-Oncology 2025: Deep-DiveHighlights AZN and Roche in $51bn Market
EQU
ITY R
ESEARC
H G
LOB
AL
Jeffrey Holford, PhD, ACA *Equity Analyst
(212) 336-7409 [email protected] Gu, PhD *
Equity Associate(212) 336-7459 [email protected]
Ian Hilliker §Equity Analyst
44 (0) 20 7029 8672 [email protected] Qiong Hai *
Equity Associate(212) 336-7098 [email protected]
* Jefferies LLC § Jefferies International Limited
Key TakeawayWe have increased our PD-1/L1 peak sales opportunity to $51bn. We reiterateAZN as our "Top Pick" in Europe and as the best way to play IO, as it and Rochehave the best strategic positioning in combination therapy and could threatenBMY's position as the "leader" in IO. BMY remains our "Least Preferred" stock.We remain bullish on Roche and see it as best positioned in IO. MRK and PFElack sufficient leverage from IO, though we remain very bullish on PFE.
Tangible market opportunity increased to $51bn: We have increased our PD-1/L1peak sales opportunity to $51bn (from $40bn), as the market becomes increasingly wellvalidated through product approvals, strong initial launches in melanoma/ NSCLC andindication expansion. BMY remains the "market leader" on a peak sales basis ($13.1bn),closely followed by Roche ($12.7bn), AZN ($11.0bn), MRK ($9.6bn) and PFE ($3.8bn).
Key controversies rage around PD-L1 testing and combo therapy: Keycontroversies continue to rage around opposing corporate strategies on PD-1 vs. PD-L1,patient selection by PD-L1 status and IO-chemo combo vs. IO-IO combos. We see Rochebeing in the "sweet-spot" strategically with the best all-round approach, closely followedby AZN. BMY and MRK appear worst positioned for the longer term with respect to theircombination therapy prospects as well as patient selection strategy in the case of BMY.
As good as it gets for BMY? BMY remains the market leader with our Opdivo peaksales estimate increased to $13.1bn from $11.6bn previously. However, the gap versus thecompetition is narrowing and there are significant threats to its dominance in the mid tolong term for NSCLC and combination therapy in particular. We are also concerned that themore lucrative PD-L1 positive patients may go to the companies most focused on testing andfinding these individuals (Roche, MRK, AZN). We remain below consensus for Opdivo andreiterate BMY as our "Least Preferred" large cap pharmaceutical stock primarily on valuationgrounds and asymmetric downside risk to mid to long term Opdivo estimates.
Roche catching up fast and best-placed strategically: Our $12.7bn peak salesestimate for atezolizumab puts Roche within 3% of our estimate for BMY. We see Rocheas best-placed overall in terms of patient selection and combination therapy, which couldultimately allow it to displace BMY as the category leader. However, our estimates are onlymodestly above consensus and IO may carry less leverage for Roche than some of the otherplayers due to its overall size and drag from biosimilars over the next 3-5 years.
AZN is our "Top Pick" in IO and European Pharma: We believe that AZN's IO programis the most under-appreciated (peak sales est. $11bn), whilst also being best placed toprovide leverage to the company's growth prospects over the next 3-5 years. We expect thatmore tangible progress from the IO franchise as well as the broader pipeline over the next6-12 months should drive multiple expansion as well as mid-term earnings momentum. Asa result, AZN is our "Top Pick" in both European Large Cap Pharma and Immuno-oncology.
MRK and PFE lack leverage from IO: Whilst MRK has good prospects in IO, patent expirydrag, an under-developed combo strategy and downside risk to Januvia estimates leaves iton the sidelines for us. PFE's late-entry and lack of leverage from IO make it less interestingin this regard. However, we remain extremely bullish on PFE with regard to "optionality",accretive M&A and positive EPS momentum from Ibrance/ Prevnar-13.
Jefferies does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that Jefferies may have a conflictof interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.Please see analyst certifications, important disclosure information, and information regarding the status of non-US analysts on pages 66 to 69 of this report.
Earnings Growth vs P/E
Source: FactSet, Jefferies estimates
Long-Term Financial Model Drivers
2014A-20E Revenues CAGR 5.9%
2014A-20E Earnings CAGR 15.6%
Other Considerations
BMY has successfully reinvented itself as a
pure play in Pharmaceuticals. Management
have been successful in converting the
pipeline into approved products with the
launches of Opdivo, Yervoy and Eliquis.
Potential of the anti-PD-1 clinical program
has been demonstrated in multiple clinical
trials, but appears to be reflected in
consensus. We see an underlying earnings
growth rate in the double-digits after 2015.
1-Year Forward P/E
Source: FactSet, Jefferies estimates
Bristol-Myers Squibb is engaged in the discovery, development, licensing, manufacturing,
marketing, distribution and sale of pharmaceutical products. With the recent divestment of
its Diabetes franchise, the key disease areas of focus for Bristol-Myers Squibb are now
Oncology and Hepatitis C.
September 7: Updated CheckMate-
012 data for Opdivo/ Yervoy in 1st line
NSCLC at World Lung Conference
September 30: PDUFA for Opdivo/
Yervoy combo in 1st line melanoma
Q3’15E: Phase III readout for Yervoy in
squamous NSCLC
October 28: PDUFA for Yervoy for
adjuvant melanoma
Catalysts
Target Investment Thesis
Strong potential of PD-1 inhibitor
Opdivo appears to be well reflected in
consensus
Safety concerns with the Opdivo/
Yervoy combo and advancement of
competing PD-L1 combos could weigh
on potential
Eliquis sales could accelerate with
approval in VTE, but IPR risk remains
Our $59 PT is based on DCF/ PEG
valuation and implies a 2016E PE
multiple of c27x
Upside Scenario
Faster than expected Opdivo sales
ramp and favourable regulatory
updates
Stronger than expected growth for
Eliquis with the new indications (e.g.,
VTE treatment) and favourable IPR
developments
If achieved we would expect the
shares to trade up to $70 on a 2016E
PE multiple of c32x
Downside Scenario
Pipeline or regulatory setbacks or
delays for the immuno-oncology
franchise, especially for Opdivo/
Yervoy combo in non-small cell lung
cancer
Unfavorable Eliquis IPR decision and/
or significant slow-down or decline in
Eliquis growth
In this scenario, we expect the shares
to trade at $35 on 2016E PE multiple
of c16x
Long Term Analysis
Scenarios
Group P/Es
Source: FactSet, Jefferies estimates
Recommendation / Price Target
Ticker Rec. PT
BMY Hold $59.00
ABT Hold $54.00
ABBV Buy $90.00
JNJ Hold $107.00
LLY Buy $110.00
MRK Hold $57.00
PFE Buy $47.00
Company Description
THE LO
NG
VIE
W
Peer Group
Bristol-Myers
Hold: $59.00 Price Target
Healthcare
Target | Estimate Change
August 27, 2015
page 2 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Long Term Financial Model Drivers
2014A-20E Revenues CAGR +3.7%
2014A-20E Earnings CAGR +6.0%
Other Considerations
The restructuring and divestment of
Nutrition and Animal Health segments
along with capital allocation provided
growth for the stock during 2011-12. We
see Ibrance, avelumab and the expected
acquisition of Hospira as important drivers
of growth and expect further accretive
transactions before a potential separation
in 2017.
1 Year Forward P/E
Source: FactSet, Jefferies estimates
Pfizer was founded in 1849 by Charles Pfizer and Charles Erhart as a fine-chemicals
business. From the company’s early exploits in the field of antibiotics, anti-inflammatory
medicines, diabetes, cardiovascular disease amongst others, combined with a series of
significant mergers and acquisitions, it is now the largest Pharmaceutical company in the
world with household brand names including Lipitor and Viagra. With acquisition of Wyeth
in 2009, Pfizer became one of world’s largest pharmaceutical companies. Pfizer recorded
circa $49bn in revenues in 2014.
Q3’15: Phase III tofacitinib data in
psoriatic arthritis and ulcerative colitis
H2’15: expected closing of Hospira
acquisition
October 2015: Xeljanz PDUFA for
psoriasis
Q1’16: Phase III PALOMA-2 data for
Ibrance in 1st line HR+/HER2- mBC
Catalysts
Target Investment Thesis
Ibrance (palbociclib), Prevnar-13 and
avelumab to be important drivers of
growth
Hospira deal to strategically
complement the GEP business and
drive significant EPS accretion
M&A to bolster the GIP business prior
to a potential separation
Our $47 PT is based on a SOTP
valuation basis to reflect the
restructuring potential at Pfizer; this
implies a c30% premium to the US
market PE multiple
Upside Scenario
Better than expected uptake for Ibrance
Faster than expected clinical
advancement of the immune-oncology
franchise (e.g., avelumab)
Greater than expected revenue or cost
synergies from the Hospira deal
Additional accretive deal(s) that bolster
the innovative business and pipeline
If this scenario is achieved we expect
shares to trade on a c45% premium to
the 2016 US market PE multiple with a
corresponding value of $52.00
Downside Scenario
Poor uptake for Ibrance or failure of
Phase III results to support full
approval
Clinical or regulatory setbacks for
avelumab
Failure to close Hospira acquisition
Lack of accretive M&A transactions
If this scenario occurs, we expect
shares to trade on a c30% discount to
the 2016 US market PE multiple with
a corresponding value of $25.00
Long Term Analysis
Scenarios
Group P/Es
Source: FactSet, Jefferies estimates
Earnings Growth vs P/E
Source: FactSet, Jefferies estimates
Recommendation / Price Target
Ticker Rec. PT
PFE Buy $47.00
ABT Hold $54.00
BMY Hold $59.00
ABBV Buy $90.00
LLY Buy $110.00
JNJ Hold $107.00
MRK Hold $57.00
Company Description
THE LO
NG
VIE
W
Peer Group
Pfizer
Buy: $47.00 Price Target
Healthcare
Target | Estimate Change
August 27, 2015
page 3 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Table of Contents
Executive Summary 5
Company Summaries:
Bristol-Myers 9
Roche 11
AstraZeneca 12
Merck & Co. 13
Pfizer 14
Key Clinical and IO Combo Program Summaries 15
Combinations To Redefine Treatment Paradigm 19
Biomarker Strategy for PD-1/ L1 inhibitors 23
Cancer–Specific Discussions:
NSCLC 24
RCC 41
Melanoma 47
Other Tumours 54
Appendix (company models) 61
Healthcare
Target | Estimate Change
August 27, 2015
page 4 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Executive Summary The PD-1/ L1 inhibitor space has evolved tremendously over the past 12-18 months with
progress in multiple cancer indications and a continuing shift towards combination
studies. In addition to reviewing the current landscape for the PD-1/ L1 market, this
comprehensive update analyses the competitive dynamics in the immuno-oncology race
from near, mid and long term perspectives across multiple cancer indications and
examines the key topics of debate. Most importantly, our work systematically analyses
and forecasts the commercial potential for the PD-1/ L1 market and key players with
support from our proprietary immuno-oncology model.
Updates to our IO model suggests $51bn PD-1/ L1 market opportunity
Key updates to our IO market model include:
Addition of new indications (e.g., adjuvant NSCLC, adjuvant bladder, ovarian
cancer, small cell lung cancer and Merkel cell carcinoma) given recent study
initiations,
Break-out of Pfizer’s PD-L1 inhibitor avelumab from the “Other” PD-1/ L1
inhibitors category given the company’s aggressive push in the IO space,
Updates to PD-L1 expression levels and IO combination use for the key
indications (e.g., NSCLC, RCC) based on the latest data, and
Modification of the progress of the various PD-1/ L1 inhibitors in different cancer
indications to reflect clinical or regulatory advancements.
As a result of our updates and improved understanding of the IO market since our last
“deep-dive” report published on June 24, 2014, we see a peak de-risked market sales
opportunity of c$51bn (from c$40bn) for this market.
Exhibit 1: Peak anti-PD-1/ L1 de-risked sales by drug ($m,
rounded to nearest $50m)
Source: Jefferies estimates
Exhibit 2: Peak anti-PD-1/ L1 de-risked sales by tumour
type ($m, rounded to nearest $50m)
Source: Jefferies estimates
Opdivo, $13,100
Keytruda, $9,600
atezolizumab,
$12,700
Durvalumab,
$11,000
avelumab,
$3,800 Other, $950
RCC, $3,600
Squamous
NSCLC, $3,100
Non-squamous
NSCLC, $16,400
Melanoma,
$2,250
Other, $25,800
Healthcare
Target | Estimate Change
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page 5 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Bristol-Myers a clear leader in monotherapy but race is tight for combos
Following the multitude of pivotal data releases in the last year for the two most
advanced indications, melanoma and non-small cell lung cancer (NSCLC), Bristol-Myers’
PD-1 inhibitor Opdivo (nivolumab) appears to be a clear leader in the monotherapy
treatment of these indications. Merck & Co., however, is not far behind Bristol-Myers as its
PD-1 inhibitor Keytruda (pembrolizumab) is also approved in melanoma and could be
approved for 2nd line NSCLC by its October 2, 2015 PDUFA date.
In terms of combination therapy, Bristol-Myers’ Opdivo/ Yervoy combination (PD-1/
CTLA-4) has a slight edge in melanoma with the impressive CheckMate-067 data and we
expect approval by its September 30, 2015 PDUFA date. The combination therapy race for
the more significant NSCLC commercial opportunity remains tight as Roche, AstraZeneca,
and Bristol-Myers all have pivotal combination studies for 1st line and/ or 2nd/ 3rd line
NSCLC. However, with limited insight into the next wave of multiple PD-1/ L1
combinations still in Phase I development, it remains to be seen if one or more of these
combinations could once again shift the landscape.
Promising PD-1/ L1 data across multiple indications
Outside the two indications where PD-1s are currently approved, development is most
advanced in head and neck cancer, bladder cancer, and renal cell carcinoma (RCC) with
robust data in proof-of-concept studies. AstraZeneca, Merck & Co. and Bristol-Myers all
have ongoing Phase III studies for head and neck cancer, though AstraZeneca may have
an advantage over the competition with its durvalumab/ tremelimumab (PD-L1/ CTLA)
combo. In RCC, Roche and Bristol-Myers could have an advantage through their
respective in-house combos with Avastin and Yervoy, respectively.
Beyond these indications, Merck & Co.’s Keytruda is notable as it has demonstrated early
efficacy as monotherapy across a broad range of cancer indications (e.g., Hodgkin’s,
gastric, TNBC, small cell lung cancer), which could position it well as one of the first
entrants across these tumour types and provide a boost to near-term earnings.
Is anti-PD-L1 better than anti-PD-1 for combination therapy?
While the monotherapy data that we have seen to date would suggest that it is difficult to
distinguish between PD-1 and PD-L1 inhibitors in terms of efficacy and safety, the data for
combination therapy, especially in NSCLC, would suggest that PD-L1 inhibitors may be a
better backbone for combination therapy than PD-1 inhibitors. If this hypothesis is
validated through additional clinical data then Roche, AstraZeneca, and potentially Pfizer
could benefit as immuno-oncology shifts towards combination therapies, while Bristol-
Myers could be relegated to a weaker competitive position, in our view.
PD-L1 biomarker not ready for prime time yet
Despite data that have shown correlation between PD-1/ L1 efficacy and PD-L1 expression
in a range of tumours, some of the KOLs that we consult with think that it is too early to
use PD-L1 biomarker diagnostics for patient selection. This is partly due to the mixed data
that has come out from different studies as well as there being any better alternative for
the PD-L1 negative patients. That said, we expect that the near term approval of
companion PD-L1 diagnostic assays for the PD-1/ L1 inhibitors will start the transition
towards PD-L1 biomarker testing as standard practice in time for when IO combinations
that are more efficacious in PD-L1 negative patients will be introduced.
While early efforts are underway to test for other viable biomarkers, we see very limited
progress here with the exception of mismatch repair deficiency, which showed promising
early data at ASCO 2015.
Healthcare
Target | Estimate Change
August 27, 2015
page 6 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Consensus continues to underestimate the potential of IO for AstraZeneca
We see significant potential for the future of immuno-oncology and believe the market
opportunity for the PD-1/ L1 backbone alone could be worth around c$51bn. While our
model suggests Opdivo and Keytruda will make up a large portion of the PD-1/ L1
inhibitor sales by 2020E, consensus estimates are even higher and appear to leave little
room for error, in our view, even on a de-risked basis. On the other hand, consensus
underestimates the potential of AstraZeneca’s durvalumab in our view.
Exhibit 3 and Exhibit 4 compare our own 2018E and 2020E risk-adjusted and de-risked
estimates versus consensus, respectively, for Opdivo, Keytruda, atezolizumab,
durvalumab, and avelumab.
Exhibit 3: Comparison of 2018E JEF de-risked, risk-adjusted
and Consensus estimates for anti-PD-1/ L1 agents ($m)
Source: First Order, Jefferies estimates
Exhibit 4: Comparison of 2020E JEF de-risked, risk-adjusted
and Consensus estimates for anti-PD-1/ L1 agents ($m)
Source: First Order, Jefferies estimates
Exhibit 5: Total de-risked sales by year for the key anti-PD-
1/ L1 drugs ($m)
Source: Company data, Jefferies estimates
Exhibit 6: Total risk-adjusted sales by year for the key anti-
PD-1/ L1 drugs ($m)
Source: Company data, Jefferies estimates
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
Keytruda Opdivo atezolizumab Durvalumab avelumab
An
nu
al re
ven
ue (
$m
)
2018E De-risked 2018E Risk-adjusted 2018 Consensus
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
Keytruda Opdivo atezolizumab Durvalumab avelumab
An
nu
al re
ven
ue (
$m
)
2020E De-risked 2020E Risk-adjusted 2020 Consensus
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
$45,000
$50,000
De-r
iske
d S
ale
s ($
m)
Keytruda Opdivo atezolizumab durvalumab avelumab
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
$45,000
$50,000
Ris
k-A
dju
sted
Sale
s ($
m)
Keytruda Opdivo atezolizumab durvalumab avelumab
Healthcare
Target | Estimate Change
August 27, 2015
page 7 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Exhibit 7: Total de-risked sales by year by indication($m)
Source: Company data, Jefferies estimates
Exhibit 8: Total risk-adjusted sales by year by
indication($m)
Source: Company data, Jefferies estimates
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
$45,000
$50,000
De-r
iske
d S
ale
s ($
m)
Non-squamous NSCLC Squamous NSCLC Renal cell carcinoma
Melanoma Other indications
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
$45,000
$50,000
Ris
k-A
dju
sted
Sale
s ($
m)
Non-squamous NSCLC Squamous NSCLC Renal cell carcinoma
Melanoma Other indications
Healthcare
Target | Estimate Change
August 27, 2015
page 8 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Bristol-Myers – As good as it gets? Bristol-Myers is in the enviable position of being the leader in immuno-oncology with two
approved products on the market (Yervoy, Opdivo) as well as having one of the most
advanced pipelines across the broader cancer indications. The Opdivo launch has clearly
begun to accelerate recently as the company begins to make headway into the more
lucrative NSCLC market and looks to leverage off its other IO asset (Yervoy) in melanoma.
Opdivo peak sales estimate raised to $13.1bn
Our update gives a raised peak sales potential of $13.1bn (from $11.6bn) for Opdivo
alone making Bristol-Myers still the “leader” in immuno-oncology as far as the PD-1/ L1
backbone market goes. There is still significant headroom from our risk-adjusted peak
sales of $8.0bn implied within our company model that could drive further upside to
Bristol Myers’ shares if de-risked through clinical and commercial execution. Our risk-
adjusted 2020E revenue estimate for Opdivo of $6.4bn is below consensus of $7.3bn and
investor expectations remain very high for the product.
As a result of the changes we have made to our Opdivo estimates, we have raised our
revenue estimates by up to 2% between 2015E-20E and have changed our EPS estimates
by -1% to +5%. In the mid to long term (2016E-20E), our revenue and EPS estimates
remain below consensus.
Exhibit 9: Changes to estimates for Bristol-Myers, 2014A-20E
(US$) millions 2014A 2015E 2016E 2017E 2018E 2019E 2020E CAGR
‘14A-‘20E
Opdivo
Prior estimates - 815 2,094 2,880 4,031 5,224 5,854
New estimates - 810 2,026 2,924 4,191 5,624 6,374
Absolute change - (5) (68) 44 159 400 520
% change 0% -1% -3% 2% 4% 8% 9%
“Derisked” Opdivo estimates - 810 2,040 3,062 4,664 6,643 7,938
Net sales
Prior estimates 15,873 15,960 16,295 17,816 18,534 20,804 21,856 5%
New estimates 15,873 15,955 16,226 17,860 18,693 21,205 22,375 6%
Change 0% 0% 0% 0% 1% 2% 2%
Sales growth (%)
Prior estimates -3% 1% 2% 9% 4% 12% 5%
New estimates -3% 1% 2% 10% 5% 13% 6%
JEFe vs. Cons.
Cons. sales est. 15,879 15,998 16,828 18,792 20,303 22,036 23,302
JEFe vs. Cons. 0% 0% -4% -5% -8% -4% -4%
DILUTED EPS
Prior estimates $1.85 $1.93 $2.18 $2.73 $3.13 $3.82 $4.19 15%
New estimates $1.85 $1.93 $2.16 $2.75 $3.19 $3.98 $4.40 16%
Change 0% 0% -1% 1% 2% 4% 5%
EPS growth (%)
Prior estimates 2% 4% 13% 25% 15% 22% 10%
New estimates 2% 4% 12% 28% 16% 25% 11%
JEFe vs. Cons.
Cons. EPS est. $1.85 $1.83 $2.24 $2.92 $3.45 $4.01 $4.53
JEFe vs. Cons. 0% 5% -4% -6% -8% -1% -3%
Source: Jefferies estimates, company data
Healthcare
Target | Estimate Change
August 27, 2015
page 9 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Asymmetric downside persists despite room for further upgrades
Whilst future updates to our Opdivo estimates could still see further upgrades as more
new indications are added (including adjuvant opportunities) and existing indications in
development are de-risked, we have some significant concerns on Bristol-Myers’ long
term positioning and strategy, primarily focused on:
Significant increased competition from existing players (Merck & Co., Roche and
AstraZeneca), as well as emerging new competition (Pfizer, Novartis, Sanofi, Eli
Lilly, GlaxoSmithKline),
Potential mis-step in down-playing patient selection on PD-L1 status, and
Signs that Opdivo (and potentially all PD-1s in general) might not be as suitable
as PD-L1s for combination therapy with either conventional (chemo, TKIs, etc)
or other immuno-oncology agents.
PT reduced to $59
Our DCF calculation for Bristol-Myers now points to $59.21 and we have reduced our
price target for the shares to $59 (from $64) to reflect this. The significant discounting of
the upside case of Opdivo into estimates by the market and the likelihood that we will
hear increasing noise from its competitors over the next few years makes Bristol-Myers our
least-preferred name amongst the large cap Pharma companies, primarily on valuation
grounds and the asymmetric downside risk to longer term Opdivo estimates.
Healthcare
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August 27, 2015
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Please see important disclosure information on pages 66 - 69 of this report.
Roche Continues To Catch Up To Bristol-Myers Roche comes in at 2nd place in terms of our “IO backbone” market potential estimates
with a peak sales opportunity of $12.7bn. Whilst atezolizumab is still not yet expected to
launch until 2016, filings in NSCLC and bladder appear imminent in our view with a filing
in renal cell carcinoma also possible in 2016. More importantly, Roche has built out one
of the most aggressive development programmes in terms of patient selection and
combination therapy, which we believe will allow it to capture significant market share in
the future.
Atezolizumab peak sales estimate raised to $12.7bn
We have raised our 2016E-20E revenue estimates for atezolizumab by 12%-52%, though
the change to overall group revenue and EPS estimates are far more modest (0%-1%).
Our risk-adjusted revenue estimate for atezolizumab in 2020E of $3.4bn is now above
consensus of $3.1bn as we become increasingly optimistic on Roche’s progress in NSCLC
and bladder cancer in particular. Our peak sales estimate for atezolizumab now stands at
$12.7bn, with NSCLC being the most significant opportunity ($6.6bn across all lines of
therapy and histology).
PT cut to CHF300 primarily to reflect market movements
Our EPS estimates remain largely unchanged as a result of our update and we remain
relatively in line with consensus EPS during our forecast period. We have lowered our PT
to CHF300 (from CHF330), primarily to reflect recent market movements.
Exhibit 10: Changes to estimates for Roche, 2014A-20E
(CHF) millions 2014A 2015E 2016E 2017E 2018E 2019E 2020E CAGR
'14A-'20E
Atezolizumab
Prior estimates 0 0 112 384 1,225 2,066 2,937
New estimates 0 0 170 595 1,470 2,352 3,278
Absolute change 0 0 58 211 245 287 341
% change 0% 0% 52% 55% 20% 14% 12%
“Derisked” atezolizumab estimates 0 0 261 916 2,261 3,671 5,147
Net sales
Prior estimates 47,462 47,852 50,561 53,149 55,941 59,469 62,966
New estimates 47,462 47,852 50,619 53,360 56,186 59,756 63,307 4.9%
Change 0% 0% 0% 0% 0% 0% 1%
Sales growth (%)
Prior estimates 1% 1% 6% 5% 5% 6% 6%
New estimates 1% 1% 6% 5% 5% 6% 6%
JEFe vs. Consensus
Consensus Sales est. 47,462 47,714 49,483 52,333 55,300 57,875 59,402
JEFe vs. Cons. Sales 0% 0% 2% 2% 2% 3% 7%
Diluted CORE EPS (CHF)
Prior estimates 14.29 13.84 15.45 16.81 17.69 19.44 21.11
New estimates 14.29 13.84 15.49 16.96 17.86 19.65 21.36 6.9%
Change 0% 0% 0% 1% 1% 1% 1%
CORE EPS growth (%)
Prior estimates 0% -3% 12% 9% 5% 10% 9%
New estimates 0% -3% 12% 9% 5% 10% 9%
JEFe vs. Consensus
Consensus EPS est. 14.29 14.06 15.32 16.52 17.94 19.31 20.42
JEFe vs. Cons. EPS 0% -2% 1% 3% 0% 2% 5%
Source: Jefferies estimates, company data
Healthcare
Target | Estimate Change
August 27, 2015
page 11 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
AstraZeneca Continues To Impress in IO Combos We believe that AstraZeneca’s efforts in IO are the most under-appreciated by the market,
as it has built out a broad development program with a focus on IO combinations and
precision medicine. However, visibility has been poor on some aspects of these and the
pressure in the remainder of the business, outside of oncology, has kept it below
investor’s radar screens recently. We continue to see AstraZeneca as the best value play in
IO and it is our Top European pick and Top IO pick.
Durvalumab peak sales estimate raised to $11.0bn
We have increased our estimates for AstraZeneca’s durvalumab (also known as
MEDI4736) to reflect the general IO market upgrades we have made in this revision of our
model as well as for the addition of new indications (e.g., adjuvant NSCLC). Our risk-
adjusted revenue for durvalumab in 2020E of $2.6bn is materially above consensus of
$1.3bn. As a result of our updates, we have modestly increased our revenue and EPS
estimates for AstraZeneca by 0%-1% and 0%-2%, respectively between 2015E-20E.
PT held at 5,600p as significant value still on offer
Following our revisions, our AstraZeneca EPS estimates are now 3-20% ahead of
consensus EPS across our forecast period between 2016E-20E. Our updated DCF
calculation of £56.08 and PEG-relative valuation of £57.61 continue to support our PT of
5,600p. We believe that more tangible progress on AstraZeneca’s IO program over the
next 12 months as well as other oncology franchise news flow (AZD9291 approval
expected H2’15) should drive multiple expansion as well as mid-term earnings
momentum for the shares.
Exhibit 11: Changes to estimates for AstraZeneca, 2014A-20E
(US$) millions 2014A 2015E 2016E 2017E 2018E 2019E 2020E CAGR
'14A-'20E
Durvalumab (PD-L1)
Prior estimates - - - 143 860 1,656 2,500
New estimates - - 33 249 1,045 1,846 2,646
Absolute change - - 33 106 186 190 146
% change 0% 0% 0% 74% 22% 11% 6%
“Derisked” durvalumab estimates - - 50 383 1,608 2,864 4,119
Total Revenues
Prior estimates 26,551 24,380 22,611 22,228 24,412 27,529 30,997 2.6%
New estimates 26,551 24,380 22,644 22,335 24,599 27,720 31,144 2.7%
Change 0% 0% 0% 0% 1% 1% 0%
Sales growth (%)
Prior estimates 3% -8% -7% -2% 10% 13% 13%
New estimates 3% -8% -7% -1% 10% 13% 12%
JEFe vs. Cons.
Cons. Sales est. 26,095 24,392 23,657 23,326 24,698 26,400 28,580
JEFe vs. Cons. Sales 2% 0% -4% -4% 0% 5% 9%
CORE EPS (Diluted)
Prior estimates $4.28 $4.22 $4.21 $4.21 $4.79 $5.80 $7.33 9.4%
New estimates $4.28 $4.22 $4.23 $4.26 $4.90 $5.91 $7.41 9.6%
Change 0% 0% 0% 1% 2% 2% 1%
EPS growth (%)
Prior estimates -15% -1% 0% 0% 14% 21% 26%
New estimates -15% -1% 0% 1% 15% 21% 25%
JEFe vs. Cons.
Cons. EPS est. $4.28 $4.24 $4.11 $4.05 $4.43 $5.28 $6.18
JEFe vs. Cons. CORE EPS 0% 0% 3% 5% 11% 12% 20%
Source: Jefferies estimates, company data
Healthcare
Target | Estimate Change
August 27, 2015
page 12 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Merck’s IO Potential Doesn’t Offset Other Risks Merck & Co has had an impressive run with Keytruda to date with a rapid launch in
melanoma as well as a likely launch in NSCLC later this year (PDUFA October 2, 2015).
However, the long term strategy for Merck & Co. in immuno-oncology is unclear as it still
appears to lack critical mass within oncology generally as well as having few IO
combination assets of its own to drive Keytruda sales in the mid to long term.
Keytruda peak sales estimate raised to $9.6bn
We have increased our estimates for Keytruda to reflect the general IO market upgrades
we have made in this revision of our model as well as for the addition of new indications
(e.g., ovarian, small cell lung cancer, adjuvant NSCLC). Our risk-adjusted revenue
estimates for Keytruda in 2020E of $3.7bn remain below consensus of $4.5bn. As a result
of our updates, we have modestly increased our revenue and EPS estimates for Merck &
Co. by 0%-1% and 0%-4%, respectively, between 2015E-20E.
PT cut to $57 primarily to reflect market movements
Our EPS estimates for Merck & Co. have been raised by up to 4% between 2015E–2020E,
but are mostly in line with consensus during this period. However, the patent drag over
the next few years (e.g., Zetia, Vytorin, Cubicin, Remicade, Nasonex) as well as the
downside risk to Januvia/ Janumet sales from the SGLT2 class leave us on the sidelines for
now. We have cut our PT for Merck & Co. to $57 (from $63) primarily to reflect recent
market movements, but also to discount some of the increased risk to our Januvia
franchise estimates (we currently assume a 4% sales CAGR 2014A-20E).
Exhibit 12: Changes to estimates for Merck & Co., 2014A-20E
(US$) millions 2014A 2015E 2016E 2017E 2018E 2019E 2020E CAGR
‘14A-‘20E
Keytruda
Prior estimates 54 595 1,090 1,475 1,937 2,480 3,171
New estimates 54 637 1,000 1,623 2,252 3,076 3,723
Absolute change - 42 (90) 148 315 596 552
% change 0% 7% -8% 10% 16% 24% 17%
“Derisked” Keytruda estimates 54 637 1,000 1,623 2,373 3,435 4,553
Net sales
Prior estimates 42,237 40,213 41,083 40,284 42,301 43,936 46,661 2%
New estimates 42,237 40,255 40,993 40,432 42,617 44,532 47,213 2%
Change 0% 0% 0% 0% 1% 1% 1%
Sales growth (%)
Prior estimates -4% -5% 2% -2% 5% 4% 6%
New estimates -4% -5% 2% -1% 5% 4% 6%
JEFe vs. Cons.
Cons. sales est. 42,237 39,725 40,961 41,398 43,484 45,094 47,405
JEFe vs. Cons. 0% 1% 0% -2% -2% -1% 0%
DILUTED EPS
Prior estimates $3.49 $3.53 $3.82 $3.72 $4.19 $4.66 $5.36 7%
New estimates $3.49 $3.55 $3.82 $3.78 $4.29 $4.84 $5.55 8%
Change 0% 0% 0% 2% 2% 4% 4%
EPS growth (%)
Prior estimates 0% 1% 8% -2% 13% 11% 15%
New estimates 0% 2% 8% -1% 13% 13% 15%
JEFe vs. Cons.
Cons. EPS est. $3.49 $3.51 $3.82 $4.00 4.40 $4.83 5.46
JEFe vs. Cons. 0% 1% 0% -5% -2% 0% 2%
Source: Jefferies estimates, company data
Healthcare
Target | Estimate Change
August 27, 2015
page 13 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Pfizer IO Program Still A Distant Opportunity In November 2014, Pfizer in-licensed Merck KGaA’s (€81.98, NC) PD-L1 inhibitor
avelumab, making an upfront payment of $850m with up to $2bn in regulatory/
commercial milestone payments. Both companies will jointly fund development and
commercialization costs. Revenues earned from selling anti-PD-L1 or anti-PD-1 products
generated from this collaboration will be shared equally. In addition to avelumab, Pfizer’s
IO portfolio also includes an in-house PD-1 inhibitor, OX40, 4-1BB, and CCR2.
Avelumab peak sales estimate set at $3.8bn
In our first detailed bottom-up break-out of avelumab’s peak sales potential, we have set
it at $3.8bn, which is a minor cut from the c$4bn we previously estimated for it on a top-
down basis. However, Pfizer is building a broad portfolio of IO assets behind avelumab as
well as aggressively advancing monotherapy indications in NSCLC, RCC, ovarian and
Merkel cell carcinoma and we expect to see upgrades to our peak sales estimate for
avelumab in the future as Pfizer initiates more pivotal studies across a broader range of
indications. We would also add that Pfizer’s potential ability to leverage its financial
resources onto its IO combination program could see its iceberg of opportunities rapidly
converted into revenue and earnings momentum over the next 1-3 years.
PT held at $47 as “optionality” and M&A remain key drivers
IO is not a strong driver for Pfizer given its relatively early stage of development and
delayed entry versus competitors. However, it remains a partial driver for the long term
SOTP thesis, for which we see a valuation of $47 per share for Pfizer given our expectation
of a separation of GEP by 2017 as well as accretive M&A over the next 6-12 months.
Exhibit 13: Changes to estimates for Pfizer, 2014A-20E
(US$) millions 2014A 2015E 2016E 2017E 2018E 2019E 2020E CAGR
‘14A-‘20E
Avelumab (PD-L1)
Prior estimates - - - - 37 135 271
New estimates - - - - - 120 266
Absolute change - - - - (37) (15) (4)
% change NA NA NA NA -100% -11% -2%
“Derisked” avelumab estimates - - - - - 296 801
Net Sales
Prior estimates 49,405 46,513 53,420 57,086 60,601 59,951 61,614 3.7%
New estimates 49,405 46,513 53,420 57,086 60,565 59,936 61,609 3.7%
Change 0% 0% 0% 0% 0% 0% 0%
Sales growth (%)
Prior estimates -4% -6% 15% 7% 6% -1% 3%
New estimates -4% -6% 15% 7% 6% -1% 3%
JEFe vs. Cons.
Cons. Sales est. 49,605 46,757 50,809 53,041 55,315 55,572 56,676
JEFe vs. Cons. Sales 0% -1% 5% 8% 9% 8% 9%
Diluted EPS
Prior estimates $2.26 $2.07 $2.34 $2.70 $3.14 $3.07 $3.22 6.1%
New estimates $2.26 $2.07 $2.33 $2.69 $3.12 $3.05 $3.20 6.0%
Change 0% 0% -1% -1% -1% -1% -1%
EPS growth (%)
Prior estimates 2% -8% 13% 15% 16% -2% 5%
New estimates 2% -8% 13% 15% 16% -2% 5%
JEFe vs. Cons.
EPS est. $2.26 $2.08 $2.32 $2.58 $2.90 $2.99 $3.08
JEFe vs. Cons. EPS 0% 0% 0% 4% 8% 2% 4%
Source: Jefferies estimates, company data
Healthcare
Target | Estimate Change
August 27, 2015
page 14 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Key Clinical and IO Combo Program Summaries
Exhibit 14: Summary of estimated data release for key studies for Opdivo and Keytruda Company Drug Cancer Phase Study description JEF data release
BMY Opdivo Melanoma II Combo (ipilimumab), used sequentially with ipilimumab (CM-064) H2 2015
DLBCL II Monotherapy; relapsed/ refractory patients (CM-139) Q2 2016
Follicular lymphoma II Monotherapy; relapsed/ refractory patients (CM-140) Q2 2016
Head and neck III Monotherapy vs. cetuximab, methotrexate, or docetaxel (CM-141) Q3 2016
Bladder II Monotherapy; platinum failures Q3 2016
Hodgkin's lymphoma II Monotherapy in ASCT failures (CM-025) Q3 2016
Colorectal I/II Combo (ipilimumab); recurrent (CM-142) Q1 2017
NSCLC III Monotherapy vs. chemotherapy; 1st line or recurrent, PD-L1+ patients (CM-026) Q2 2017
CLL/ NHL I/II Combo (Imbruvica); relapsed/ refractory patients - JNJ study Q2 2017
NSCLC II Combo (EGF816 or INC280); cMET positive/ previously treated - Novartis study Q4 2017
Melanoma I Monotherapy; biomarker study Q4 2017
Melanoma II Combo (ipilimumab); with brain metastases (CM-204) Q1 2018
Melanoma II Monotherapy; ant-CTLA4 treated patients; safety study (CM-172) Q1 2018
NSCLC III Combo (ipilimumab) vs. platinum-based chemo doublet; untreated (CM-227) Q2 2018
RCC III Combo (ipilimumab) vs. sunitinib; untreated patients (CM-214) Q2 2018
Small cell lung cancer III Monotherapy vs. chemotherapy; after 1st line platinum-based chemo (CM-331) Q3 2018
Chronic myeloid leukemia I Combo (dasatinib); 2 prior TKIs Q1 2019
NSCLC III Monotherapy; safety study after at least 1 prior tx (CM-153) Q2 2019
Adjuvant melanoma III Monotherapy vs. Yervoy (CM-238) Q3 2019
NSCLC III Monotherapy; safety study in 3rd line (CM-171) Q2 2021
MRK Keytruda NSCLC II/III Monotherapy vs. docetaxel; platinum failure patients (KN-010) Q4 2015
Multiple myeloma I Combo (with lenalidomide and dexamethasone); 3rd line (KN-023) Q4 2015
Head and neck II Monotherapy; platinum-based therapy and cetuximab failures (KN-055) Q1 2016
NSCLC III Monotherapy vs. chemo regimens; untreated PD-L1 strong (KN-024) Q3 2016
NSCLC I Monotherapy; PD-L1-positive patients (KN-025) Q4 2016
RCC I Monotherapy; neoadjuvant use (KN-031) Q2 2016
RCC I Combo (with Inlyta); untreated patients Q3 2016
Gastric/ GEJ II Combo (with chemo); untreated and pre-treated pts (KN-059) Q4 2016
Urothelial bladder cancer II Monotherapy; untreated (ineligible for cisplatin) [KN-52] Q4 2016
Urothelial bladder cancer III Monotherapy vs. chemotherapy; platinum-based therapy failures (KN-045) Q1 2017
Melanoma I/II Combo (Amgen's T-Vec); treatment naïve Q1 2017
Head and neck III Monotherapy vs. chemo or cetuximab; platinum-based therapy failures (KN-040) Q2 2017
NSCLC II Combo (BTK inhibitor ACP196); platinum failures (KN-166) Q3 2017
Hodgkin's lymphoma II Monotherapy; after auto-SCT and brentuximab (KN-087) Q3 2017
Melanoma I/II Combo (with dabrafenib or trametinib or both) [KN-022] Q3 2017
NSCLC I Combo (necitumumab) - Eli Lilly led study Q3 2017
Head and neck II Combo (BTK inhibitor ACP196); platinum failures (KN-147) Q4 2017
Colorectal II Monotherapy; pretreated Stage IV microsatellite instability high (KN-164) Q4 2017
NSCLC III Monotherapy vs. platinum-based chemotherapy; PD-L1 positive (KN-042) Q1 2018
Head and neck III Combo (chemo regimen or chemo plus cetuximab) vs. Keytruda alone;
untreated pts (KN-048)
Q1 2018
Adjuvant melanoma III Monotherapy vs. placebo; high risk stage III patients (KN-054) Q3 2018
Gastric/ GEJ III Mono vs. paclitaxel; after 1st line platinum and fluoropyrimidine (KN-061) Q3 2018
TNBC II Monotherapy (KN-086) Q3 2018
NSCLC I Combo (with Xalkori); ALK+ untreated patients (KN-050) Q4 2018
Gastric/ GEJ III Combo (with chemo) vs. Keytruda vs. chemo; 1st line therapy (KN-062) Q3 2019
CRPC I/II Combo (ADXS31-142) [KN-046] Q3 2019
RCC I/II Combo (pazopanib); untreated patients (KN-018) Q3 2020
Note: for drugs already in Phase II/III development, this list excludes Phase I studies evaluating a drug across multiple tumour types
Source: Company data, Clinicaltrials.gov, Jefferies estimates
Healthcare
Target | Estimate Change
August 27, 2015
page 15 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Exhibit 15: Summary of estimated data release for key studies for atezolizumab, durvalumab, and avelumab Company Drug Cancer Phase Study description JEF data release
Roche Atezolizumab Melanoma I Combo (vemurafenib); untreated and BRAF V600 positive patients H2 2015
(MPDL3280A) Urothelial bladder cancer II Monotherapy; naïve or platinum failures H2 2015
NSCLC I combo (Tarceva); TKI-naïve or untreated patients Q4 2015
RCC II Combo (Avastin) vs. sunitinib; untreated patients Q2 2016
NHL (FL/ DLBCL) I Combo (Gazyva); relapsed/ refractory CD20+ patients Q3 2016
NSCLC III Monotherapy vs. docetaxel; platinum failure patients (OAK) 2016
Urothelial bladder cancer III Monotherapy vs. chemo; platinum failure patients Q1 2017
NSCLC I Combo (IDO); platinum failure patients Q2 2017
NSCLC (non-squamous) III Combo (carboplatin/ paclitaxel ± Avastin) vs. carbo/ paclitaxel/ Avastin; chemo-naïve
(IMpower150)
2017 (PFS)
NSCLC (non-squamous) III Monotherapy vs. platinum-based chemo plus pemetrexed; PD-L1 selected, chemo-
naïve (IMpower110)
2017 (PFS)
NSCLC (non-squamous) III Combo (carboplatin/ Abraxane) vs. carbo/Abraxane; chemo-naïve (IMpower130) 2017 (PFS)
NSCLC (squamous) III Monotherapy vs. platinum-based chemo; PD-L1 selected, chemo-naïve (IMpower111) 2017 (PFS)
NSCLC (squamous) III Combo (platinum-based doublet) vs. carboplatin with Abraxane or paclitaxel; chemo-
naïve (IMpower131)
2017 (PFS)
Multiple myeloma I Combo (lenalidomide) vs. atezolizumab alone; following auto-SCT Q1 2019
Myelodysplastic syndrome I Combo (azacitidine) vs. atezolizumab alone; hypomethylating agent-naïve or -treated Q1 2019
TNBC III Combo (Abraxane) vs. Abraxane; untreated patients Q3 2019
RCC III Combo (Avastin) vs. sunitinib; untreated patients Q1 2020
Colorectal II Combo (Avastin and chemo) vs. chemo or biologic regimens; 1st line maintenance
setting
Q1 2021
Adjuvant bladder cancer III Monotherapy vs. no intervention; PD-L1 selected following cystectomy (IMvigor010) Q3 2021
Adjuvant NSCLC III Monotherapy vs. best supportive care after adjuvant cisplatin-based chemo in PD-L1+
patients
Q1 2026
AstraZeneca durvalumab NSCLC II Monotherapy; 3rd line PD-L1 positive (ATLANTIC) H2 2015
(MEDI4736) Myelodysplastic syndrome I Monotherapy Q4 2015
Head and neck II Monotherapy; PD-L1+, platinum failures (HAWK) H2 2016
Head and neck II Combo (tremelimumab) vs. durvalumab vs. treme; PD-L1 negative platinum failures 2016
Head and neck I Combo (tremelimumab) vs. durvalumab Q1 2017
NSCLC III Combo (tremelimumab) vs. durvalumab vs. SOC; 3rd line EGFR/ ALK wt (ARCTIC) Q2 2017
NSCLC III Monotherapy; Stage III unresectable NSCLC, post-chemoradiation (PACIFIC) Q3 2017
NSCLC III Combo (AZD9291) vs. AZD9291; post-EGFR TKI, T780M mutation (CAURAL) Q4 2017
Head and neck III Combo (tremelimumab) vs. durvalumab vs. SOC; PD-L1 +/-, platinum failure (EAGLE) 2017
Gastric/ GEJ I/II Combo (tremelimumab); relapsed/ refractory Q1 2018
Head and neck I/II Combo (AZD9150 or AZD5069) vs. AZD9150; 2nd line Q2 2018
NSCLC III Combo (tremelimumab) vs. durvalumab vs. chemo; 1st line EGFR/ALK wild-type
(MYSTIC)
Q3 2018
NHL (FL/DLBCL) I/II Combo (Imbruvica); relapsed/ refractory - Pharmacyclics led study Q3 2018
Adjuvant NSCLC III Monotherapy; chemotherapy and TKI failures 2020
Pfizer avelumab Merkel cell carcinoma II Monotherapy; one prior chemo regimen (JAVELIN Merkel 200) Q2 2016
(MSB0010718C) RCC I Combo (with Inlyta); untreated patients Q2 2018
NSCLC III Monotherapy vs. docetaxel; PD-L1 positive platinum-failure (JAVELIN Lung 200) Q1 2022
Note: for drugs already in Phase II/III development, this list excludes Phase I studies evaluating a drug across multiple tumour types
Source: Company data, Clinicaltrials.gov, Jefferies estimates
Healthcare
Target | Estimate Change
August 27, 2015
page 16 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Exhibit 16: Summary of key anti-PD-1/ L1 drugs in development
Drug MOA Proposed indication Development stage JEF peak sales est ($m) JEF estimated filing
BMY Opdivo anti-PD-1 melanoma - monotherapy Approved $393 NA
melanoma - combo Filed $748 PDUFA (9/30/15)
squamous NSCLC - monotherapy Approved $378 NA
squamous NSCLC - combo III $376 2017
non-squamous NSCLC - monotherapy Filed $2,467 2015
non-squamous NSCLC - combo III $1,846 2017
RCC - monotherapy Filed $493 2015
RCC - combo III $810 2017
Follicular lymphoma II $200 2018
Diffuse large B-cell lymphoma II $500 2018
Glioblastoma II $100 2018
Head and neck III $800 2016
Adjuvant melanoma III $300 2018
Hodgkin's lymphoma II $350 2016
Bladder II $250 2018
Small cell lung cancer III $450 2018
Other tumour types I $2,650 2020
MRK Keytruda anti-PD-1 melanoma - monotherapy Approved $540 NA
melanoma - combo I/II $62 2019
squamous NSCLC - monotherapy Filed $366 PDUFA (10/2/15)
squamous NSCLC - combo I/II $94 2019
non-squamous NSCLC - monotherapy Filed $1,839 PDUFA (10/2/15)
non-squamous NSCLC - combo I/II $462 2019
RCC - monotherapy I/II $84 2019
RCC - combo I/II $337 2019
Head and neck III $800 2017
Bladder III $400 2017
Adjuvant melanoma III $300 2018
Hodgkin's lymphoma II $250 2017
Gastric III $1,350 2018
Colorectal II $350 2019
TNBC II $250 2020
Other tumour types I $2,150 2020
Roche atezolizumab anti-PD-L1 melanoma - monotherapy I $25 2018
melanoma - combo I $312 2018
squamous NSCLC - monotherapy III $247 2015
squamous NSCLC - combo III $611 2017
non-squamous NSCLC - monotherapy III $1,118 2015
non-squamous NSCLC - combo III $3,000 2017
RCC - monotherapy III $184 2016
RCC - combo III $1,080 2016
Urothelial bladder cancer III $800 2016
Colorectal II $350 2020
TNBC III $350 2019
Adjuvant bladder III $250 2020
Adjuvant NSCLC III $1,700 2020
Other tumour types I $2,700 2020
AZN durvalumab anti-PD-L1 melanoma - monotherapy I/II $25 2018
melanoma - combo I/II $125 2018
squamous NSCLC - monotherapy III $181 2015
squamous NSCLC - combo III $611 2017
non-squamous NSCLC - monotherapy III $1,035 2015
non-squamous NSCLC - combo III $3,000 2017
Head and neck III $1,300 2017
Adjuvant NSCLC III $1,700 2020
Other tumour types I $3,000 2020
PFE avelumab anti-PD-L1 squamous NSCLC - monotherapy III $62 2018
squamous NSCLC - combo I $94 2019
non-squamous NSCLC - monotherapy III $718 2018
non-squamous NSCLC - combo I $462 2019
RCC - monotherapy I $84 2019
RCC - combo I $405 2019
Merkel cell carcinoma II $50 2018
Ovarian I $650 2018
Other tumour types I $1,250 2020
Source: Company data, Clinicaltrials.gov, Jefferies estimates
Healthcare
Target | Estimate Change
August 27, 2015
page 17 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Exhibit 17: Anti-PD-1/ L1 – R&D stage for key cancer indications under development, and estimated earliest year of
approval for pivotal studies
Opdivo Keytruda atezolizumab durvalumab Avelumab
Non-squamous NSCLC 2016 PDUFA: 10/2/15 2016 2016 2019
Squamous NSCLC Approved PDUFA: 10/2/15 2016 2016 2019
Renal cell carcinoma 2016 2017
Melanoma Approved Approved
Head and neck carcinoma 2017 2018 2018
Adjuvant melanoma 2019 2019
Small cell lung cancer 2019
Urothelial bladder cancer 2018 2017
Follicular lymphoma
Diffuse large B-cell lyphoma
Hodgkin's lymphoma 2017 2018
Glioblastoma
Colorectal cancer
Hepatocellular carcinoma
Chronic myeloid leukemia
Gastric 2019
Triple negative breast cancer 2020
Multiple myeloma
Prostate cancer
Adjuvant bladder 2021
Adjuvant NSCLC 2020 2020
Myelodysplastic syndrome
Merkel cell carcinoma
Ovarian
Note: Shading = Darkest is Phase III or approved indications, medium is Phase II, and light is Phase I or I/II; chart only reflects known clinical
studies for dedicated indications and exclude Phase I studies in multiple solid or hematological cancers with the exception of Pfizer’s
avelumab in ovarian cancer
Source: Clinicaltrials.gov, company reports, Jefferies Research
Healthcare
Target | Estimate Change
August 27, 2015
page 18 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Combinations to redefine treatment paradigm Combos could redefine NSCLC treatment paradigm, but there is controversy
NSCLC is one of the most important battlegrounds for PD-1/ L1 inhibitors, in our view,
given the potential size of the market relative to other cancer indications. The first wave of
contenders here are currently Roche’s atezolizumab/ platinum-based chemo doublet,
AstraZeneca’s durvalumab/ tremelimumab, and Bristol-Myer’s Opdivo/ Yervoy.
Preliminary data would suggest that Roche and AstraZeneca have the early lead, although
we see the following unanswered questions as critical for the longer term outcome:
Roche: Can the chemo-combination sustain its strong early response for a
prolonged period after all cycles of chemotherapy have been administered? We
acknowledge that there are many variables in play, but if atezolizumab can
translate the early efficacy signal into longer term benefits, we think this drug
could take significant market share given that it is used on top of the cheaper
standard of care. In this case, however, Roche’s lead here might be short-lived if
it can be replicated by other PD-L1 inhibitors (e.g., durvalumab, avelumab). On
the other hand, if atezolizumab’s early efficacy does not translate into longer
term benefits, then AstraZeneca might be in sole possession of the leadership
position. We expect to see additional follow-up data for the Roche combo at the
2015 ESMO conference.
AstraZeneca: Can the strong ORRs in PD-L1 positive and negative patients for the
selected dosing regimen translate into an OS benefit? The durvalumab/
tremelimumab dose that AstraZeneca advanced into the Phase III MYSTIC study
showed promising ORRs and a tolerable safety profile in the most recent update
at ASCO 2015, but there is insufficient patient experience at this point to certain
of its benefits. We are encouraged by initial efficacy data shown for the
durvalumab-tremelimumab combo in NSCLC and would hope that a PFS and/
or OS benefit will be seen with them.
Bristol-Myers: What are the new dosing regimens selected for the Phase III
CheckMate-227 study? And can they show strong efficacy while improving
tolerability? It is still unknown exactly what combination or sequential dosing
regimens Bristol-Myers is using in this study. Detailed CheckMate-012 results
will be presented at the World Lung Conference (Denver, Sept 7, 10:45A –
12:15P MDT) and may shed further light on future regimens. However, the
efficacy and safety data from the World Lung Conference abstract appears
similar to those presented at ASCO 2014. Based on available CheckMate-012
data from ASCO 2014 and the 2015 World Lung Conference abstract, we think
it is unlikely that Bristol-Myers would be successful in NSCLC with the regimens
tested to date. Therefore we would expect that the CheckMate-227 study will
use either different doses and/ or a different sequencing strategy for Opdivo and
Yervoy (e.g. Yervoy induction followed by Opdivo maintenance).
Healthcare
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August 27, 2015
page 19 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
The next frontier of novel PD-1/ L1-Immuno-oncology (IO) combinations is
almost here
Beyond the more well-known checkpoint inhibitors, which include PD-1/ L1 and CTLA-4
inhibitors, there are multiple other classes of immuno-oncology agents currently in
development (Exhibit 18). However, the overwhelming majority of experts still view PD-1/
L1 inhibitors as the essential backbone of therapy that a company needs to compete in
the IO arena. This is the likely reason that Novartis, Sanofi and GlaxoSmithKline, while far
behind the rest of the field in PD-1/ L1 research, are still developing PD-1/ L1 inhibitors
along with other novel IO agents (Exhibit 21).
Exhibit 18: Summary list of checkpoints that allow co-stimulation or co-inhibition of T cells
Source: Nature Reviews Immunology, Jefferies research
CD226
CD112
CD155
CD58
CD48
SLAM
TIM4
UnknownTIM1 ligand
CD30L
GITRL
TL1A
OX40L
4-1BBL
CD40
HVEM
LIGHT
CD70
B7-2
B7-1
B7-H2
MHC
Antigen PresentingCell
T-cell
CD2
SLAM
TIM1
CD30
GITR
DR3
OX40
4-1BB
CD40L
LIGHT
HVEM
CD27
CD28
ICOS
TCR
TIGIT
CD113
CD112
CD155
CD48
Galectin 9
TIM4
TIM1
Collagen
PD1H
HVEM
B7-DC
B7-1
B7-2
MHC
Antigen PresentingCell T-cell
2B4
Unknown TIM4 receptor
TIM3
Unknown TIM1 receptor
LAIR1
Unknown PD1H receptor
BTLA
CD160
B7-1
PD-1
B7-H1
CTLA4
TCR
PD1HUnknown PD1H receptor
B7-H1
LAG3
Co-stimulatory interactions Co-inhibitory interactions
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Please see important disclosure information on pages 66 - 69 of this report.
Beyond the PD-1/ L1 combination with CTLA-4 inhibitors (e.g., Yervoy, tremelimumab),
which are currently in late stage development or are under FDA review (i.e., Opdivo/
Yervoy in melanoma), the leading PD-1/ L1 players are currently evaluating numerous
combinations with other novel immuno-oncology therapeutic classes (e.g., OX40, LAG3,
IDO, GITR, KIR, 4-1BB, CSF-1R) in solid or hematological cancer in Phase I studies.
Exhibit 19: Summary of key ongoing combination clinical studies for PD-1/ L1 drugs with other immuno-oncology
classes
Opdivo Keytruda Atezolizumab Durvalumab
CTLA-4 Yervoy Yervoy Yervoy tremelimumab
IDO INCB024360 INCB024360 INCB024360 or GDC-0919 INCB024360
4-1BB urelumab PF-05082566
CSF-1R FPA008 PLX3397 RO5509554 (emactuzumab)
CD27 varlilumab varlilumab
KIR lirilumab
LAG3 BMS-986016
CCR4 mogamulizumab mogamulizumab
GITR MK-4166
OX40 MOXR0916 MEDI6469
CD40 RO7009789
CEA-IL2v RO6895882
NKG2A IPH2201
PD-1 or PD-L1 MEDI0680
Dark shading = Phase 3; light shading = Phase 1
Source: Clinicaltrials.gov, company reports, Jefferies Research
We have yet to see any data for these novel combinations and expect the unveiling of the
first results from studies with these agents in 2016 to generate significant investor interest
and potentially shift the competitive outlook. Despite limited available data for these new
IO classes, experts we have spoken with are most excited about combining OX40 agonists
with PD-1/ L1s, given the former's ability to activate T cells and deplete regulatory T cells
(T-regs). Some experts also see potential in GITR, IDO, and T-vec as combination agents
with PD-1/ L1s, with some also being less optimistic on the potential for combos with KIR,
CSF-1R, 4-1BB and LAG3.
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page 21 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Key immuno-oncology assets for large-cap pharma players
Exhibit 20 contains a summary of key wholly owned or exclusively licensed clinical-stage
immuno-oncology assets for the five leading players, Bristol-Myers, Merck & Co., Roche,
AstraZeneca, and Pfizer.
Exhibit 20: Key clinical stage immuno-oncology assets for the leading players by drug class (only include wholly owned
or exclusively licensed assets)
Bristol-Myers Merck Roche AstraZeneca Pfizer
PD-1 Opdivo Keytruda MEDI0680 PD-L1 BMS-936559 atezolizumab
(MPDL3280A)
durvalumab
(MEDI4736)
avelumab
CTLA-4 Yervoy tremelimumab
KIR lirilumab
4-1BB/ CD137 urelumab PF-05082566
LAG3 BMS-986016
CSF-1R FPA008 RO5509554
(emactuzumab)
CD40 RG7876
CXCR4
GITR MK-4166
OX40 MOXR0916 MEDI6469, MEDI6383,
and MEDI0562
PF-04518600
IDO GDC-0919
CEA-IL2v RG7813
NKG2A IPH2201
CXCR2 AZD5069
STAT3 AZD9150
CCR2
Note: Checkmarks where the company has disclosed presence of an asset, but the internal designation is unknown
Source: Clinicaltrials.gov, company reports, Jefferies Research
Beyond the leading PD-1/ L1 players, we note that Novartis, GlaxoSmithKline and Sanofi
are also making new efforts in immuno-oncology. These companies already have
extensive portfolios of IO assets that could be used to evaluate novel PD-1/ L1-immuno-
oncology or IO-IO combinations that could allow them to participate in the next phase of
the immuno-oncology race.
Exhibit 21: Key known immuno-oncology assets for large-cap pharma players
Novartis GlaxoSmithKline Sanofi
PD-1
PD-L1 (preclinical)
4-1BB
LAG3
OX40
TIM3
ICOS
TLR-4
GITR
Source: Company data, Jefferies Research
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page 22 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Biomarker strategy for PD-1/ L1 inhibitors Is PD-L1 the right biomarker for patient selection?
There was a general view at ASCO 2015 that it is still premature to select patients based
on PD-L1 expression. According to ASCO discussants for the CheckMate-057 and
CheckMate-067 trials, issues with PD-L1 as a biomarker include:
Heterogeneous expression within tumours and between tumour types as well as
variations in expression level depending on the antibody used,
Tumour specimen collected (archived vs. fresh, primary vs. metastatic) as
expression can change over time and even in response to treatment,
Defining a positive result (cut-off point) could be complex due to different cells
that can be assayed (immune cell vs. tumour cell), the location and distribution
of expression, and
Biomarker interpretation is also limited by the fact that some studies were not
prospectively stratified and many patients had no measurements.
PD-L1 expression testing could catch up faster than expected
Despite some of the more cautious expert opinions at ASCO 2015 regarding PD-L1
testing, we believe that the FDA is in favor of PD-L1 as a biomarker for patient selection
and, along with payors, could help to accelerate this process through the following ways:
The FDA could approve companion PD-L1 diagnostic assays for Keytruda and
Opdivo in the near term,
The FDA could include Keytruda efficacy data in 2nd line NSCLC by PD-L1
expression in its label, and
Upcoming FDA approval decisions could move physicians to view certain drugs
as more suitable for PD-L1 positive patients (e.g., atezolizumab which has FDA
Breakthrough Therapy Designation for PD-L1 positive 2nd line NSCLC).
Mismatch repair mutation burden could be an exciting genetic marker
One cancer expert that we consulted with mentioned that one of the exciting
developments he saw at ASCO 2015 was the Keytruda data in colorectal (CRC) or non-
CRC cancer patients with or without mismatch repair (MMR) deficiency, where the
tumours are highly mutated and are rich in CD8+ T cells and PD-L1 expression. In this
analysis, it was found that mismatch repair deficient CRC and non-CRC tumours treated
with Keytruda showed ORRs of 62% (n=13) and 60% (n=10), respectively, while the
mismatch repair proficient CRC cohort (n=25) showed no ORR. Additionally, there was a
statistically significant increase in the secondary endpoint of PFS that favored the MMR
deficient over MMR proficient CRC cohorts (NR vs. 2.3m, p=0.0001).
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Please see important disclosure information on pages 66 - 69 of this report.
Non-small cell lung cancer (NSCLC) Opdivo the early leader, but mid- to long-term race wide open
Opdivo is currently considered the standard of care in 2nd line squamous and non-
squamous NSCLC on the back of superior overall survival data from the CheckMate-017
and -057 studies. However, we think Opdivo’s lead could slowly dissipate as competing
PD-1/ L1 products launch in NSCLC in the next 12-18 months, and see the longer-term
treatment paradigm shifting as pivotal data emerges in the next 2-3 years for novel
immunotherapy combinations from Roche, AstraZeneca and Bristol-Myers.
Opdivo leading in PD-1/ L1 monotherapy
Opdivo is currently approved for the 2nd line treatment of squamous NSCLC on the back
of strong CheckMate-017 data, where it demonstrated significantly improved median OS
compared to docetaxel (9.2m vs. 6.0m, p=0.00025). An OS benefit was observed
regardless of PD-L1 expression across different pre-determined PD-L1 expression levels
and the safety profile was consistent with that observed in prior studies. We note that
according to the Opdivo label, the median duration of therapy in CheckMate-017 was
only 2.3 months.
The Phase III CheckMate-057 in 2nd line non-squamous NSCLC showed that Opdivo
treatment led to a significant improvement in median OS (Opdivo vs. docetaxel: 12.2m
vs. 9.4m, HR=0.73, p=0.0015). Median OS benefits for Opdivo were statistically greater in
patients with high PD-L1 expression levels (Exhibit 22). However, Opdivo did not show an
OS benefit in pooled data for patients with low PD-L1 expression.
Exhibit 22: Summary of Opdivo CheckMate-057 overall survival data by PD-L1
expression level
Source: 2015 ASCO presentation, Jefferies LLC
The ASCO trial discussant, Dr. Roy Herbst, sees Opdivo as the new standard of care in
previously treated non-squamous NSCLC and noted the strong benefit in select patient
populations (e.g., PD-L1 positive). He also stated that it is not yet time to use a PD-L1
biomarker assay for patient selection as the PD-L1 negative Opdivo arm showed
comparable efficacy, but much less toxicity, than docetaxel in this study. However, we
believe that this view is given in the context of there being no real alternatives to drive
patient selection. This will change once new IO combinations are developed that better
address the needs of PD-L1 negative patients.
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
med
ian
Overa
ll S
urv
ival (
mo
nth
s)
Opdivo Docetaxel
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page 24 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Exhibit 23: Summary of key Opdivo data from CheckMate-017 and CheckMate-057
CheckMate-017 CheckMate-057
NSCLC population 2nd line squamous 2nd line non-squamous
Arm Opdivo docetaxel Opdivo docetaxel
Patients 135 137 292 290
ORR 20% 9% 19% 12%
mPFS (months) 3.5 2.8 2.3 4.2
mOS (months) 9.2 6.0 12.2 9.4
Grade 3-4 treatment-related
AE rate
7% 57% 10% 54%
Source: 2015 ASCO presentations, Jefferies LLC
Bristol-Myers is expected to submit the supplemental filing for 2nd line non-squamous
NSCLC by the end of Q3 2015 and we see potential approval as soon as early 2016.
Additionally, Bristol-Myers has also completed a rolling submission to the FDA for its
companion PD-L1 diagnostic assay that could help physicians assess PD-L1 expression
level in patients.
Multiple PD-1/ L1 monotherapy competitors to emerge soon
We expect PD-1/ L1 monotherapy competition from Merck & Co. and Roche to emerge in
the next 12 months. While Opdivo has a first mover advantage in 2nd line NSCLC, we see
the potential approval of Merck & Co.’s Keytruda, with efficacy data by PD-L1 expression
level in the label and a companion PD-L1 diagnostic assay, as favorable for penetration in
high PD-L1 expressers. Given that available data suggests PD-1/ L1 therapy could lead to a
more prolonged response in high PD-L1 expressers, the revenue opportunity for Keytruda
in NSCLC monotherapy may actually be more substantial than what future patient share
data might imply.
Exhibit 24: Upcoming PD-1/ L1 approval decision in NSCLC
Drug Company indication Estimated approval
Keytruda Merck & Co. 2nd line NSCLC following platinum-failure (and therapy for EGFR or ALK
mutations, if present)
PDUFA on October 2, 2015
Opdivo Bristol-Myers 2nd line non-squamous NSCLC Early 2016
Atezolizumab Roche PD-L1 positive 2nd line NSCLC following platinum-failure (and therapy
for EGFR or ALK mutations, if present)
H1 2016
Durvalumab AstraZeneca PD-L1 positive 3rd line NSCLC H2 2016
Source: Company data, Jefferies LLC
Merck & Co.’s Keytruda is expected to be the second PD-1/ L1 inhibitor to reach the US
market in NSCLC with a PDUFA date on October 2, 2015. Merck & Co. is seeking an
approval for NSCLC following progression on platinum-containing chemotherapy and
has a FDA Breakthrough Therapy Designation for this indication. The submission is based
on data from the Phase I KEYNOTE-001 study, which showed an overall response rate
(ORR) of 18% in pretreated NSCLC patents and includes efficacy data in both PD-L1
positive and negative patients (Exhibit 25). A filing for a companion PD-L1 diagnostic for
Keytruda has also been submitted to the FDA.
While there is concern among some investors that Keytruda may get a “narrow label” in
only the PD-L1 positive 2nd line NSCLC patients, we see this as a low probability scenario
and continue to expect a broad label for Keytruda given the Breakthrough Therapy
Designation and respectable data even amongst low PD-L1 expressors.
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page 25 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Exhibit 25: Summary of Keytruda KEYNOTE-001 efficacy data in pretreated
NSCLC patients
Keytruda-treated patients by PD-L1 expression
<1% 1-49% ≥50%
Number of patients 22 77 57
ORR (%) 9.1% 15.6% 43.9%
Median PFS (months) 2.2 2.3 6.1
Median OS (months) 8.6 7.3 NR
Source: 2015 AACR presentation, Jefferies LLC
Roche’s PD-L1 inhibitor atezolizumab was granted a Breakthrough Therapy Designation in
PD-L1 positive NSCLC following progression on platinum-based chemotherapy in
February 2015. Roche reported strong Phase II data for atezolizumab from the Phase II FIR
and POPLAR studies at ASCO 2015, and recently reported favorable topline data from the
pivotal Phase II BIRCH study. Roche is expected to discuss a potential submission for
atezolizumab with regulatory agencies shortly, which could allow atezolizumab to reach
the market as early as H1 2016.
Exhibit 26: Summary of key data for Roche’s atezolizumab in FIR and POPLAR studies
FIR POPLAR
NSCLC population PD-L1 positive (TC2/3 or IC2/3) 2nd line
Arm 1st line ≥2L no brain
met
≥2L treated
brain met
Overall atezo Atezo TC3/IC3 Atezo TC2/3
and IC2/3
Atezo TC1/2/3
and IC1/2/3
Docetaxel
Patients 31 92 13 287 47 105 195 143
ORR 26% 16% 23% 15% 38% 22% 18% 15%
mPFS (months) 4.5 2.7 2.5 2.8 7.8 4 3.3 3.4
mOS (months) NR 10.6 6.8 11.4 NR 13 NR 9.5
Treatment related
grade 3-4 AE rate
6% 17% 15% 13% NA NA NA 39%
Note: TC3 or IC3 = TC≥50% or IC≥10% PD-L1+; TC2/3 or IC2/3 = TC or IC≥5% PD-L1+; TC1/2/3 or IC1/2/3 = TC or IC ≥1% PD-L1+
Source: 2015 ASCO presentations, Jefferies LLC
AstraZeneca is also likely to launch durvalumab during H2’16E, as the company indicated
that it could file this drug on a positive readout from the Phase II ATLANTIC study in 3rd
line PD-L1 positive NSCLC patients, stratified by their EGFR/ALK mutation status (expected
H2’15E).
Best IO combination will win the end game
We see the immuno-oncology treatment paradigm in NSCLC shifting over the next 2-3
years towards combination treatments, catalyzed by data from the ongoing Phase III
studies for Roche’s atezolizumab/ platinum-based chemotherapy combo, AstraZeneca’s
durvalumab/ tremelimumab combo, and Bristol-Myers’ Opdivo/ Yervoy combo. We see
the relatively weak data for the PD-1/ L1 monotherapies in PD-L1 negative non-squamous
NSCLC patients, shown at ASCO 2015, as a clear opportunity for combination therapy.
Combination IO regimens could be a more significant opportunity than monotherapy if
they can demonstrate stronger overall survival data compared to PD-1/ L1 monotherapy
in a broader array of patients and safety profiles remain in line with that observed from
early stage studies.
At this point, we see Roche and AstraZeneca as the leading candidates to win the initial
combination race in NSCLC. However, we are likely to see a number of new IO
combinations developing over the next few years with novel mechanisms of action, which
could once again change the longer term outlook for the current leaders in this space.
ASCO 2016 should give incremental data on key new agents such as anti-OX40
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antibodies, which are currently tipped to be one of the most exciting new drug classes by
KOLs that we consult with.
Roche’s atezolizumab/ platinum-based chemo doublet combo generated the most
excitement at ASCO 2015 after it demonstrated impressive ORRs of 60% (with
carboplatin/ paclitaxel [c/pa], n=5), 75% (carboplatin/ pemetrexed [c/pe], n=12), and
62% (carboplatin/ Abraxane [c/A]], n=13) in a Phase I study in 1st line NSCLC with similar
efficacy regardless of PD-L1 expression. While the overall rates of drug related grade 3-4
adverse events appear elevated, we note that the side effects that comprise a large
portion of the grade 3-4 AEs (e.g., neutropenia, anemia, decreased neutrophil count) is
likely driven by the platinum-based chemo doublets. Roche has initiated three pivotal
combination studies for atezolizumab with platinum-based chemo doublets in chemo-
naïve NSCLC patients on the back of these strong results, with the primary endpoint (PFS)
expected to be reached in 2017.
Bristol-Myers and Merck & Co. have also presented PD-1 inhibitor data in combination
with chemo doublets (Exhibit 27), the former as part of the Phase I CheckMate-012 study
presentation at ASCO 2014. However, Bristol-Myers mentioned that they have decided
not to advance Opdivo/ chemo doublet combos because while these combos may
achieve high response rates, the company’s extended follow-up suggests that long term
survival was not significantly different than Opdivo monotherapy.
Exhibit 27: Summary of key Phase I data for PD-1/ L1 combinations with doublet chemotherapy
Roche Merck & Co. Bristol-Myers
NSCLC
population
1st line squamous and non-squamous 1st line squamous and non-squamous 1st line
squamous
1st line non-
squamous
1st line sq
and non-sq
1st line sq
and non-sq
PD-1/ L1 dose Atezolizumab 15mg/kg Q3W Keytruda 2mg/kg Q3W Keytruda 10mg/kg Q3W Opdivo 10mg/kg Q3W Opdivo
5mg/kg
Q3W
Chemo
doublet
Paclitaxel/
carboplatin
Pemetrexed/
carboplatin
Abraxane/
carboplatin
Pemetrexed/
carboplatin
Paclitaxel/
carboplatin
Pemetrexed/
carboplatin
Paclitaxel/
carboplatin
Gemcitabine
/ cisplatin
Pemetrexed/
cisplatin
Paclitaxel/
carboplatin
Paclitaxel/
carboplatin
Patients 5 12 13 12 13 12 12 12 15 15 14
ORR 60% 75% 62% 42% 38% 75% 17% 33% 47% 47% 43%
mPFS (weeks) NA NA NA NA NA NA NA 24.7 29.7 21.0 31.0
Treatment
G3/4 AE rate
~63%* ~35% ~87% 33% 38% 42% 25% 25% 47% 73% 29%
*Estimated from presentation charts
Source: 2014 and 2015 ASCO presentations, Jefferies LLC
AstraZeneca’s durvalumab/ tremelimumab combo failed to generate as much excitement
at ASCO 2015 as we anticipated despite the strong data and initiation of the pivotal Phase
III MYSTIC study for this combination in 1st line NSCLC. Combo data presented at ASCO
2015 showed ORR/ DCR (disease control rate) of 27% and 41%, respectively, across all
dosing cohorts. PD-L1 positive patients had an ORR/DCR of 33% and 39%, respectively,
versus 27% and 48%, respectively, in the PD-L1 negative patients. We note with interest
that the ORR/ DCR in the dose selected for Phase III MYSTIC study (20mg/kg durvalumab
Q4W plus 1mg/kg tremelimumab Q4W for six doses followed by Q12W for 12 doses) was
38% and 62%, respectively in the PD-L1 negative patients, which is above market
expectations for an ORR of c30% and showed a treatment related grade 3-4 adverse event
rate of only 22% for all patients treated with this regimen. We were also excited to see
evidence of improved T-cell proliferation and activation for durvalumab/ tremelimumab
compared with durvalumab monotherapy. We also note that AstraZeneca is planning to
initiate Phase III IO-chemo combo studies after seeing Roche’s data at ASCO 2015.
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Bristol-Myers began the PD-1/ L1 combo race comfortably in the leading position.
However, expectations have fallen significantly following a disappointing Phase I
CheckMate-012 readout at ASCO 2014, where Opdivo/ Yervoy showed modest efficacy
and a poor safety profile with 3 patient deaths due to toxicities related to treatment with
the Opdivo/ Yervoy combo.
Exhibit 28: Summary of key Phase I data for PD-1/ L1 combinations in late stage development
Roche AstraZeneca Bristol-Myers
NSCLC population 1st line Pretreated 1st line
PD-1/ L1 Combo Atezolizumab/ platinum-based chemo doublets durvalumab/
tremelimumab
Opdivo/ Yervoy***
Dose Atezolizumab 15mg/kg Q3W + chemo at standard
doses for 4-6 cycles
durvalumab 10-20mg/kg
Q2W or Q4W + treme
1mg/kg Q4W for 6 doses
then Q12W for 12 doses#
Opdivo 3mg/kg Q3W +
Yervoy 1mg/kg Q3W (4
cycles)
Opdivo 1mg/kg Q3W +
Yervoy 3mg/kg Q3W (4
cycles)
Arm All pts Carboplatin/
paclitaxel
Carboplatin/
pemetrexed
Carboplatin/
Abraxane
PD-L1 +ve PD-L1 -ve Squamous Non-
squamous
Squamous Non-
Squamous
Number of patients 30 5 12 13 9 13 9 16 9 15
ORR 67% 60% 75% 62% 33% 38% 33% 13% 11% 13%
mPFS (weeks) NA NA NA NA NA NA 20.6 9.9 8.9 32.9
Treatment related
grade 3-4 AE rate
~65%** ~63% ~35% ~87% 22%* 22% 50% 44% 67%
*AstraZeneca selected durvalumab 20mg/kg Q4W/ Treme 1mg/kg for Phase III MYSTIC study and the related grade 3-4 AE rate is for the
selected dose only; **estimated from presentation charts, and a majority of grade 3-4 AEs are due to platinum-based chemo doublet; ***3
patients died due to drug-related toxicities.
Source: 2014 and 2015 ASCO presentations, Jefferies LLC
Despite the unspectacular results, Bristol-Myers has selected an undisclosed dosing
regimen for the Opdivo/ Yervoy combination and initiated a Phase III study in 1st line
NSCLC patients (CheckMate-227 study). The Opdivo/ Yervoy dosing regimens selected
for Phase III is still unclear, although we could get further clarity from updated
CheckMate-012 results to be presented at the upcoming World Lung Conference on
September 7th (Monday, 10:45A – 12:15P MDT) at the Colorado Convention Center (Four
Seasons Ballroom F1+F2). Initial efficacy and safety data contained in the World Lung
Conference abstract for CheckMate-012 appear similar to data presented at the 2014
ASCO conference with ORRs at or below 20% regardless of regimen and an unimpressive
ORR in PD-L1 negative patients.
Exhibit 29: Bristol-Myers Phase III CheckMate-227 study design
Source: Bristol-Myers 2015 ASCO presentation
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At ASCO 2015, Merck & Co. presented data for its anti-PD-1 Keytruda in combination
with Yervoy in NSCLC and demonstrated robust results.
Exhibit 30: Summary of key Phase I data for PD-1 combinations with Yervoy
Merck & Co. Bristol-Myers
NSCLC population Pretreated 1st line
Dose Keytruda 10mg/kg
Q3W + Yervoy 1 or 3
mg/kg
Keytruda 2mg/kg Q3W
+ Yervoy 1 mg/kg
Opdivo 3mg/kg Q3W + Yervoy 1mg/kg
Q3W (4 cycles)
Opdivo 1mg/kg Q3W + Yervoy 3mg/kg
Q3W (4 cycles)
Tumour histology Squamous and non-squamous Squamous Non-squamous Squamous Non-Squamous
Number of patients 6 12 9 16 9 15
ORR 50% 33% 33% 13% 11% 13%
mPFS (weeks) NA NA 20.6 9.9 8.9 32.9
Treatment related
grade 3-4 AE rate
NA 17% 22% 50% 44% 67%
Source: 2014 and 2015 ASCO presentations, Jefferies LLC
PD-1/ L1 chemotherapy combo controversy at ASCO 2015
After seeing the unimpressive CheckMate-012 data for Opdivo/ platinum-based
chemotherapy doublets in 1st line NSCLC at ASCO 2014, the key questions that investors
focused on at ASCO 2015 are:
Why did Roche’s atezolizumab showed a much stronger response than
Opdivo when combined with similar chemotherapy?:
One hypothesis is that PD-L1 inhibitors (e.g., atezolizumab) could make better
combination agents, in terms of tolerability, than PD-1 inhibitors (e.g., Opdivo).
In addition to the Roche data, another piece of evidence supporting this is that
AstraZeneca’s PD-L1 inhibitor durvalumab could be used at very high doses
when combined with the CTLA-4 tremelimumab in NSCLC, whereas the
Opdivo/ Yervoy combination appeared to have higher serious adverse event
rates in multiple cancer indications (e.g., melanoma, NSCLC, RCC). Another
potential explanation is that Roche may have used fewer steroids in their study
(particularly with Abraxane), leading to a greater immune response.
Is the strong response sustainable?: Bristol-Myers have stated that they halted
development of the Opdivo-chemo combo because their extensive clinical
experience showed that the initial response could not be sustained after
concluding administration of all cycles of chemotherapy and the longer term
survival was no different than Opdivo monotherapy. In contrast, preliminary
Roche data suggests that early response appears to be maintained even
following dosing of all chemotherapy cycles. That said, we do not yet have a
follow-up period of sufficient duration to reach a firm conclusion and eagerly
await updated Roche data at the upcoming ESMO conference.
The answer to these questions could have significant implications on the long term
outlook for not only the PD-1/ L1 players, but also for the broader immuno-oncology
space, since PD-1/ L1s are viewed as the backbone of further combination therapy. If the
hypothesis that PD-L1s make better combinations is validated through additional clinical
data, then we see Roche, AstraZeneca, and possibly Pfizer being potential beneficiaries as
the IO competition shifts to combination therapies, while Bristol-Myers could be relegated
to a weaker competitive position.
Healthcare
Target | Estimate Change
August 27, 2015
page 29 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Key PD-1/ L1 updates from Merck & Co. and Roche coming up in 2015
Given the recent wave of data from the major players, we look forward to the data
readouts in the next 12 months below from the major PD-1/ L1 players and note that
monotherapy data for durvalumab could enable a “fast to market” filing.
Exhibit 31: Upcoming key PD-1/ L1 readouts in NSCLC
Drug Company Readout Venue/ estimated timing
Opdivo Bristol-Myers Updated Phase I CheckMate-012 data for Opdivo/ Yervoy World Lung conference (September 6-9, Denver)
Keytruda Merck & Co Phase II/III KEYNOTE-010 study (vs. docetaxel) in platinum-failures Q4’15E
Atezolizumab Roche Updated Phase I combination data with platinum-based chemo
doublets in 1st line
ESMO (September 25-29, Vienna)
Phase I data in combination with Tarceva in TKI-naïve untreated
patients
Q4’15E
Phase III OAK study readout in 2/3 line NSCLC 2016 (OS data)
durvalumab AstraZeneca Updated Phase I combination data for durvalumab/ tremelimumab ESMO (September 25-29, Vienna)
Phase II ATLANTIC data in 3rd line PD-L1 positive patients H2’15E
Source: Company data, Clinicaltrials.gov Jefferies Research
Updates to anti-PD-1/ L1 market model
The key changes to the squamous and non-squamous NSCLC sections of our anti-PD-1/
L1 model are similar. In addition to updating our model for new study initiations and
progression of ongoing studies, data readouts, and increased visibility around approval
timelines, we made the following key revisions:
1. Allocated higher market share to Roche in the combo NSCLC market on the back
of strong atezolizumab/ platinum-based chemo doublet data,
2. Allocated higher patient treatment year share to Merck & Co. in the
monotherapy NSCLC market as Merck & Co., with potential PD-L1 stratification
data in its label, could be used in a greater proportion of PD-L1 positive patients,
3. New market share allocation to Pfizer in the monotherapy market with initiation
of a Phase III study, and
4. Assumed an even split between PD-L1 positive and negative patient populations
given conflicting expression data from the various companies, who each have
their own PD-L1 diagnostic assays.
Healthcare
Target | Estimate Change
August 27, 2015
page 30 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Exhibit 32: Anti-PD-1/ L1-treated patient years by line of
non-squamous NSCLC therapy
Source: Jefferies estimates, Globocan 2012, company data
Exhibit 33: Peak anti-PD-1/ L1 sales by line of non-
squamous NSCLC therapy, ($m, rounded to nearest $50m)
Source: Jefferies estimates, company data
Exhibit 34: Bristol-Myers – Summary of enabling studies for Opdivo in non-squamous NSCLC
Regimen Line of
treatment
Year of
approval (JEFe)
Enabling
study
Study
stage
Study description/ comments
Monotherapy 1st 2017 NCT02041533/
CheckMate 026
III Monotherapy in squamous and non-squamous untreated or recurrent PD-L1
positive pts vs. chemotherapy (CheckMate 026).
2nd 2016 NCT01673867/
CheckMate 057
III Monotherapy in platinum-failure pts vs. docetaxel (CheckMate 057).
3rd 2016 NCT01673867/
CheckMate 057
III Monotherapy in platinum-failure pts vs. docetaxel (CheckMate 057).
Combination 1st 2018 CheckMate 227 III Opdivo/ Yervoy combo vs. Opdivo monotherapy vs. platinum-based
chemotherapy
2nd 2018 CheckMate 227 III Opdivo/ Yervoy combo vs. Opdivo monotherapy vs. platinum-based
chemotherapy
3rd 2018 CheckMate 227 III Opdivo/ Yervoy combo vs. Opdivo monotherapy vs. platinum-based
chemotherapy
Source: Clinicaltrials.gov, Jefferies estimates, company data
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
1st line 2nd line 3rd line
An
ti-P
D-1
/L1
Tre
ate
d P
ati
en
t Y
ears
PD-1 monotherapy PD-1 combo therapy
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
1st line 2nd line 3rd line
Peak
Sale
s ($
m)
PD-1 monotherapy PD-1 combo therapy
Healthcare
Target | Estimate Change
August 27, 2015
page 31 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Exhibit 35: Merck & Co. – Summary of enabling studies for Keytruda in non-squamous NSCLC
Regimen Line of
treatment
Year of approval
(JEFe)
Enabling
study
Study
stage
Study description/ comments
Monotherapy 1st 2017 NCT02142738/
KEYNOTE-024
III Monotherapy in untreated PD-L1 strong, stage IV patients
2nd PDUFA 10/2/2015 NCT01905657/
KEYNOTE-010
II/III Monotherapy in platinum-failure pts vs. docetaxel (KEYNOTE-010).
3rd PDUFA 10/2/2015 NCT01905657/
KEYNOTE-010
II/III Monotherapy in platinum-failure pts vs. docetaxel (KEYNOTE-010).
Combination 1st 2020 Unknown NA Assume approval on a Phase III study initiated after gathering sufficient data from
Phase I/II study (NCT02039674 or KEYNOTE-021) evaluating combos with
bevacizumab, ipilimumab, erlotinib, gefitinib, and other chemos, and Phase I
study (NCT01840579 or KEYNOTE-011) evaluating combos with chemo
2nd 2020 Unknown NA Assume approval on a Phase III study initiated after gathering sufficient data from
Phase I/II study (NCT02039674 or KEYNOTE-021) evaluating combos with
bevacizumab, ipilimumab, erlotinib, gefitinib, and other chemos, and Phase I
study (NCT01840579 or KEYNOTE-011) evaluating combos with chemo
3rd 2020 Unknown NA Assume approval on a Phase III study initiated after gathering sufficient data from
Phase I/II study (NCT02039674 or KEYNOTE-021) evaluating combos with
bevacizumab, ipilimumab, erlotinib, gefitinib, and other chemos, and Phase I
study (NCT01840579 or KEYNOTE-011) evaluating combos with chemo
Source: Clinicaltrials.gov, Jefferies estimates, company data
Exhibit 36: Roche – Summary of enabling studies for atezolizumab in non-squamous NSCLC
Regimen Line of
treatment
Year of
approval (JEFe)
Enabling study Study
stage
Study description/ comments
Monotherapy 1st 2018 NCT02409342/
IMpower110
III Monotherapy vs. platinum-based chemo plus pemetrexed in PD-L1
positive, chemo-naïve patients
2nd 2016 NCT02031458/
BIRCH
III Assume filing based on the combination of Phase II BIRCH, POPLAR, and FIR
studies
3rd 2016 NCT02031458/
BIRCH
III Assume filing based on the combination of Phase II BIRCH, POPLAR, and FIR
studies
Combination 1st 2018 NCT02366143/
IMpower150 and
NCT02367781/
IMpower130
III Atezolizumab combined with carboplatin/ paclitaxel ± Avastin vs. carbo/
pac/ Avastin, or combined with carboplatin/ Abraxane vs. carbo/ Abraxane
in chemo-naïve patients
2nd 2018 NCT02366143/
IMpower150 and
NCT02367781/
IMpower130
III Atezolizumab combined with carboplatin/ paclitaxel ± Avastin vs. carbo/
pac/ Avastin, or combined with carboplatin/ Abraxane vs. carbo/ Abraxane
in chemo-naïve patients
3rd 2018 NCT02366143/
IMpower150 and
NCT02367781/
IMpower130
III Atezolizumab combined with carboplatin/ paclitaxel ± Avastin vs. carbo/
pac/ Avastin, or combined with carboplatin/ Abraxane vs. carbo/ Abraxane
in chemo-naïve patients
Source: Clinicaltrials.gov, Jefferies estimates, company data
Healthcare
Target | Estimate Change
August 27, 2015
page 32 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Exhibit 37: AstraZeneca – Summary of enabling studies for durvalumab in non-squamous NSCLC
Regimen Line of
treatment
Year of
approval (JEFe)
Enabling
study
Study
stage
Study description/ comments
Monotherapy 1st 2018 NCT02125461/
PACIFIC
III Monotherapy in untreated patients following chemoradiation in stage III pts
2nd 2018 NCT02125461/
PACIFIC
III Monotherapy in untreated patients following chemoradiation in stage III pts
3rd 2016 NCT02087423/
ATLANTIC
II Monotherapy in 3rd line NSCLC
Combination 1st 2018 NCT02453282/
MYSTIC
III Durvalumab plus tremelimumab vs. durvalumab vs. chemotherapy in 1st line
EGFR/ALK wild-type patients
2nd 2018 NCT02453282/
MYSTIC
III Durvalumab plus tremelimumab vs. durvalumab vs. chemotherapy in 1st line
EGFR/ALK wild-type patients
3rd 2018 NCT02352948/
ARCTIC
III Anti-PD-L1 vs. tremelimumab vs. Anti-PD-L1/treme combo in 3rd line NSCLC
to read out in 2017. Assume 2017 filing
Source: Clinicaltrials.gov, Jefferies estimates, company data
Exhibit 38: Pfizer – Summary of enabling studies for avelumab in non-squamous NSCLC
Regimen Line of
treatment
Year of
approval (JEFe)
Enabling
study
Study
stage
Study description/ comments
Monotherapy 1st NA Unknown NA NA
2nd 2020 NCT02395172/
JAVELIN Lung
200
III Monotherapy vs. docetaxel in PD-L1 positive platinum-failure patients
3rd 2020 NCT02395172/
JAVELIN Lung
200
III Monotherapy vs. docetaxel in PD-L1 positive platinum-failure patients
Combination 1st NA Unknown NA NA
2nd NA Unknown NA NA
3rd NA Unknown NA NA
Source: Clinicaltrials.gov, Jefferies estimates, company data
Company-specific estimates (non-squamous NSCLC)
Based on our estimates, we estimate Merck & Co.’s Keytruda could reach c$2.3bn in peak
sales in the non-squamous NSCLC indication, Roche’s atezolizumab could reach c$4.1bn,
Bristol-Myers’ Opdivo could reach c$4.3bn, AstraZeneca’s durvalumab could reach
c$4.0bn in peak sales, and Pfizer’s avelumab could reach c$1.2bn. Our market share
allocations are based on timing of market entry, combinations under development, and
the currently available data for the drugs.
Healthcare
Target | Estimate Change
August 27, 2015
page 33 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Exhibit 39: Bristol-Myers – Non-squamous NSCLC revenue estimates for
Opdivo, ($m, rounded to nearest $50m)
Regimen Line of treatment Market share (JEFe) Revenue ($m)
Monotherapy 1st 35% $2,200
2nd 30% $250
3rd 30% $0
Combination 1st 20% $950
2nd 20% $700
3rd 20% $200
Total $4,300
Source: Jefferies estimates
Exhibit 40: Merck & Co. – Non-squamous NSCLC revenue estimates for
Keytruda, ($m, rounded to nearest $50m)
Regimen Line of treatment Market share (JEFe) Revenue ($m)
Monotherapy 1st 25% $1,550
2nd 30% $250
3rd 30% $0
Combination 1st 5% $250
2nd 5% $200
3rd 5% $50
Total $2,300
Source: Jefferies estimates
Exhibit 41: Roche – Non-squamous NSCLC revenue estimates for
atezolizumab, ($m, rounded to nearest $50m)
Regimen Line of treatment Market share (JEFe) Revenue ($m)
Monotherapy 1st 15% $950
2nd 20% $150
3rd 15% $0
Combination 1st 33% $1,550
2nd 33% $1,100
3rd 33% $350
Total $4,100
Source: Jefferies estimates
Healthcare
Target | Estimate Change
August 27, 2015
page 34 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Exhibit 42: AstraZeneca – Non-squamous NSCLC revenue estimates for
durvalumab, ($m, rounded to nearest $50m)
Regimen Line of treatment Market share (JEFe) Revenue ($m)
Monotherapy 1st 15% $950
2nd 10% $100
3rd 15% $0
Combination 1st 33% $1,550
2nd 33% $1,100
3rd 33% $350
Total $4,050
Source: Jefferies estimates
Exhibit 43: Pfizer – Non-squamous NSCLC revenue estimates for avelumab,
($m, rounded to nearest $50m)
Regimen Line of treatment Market share (JEFe) Revenue ($m)
Monotherapy 1st 10% $650
2nd 10% $100
3rd 10% $0
Combination 1st 5% $250
2nd 5% $150
3rd 5% $50
Total $1,200
Source: Jefferies estimates
Exhibit 44: Non-squamous NSCLC - De-risked anti-PD-1/ L1
drug sales by year ($m)
Source: Jefferies estimates, company data
Exhibit 45: Non-squamous NSCLC - Risk-adjusted anti-PD-1/
L1 drug sales by year ($m)
Source: Jefferies estimates, company data
$0
$2,500
$5,000
$7,500
$10,000
$12,500
$15,000
$17,500
De-r
iske
d S
ale
s ($
m)
Keytruda Opdivo atezolizumab Durvalumab Avelumab
$0
$2,500
$5,000
$7,500
$10,000
$12,500
$15,000
$17,500
Ris
k-A
dju
sted
Sale
s ($
m)
Keytruda Opdivo atezolizumab Durvalumab Avelumab
Healthcare
Target | Estimate Change
August 27, 2015
page 35 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Exhibit 46: Anti-PD-1/ L1-treated patient years by line of
squamous NSCLC therapy
Source: Jefferies estimates, Globocan 2012, company data
Exhibit 47: Peak anti-PD-1/ L1 sales by line of squamous
NSCLC therapy ($m, rounded to nearest $50m)
Source: Jefferies estimates, company data
Exhibit 48: Bristol-Myers – Summary of enabling studies for Opdivo in squamous NSCLC
Regimen Line of
treatment
Year of
approval (JEFe)
Enabling
study
Study
stage
Study description/ comments
Monotherapy 1st 2017 NCT02041533/
CheckMate 026
III Monotherapy in squamous and non-squamous untreated or recurrent PD-L1
positive pts vs. chemotherapy (CheckMate 026).
2nd Approved NCT01642004/
CheckMate 017
III Monotherapy in platinum-failure pts vs. docetaxel (CheckMate 017).
3rd Approved NCT01721759/
CheckMate 063
II Monotherapy in 3rd line (CheckMate 063).
Combination 1st 2018 CheckMate 227 III Opdivo/ Yervoy combo vs. Opdivo monotherapy vs. platinum-based
chemotherapy
2nd 2018 CheckMate 227 III Opdivo/ Yervoy combo vs. Opdivo monotherapy vs. platinum-based
chemotherapy
3rd 2018 CheckMate 227 III Opdivo/ Yervoy combo vs. Opdivo monotherapy vs. platinum-based
chemotherapy
Source: Clinicaltrials.gov, Jefferies estimates, company data
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
1st line 2nd line 3rd line
An
ti-P
D-1
/L1
Tre
ate
d P
ati
en
t Y
ears
PD-1 monotherapy PD-1 combo therapy
$0
$500
$1,000
$1,500
$2,000
$2,500
1st line 2nd line 3rd line
Peak
Sale
s ($
m)
PD-1 monotherapy PD-1 combo therapy
Healthcare
Target | Estimate Change
August 27, 2015
page 36 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Exhibit 49: Merck & Co. – Summary of enabling studies for Keytruda in squamous NSCLC
Regimen Line of
treatment
Year of
approval (JEFe)
Enabling
study
Study
stage
Study description/ comments
Monotherapy 1st 2017 NCT02142738/
KEYNOTE-024
III Monotherapy in untreated PD-L1 strong, stage IV patients
2nd PDUFA
10/2/2015
NCT01905657/
KEYNOTE-010
II/III Monotherapy in platinum-failure pts vs. docetaxel (KEYNOTE-010).
3rd PDUFA
10/2/2015
NCT01905657/
KEYNOTE-010
II/III Monotherapy in platinum-failure pts vs. docetaxel (KEYNOTE-010).
Combination 1st 2020 Unknown NA Assume approval on a Phase III study initiated after gathering sufficient data from
Phase I/II study (NCT02039674 or KEYNOTE-021) evaluating combos with
bevacizumab, ipilimumab, erlotinib, gefitinib, and other chemos, and Phase I
study (NCT01840579 or KEYNOTE-011) evaluating combos with chemo
2nd 2020 Unknown NA Assume approval on a Phase III study initiated after gathering sufficient data from
Phase I/II study (NCT02039674 or KEYNOTE-021) evaluating combos with
bevacizumab, ipilimumab, erlotinib, gefitinib, and other chemos, and Phase I
study (NCT01840579 or KEYNOTE-011) evaluating combos with chemo
3rd 2020 Unknown NA Assume approval on a Phase III study initiated after gathering sufficient data from
Phase I/II study (NCT02039674 or KEYNOTE-021) evaluating combos with
bevacizumab, ipilimumab, erlotinib, gefitinib, and other chemos, and Phase I
study (NCT01840579 or KEYNOTE-011) evaluating combos with chemo
Source: Clinicaltrials.gov, Jefferies estimates, company data
Exhibit 50: Roche – Summary of enabling studies for atezolizumab in squamous NSCLC
Regimen Line of
treatment
Year of
approval (JEFe)
Enabling
study
Study
stage
Study description/ comments
Monotherapy 1st 2018 NCT02409355/
IMpower111
III Monotherapy vs. platinum-based chemo in PD-L1 positive, chemo-naïve
patients
2nd 2016 NCT02031458/
BIRCH
III Assume filing based on the combination of Phase II BIRCH, POPLAR, and FIR
studies
3rd 2016 NCT02031458/
BIRCH
III Assume filing based on the combination of Phase II BIRCH, POPLAR, and FIR
studies
Combination 1st 2018 NCT02367794/
IMpower131
III Atezolizumab combined with platinum-based chemo doublet vs. carbo/pac or
carbo/Abraxane in chemo-naïve patients
2nd 2018 NCT02367794/
IMpower131
III Atezolizumab combined with platinum-based chemo doublet vs. carbo/pac or
carbo/Abraxane in chemo-naïve patients
3rd 2018 NCT02367794/
IMpower131
III Atezolizumab combined with platinum-based chemo doublet vs. carbo/pac or
carbo/Abraxane in chemo-naïve patients
Source: Clinicaltrials.gov, Jefferies estimates, company data
Healthcare
Target | Estimate Change
August 27, 2015
page 37 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Exhibit 51: AstraZeneca – Summary of enabling studies for durvalumab in squamous NSCLC
Regimen Line of
treatment
Year of
approval (JEFe)
Enabling
study
Study
stage
Study description/ comments
Monotherapy 1st 2018 NCT02125461/
PACIFIC
III Monotherapy in untreated patients following chemoradiation in stage III pts
2nd 2018 NCT02125461/
PACIFIC
III Monotherapy in untreated patients following chemoradiation in stage III pts
3rd 2016 NCT02087423/
ATLANTIC
II Monotherapy in 3rd line NSCLC
Combination 1st 2018 NCT02453282/
MYSTIC
III durvalumab plus tremelimumab vs. durvalumab vs. chemotherapy in 1st line
EGFR/ALK wild-type patients
2nd 2018 NCT02453282/
MYSTIC
III durvalumab plus tremelimumab vs. durvalumab vs. chemotherapy in 1st line
EGFR/ALK wild-type patients
3rd 2018 NCT02352948/
ARCTIC
III Anti-PD-L1 vs. tremelimumab vs. Anti-PD-L1/treme combo in 3rd line NSCLC
to read out in 2017. Assume 2017 filing
Source: Clinicaltrials.gov, Jefferies estimates, company data
Exhibit 52: Pfizer – Summary of enabling studies for avelumab in squamous NSCLC
Regimen Line of
treatment
Year of
approval (JEFe)
Enabling
study
Study
stage
Study description/ comments
Monotherapy 1st NA Unknown NA NA
2nd 2020 NCT02395172/
JAVELIN Lung
200
III Monotherapy vs. docetaxel in PD-L1 positive platinum-failure patients
3rd 2020 NCT02395172/
JAVELIN Lung
200
III Monotherapy vs. docetaxel in PD-L1 positive platinum-failure patients
Combination 1st NA Unknown NA NA
2nd NA Unknown NA NA
3rd NA Unknown NA NA
Source: Clinicaltrials.gov, Jefferies estimates, company data
Company-specific estimates (squamous NSCLC)
Based on our estimates, Merck & Co.’s Keytruda could reach c$450m in peak de-risked
sales in the squamous indication, Roche’s atezolizumab could reach c$850m, Bristol-
Myers’ Opdivo could reach c$750m, AstraZeneca’s durvalumab could reach c$800m, and
Pfizer’s avelumab could reach c$150m each. Our market share allocations are based on
timing of market entry, combinations under development, and the currently available
data for the drugs.
Exhibit 53: Bristol-Myers – Squamous NSCLC revenue estimates for Opdivo
($m, rounded to nearest $50m)
Regimen Line of treatment Market share (JEFe) Revenue ($m)
Monotherapy 1st 30% $350
2nd 40% $50
3rd 35% $0
Combination 1st 20% $200
2nd 20% $100
3rd 20% $50
Total $750
Source: Jefferies estimates
Healthcare
Target | Estimate Change
August 27, 2015
page 38 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Exhibit 54: Merck & Co. – Squamous NSCLC revenue estimates for Keytruda
($m, rounded to nearest $50m)
Regimen Line of treatment Market share (JEFe) Revenue ($m)
Monotherapy 1st 30% $350
2nd 25% $0
3rd 25% $0
Combination 1st 5% $50
2nd 5% $50
3rd 5% $0
Total $450
Source: Jefferies estimates
Exhibit 55: Roche – Squamous NSCLC revenue estimates for atezolizumab
($m, rounded to nearest $50m)
Regimen Line of treatment Market share (JEFe) Revenue ($m)
Monotherapy 1st 20% $250
2nd 20% $0
3rd 18% $0
Combination 1st 33% $350
2nd 33% $200
3rd 33% $50
Total $850
Source: Jefferies estimates
Exhibit 56: AstraZeneca – Squamous NSCLC revenue estimates for
durvalumab ($m, rounded to nearest $50m)
Regimen Line of treatment Market share (JEFe) Revenue ($m)
Monotherapy 1st 15% $200
2nd 10% $0
3rd 18% $0
Combination 1st 33% $350
2nd 33% $200
3rd 33% $50
Total $800
Source: Jefferies estimates
Exhibit 57: Pfizer – Squamous NSCLC revenue estimates for avelumab ($m,
rounded to nearest $50m)
Regimen Line of treatment Market share (JEFe) Revenue ($m)
Monotherapy 1st 5% $50
2nd 5% $0
3rd 5% $0
Combination 1st 5% $50
2nd 5% $50
3rd 5% $0
Total $150
Source: Jefferies estimates
Healthcare
Target | Estimate Change
August 27, 2015
page 39 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Exhibit 58: Squamous NSCLC - De-risked anti-PD-1/ L1 drug
sales by year ($m)
Source: Jefferies estimates, company data
Exhibit 59: Squamous NSCLC - Risk-adjusted anti-PD-1/ L1
drug sales by year ($m)
Source: Jefferies estimates, company data
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
De-r
iske
d S
ale
s ($
m)
Keytruda Opdivo atezolizumab Durvalumab Avelumab
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
Ris
k-A
dju
sted
Sale
s ($
m)
Keytruda Opdivo atezolizumab Durvalumab Avelumab
Healthcare
Target | Estimate Change
August 27, 2015
page 40 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Renal Cell Carcinoma (RCC) Two-horse race with Bristol-Myers holding a tenuous lead
Renal cell carcinoma was one of the first indications where we saw PD-1/ L1 data.
Following the initial wave of data releases, only Bristol-Myers and Roche have advanced
their PD-1/ L1 inhibitors into Phase III studies and we see Bristol-Myers’ Opdivo as the first
market entrant in this indication following a successful CheckMate-025 top line readout.
While we are uncertain of the progress that Merck & Co. and AstraZeneca have made for
their PD-1/ L1 inhibitors in RCC, we feel that these companies have the development
experience and resources to quickly ramp up and become competitive in this race.
Bristol-Myers has a tenuous lead in RCC
Bristol-Myers recently announced that the CheckMate-025 study was halted early on
superior overall survival benefits for Opdivo vs. Afinitor in pre-treated RCC patients.
However, a superior OS is really not that surprising, in our view, based on the relatively
weak comparison for Afinitor (Exhibit 60). We see Bristol-Myers filing on this data in H2
2015 with potential approval in H1’16.
Exhibit 60: Summary of key Opdivo and Afinitor data in pretreated RCC
Opdivo
Afinitor plus best
supportive care
Study size 54 54 277
Dose 2mg/kg Q3W 10mg/kg Q3W 10mg daily
ORR 22.0% 20.0% 2.0%
mPFS (months) 4.0 4.2 4.9
mOS (months) 25.5 24.8 14.8
Grade 3-4 AE rate 17% 17% 65%
Source: 2015 ASCO CheckMate-010 data, Afinitor prescribing information, Motzer RJ et
al. (Cancer, 2010, 116[18]), Jefferies LLC
We expect the real competition to take place in 1st line RCC, where Roche has a chance to
be first to market if the company decides to file on Phase II data. In this setting, Bristol-
Myers is evaluating the Opdivo/ Yervoy combination against current standard of care
Sutent (sunitinib) in untreated RCC patients in the Phase III CheckMate-214 study.
Bristol-Myers has released early data for Opdivo in combination with Yervoy, Stutent
(sunitinib), and pazopanib. Phase I CheckMate-016 data for the Opdivo/ Yervoy combo
presented at ASCO 2015 showed that:
Opdivo/ Yervoy combo generated ORRs of 38.3% for the 3mg/kg Opdivo/
1mg/kg Yervoy Q3W (following by 3mg/kg Q2W Opdivo) dose and 40.4% for
the 1mg/kg/ 3mg/kg Q3W (followed by 3mg/kg Q2W Opdivo) dose,
Median PFS were 7.7m and 10.9m for the 3mg/kg + 1mg/kg and 1mg/kg +
3mg/kg doses, respectively,
In terms of side effects, the 3mg/kg Opdivo/ 1mg/kg Yervoy appears to be more
well tolerated with 34% grade 3-4 treatment related adverse events compared
to 64% for the 1mg/kg Opdivo/ 3mg/kg Yervoy dose.
Given the data, it is not surprising that Bristol-Myers is utilizing the 3mg/kg Opdivo plus
1mg/kg Yervoy Q3W (for 4 doses) followed by 3mg/kg Opdivo Q2W regimen in the
pivotal CheckMate-214 study. It is difficult to assess the efficacy of the Opdivo/ Yervoy
combo relative to Sutent based on available data, but we feel that the combination may
have a more tolerable safety profile.
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page 41 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Exhibit 61: Summary of key data for Bristol-Myers’ Opdivo/ Yervoy combo and Sutent in RCC
Opdivo 3/ Yervoy 1 Opdivo 1/ Yervoy 3 Opdivo 3/ Yervoy 3 Sutent
RCC population Naïve and pretreated patients Naïve patients Naïve patients
Size 47 47 6 375
Dose 3mg/kg plus 1mg/kg Q3W (4
Yervoy doses)
1mg/kg plus 3mg/kg Q3W (4
Yervoy doses)
3mg/kg plus 3mg/kg Q3W (4
Yervoy doses)
50mg orally once daily
ORR 38.3% 40.4% 0% 27.5%
mPFS (weeks) 33.3 47.1 na 47.3
mOS (weeks) NR NR na 114.6
Overall grade 3-4 treatment-
related AE rate
34.0% 63.8% 83.8% 77%
Source: 2015 ASCO CheckMate-016 data, Sutent prescribing information, Jefferies LLC
Roche tackling 1st line opportunity with atezolizumab/ Avastin combination
Roche is focusing on a combination approach for its PD-L1 inhibitor atezolizumab
(atezolizumab) in RCC, evaluating atezolizumab plus Avastin vs. Sutent in untreated RCC
patients in Phase II and Phase III studies. Early data for Roche’s atezolizumab/ Avastin
combo led to a promising 40% ORR in 1st line RCC (n=10) at 2014 ESMO, but it is still too
early to gauge its profile relative to Sutent.
Roche also presented early monotherapy data for atezolizumab at ESMO 2014 that
showed an overall ORR of 15%. The ORR was 10% in PD-L1- patients (IHC 0) and 20% in
PD-L1+ patients (IHC 1/2/3).
We estimate a read out for the Phase II study for the atezolizumab/ Avastin combo in Q2
2016, and see the potential for Roche to file on this study and be the first PD-1/ L1
inhibitor to market in 1st-line RCC.
Exhibit 62: Objective response rates for anti-PD-1/ L1
regimens in RCC
Source: Company reports, Jefferies LLC
Exhibit 63: Objective response rates by PD-L1 expression for
anti-PD-1/ L1 regimen in RCC
Note: For atezolizumab, PD-L1+ is IHC 1/2/3 and PD-L1- is IHC0
Source: Company reports, Jefferies LLC
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
% O
RR
0%
10%
20%
30%
40%
50%
60%
70%
% O
RR
PD-L1 positive PD-L1 negative
Healthcare
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page 42 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Exhibit 64: Upcoming key PD-1/ L1 readouts in RCC in the next 12 months
Drug Company Readout Estimated timing
Atezolizumab Roche Phase II study in combination with Avastin, vs. Sutent, in 1st line Q2 2016
Keytruda Merck & Co Phase I study in combination with Inlyta in 1st line Q3 2016
Source: Company data, Clinicaltrials.gov Jefferies Research
Updates to anti-PD-1/ L1 market model
In addition to updating our model for study initiations, progress of ongoing studies and
readouts, and increased visibility around approval timelines, we made the following key
revisions:
Allocated higher monotherapy market share to Opdivo on the CheckMate-025
results,
Allocated higher combo market share to Roche as its Avastin/ atezolizumab
combo could be first to market,
New market share allocation to Pfizer in the combination market, but not in the
monotherapy market, with initiation of a Phase I study specifically in RCC, and
Assumed 25% of patients are PD-L1 positive based on available data from Roche.
Exhibit 65: Anti-PD-1/ L1-treated patient years by line of
RCC therapy
Source: Jefferies estimates, Globocan 2012, company data
Exhibit 66: Peak anti-PD-1/ L1 sales by line of RCC therapy,
($m, rounded to nearest $50m)
Source: Jefferies estimates, company data
0
5,000
10,000
15,000
20,000
25,000
1st line 2nd line 3rd line
An
ti-P
D-1
/L1
Tre
ate
d P
ati
en
t Y
ears
PD-1 monotherapy PD-1 combo therapy
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
1st line 2nd line 3rd line
Peak
Sale
s ($
m)
PD-1 monotherapy PD-1 combo therapy
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page 43 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Exhibit 67: Bristol-Myers – Summary of enabling studies for Opdivo in RCC
Regimen Line of
treatment
Year of
approval (JEFe)
Enabling
study
Study
stage
Study description/ comments
Monotherapy 1st 2018 NA NA Assume approval on a Phase III study initiated after gathering sufficient data
from Phase I results in multiple solid tumour types (including study
NCT01358721) evaluating Opdivo monotherapy.
2nd 2016 NCT01668784/
CheckMate 025
III Monotherapy vs. everolimus in pretreated patients (CheckMate 025)
3rd 2016 NCT01668784/
CheckMate 025
III Monotherapy vs. everolimus in pretreated patients (CheckMate 025)
Combination 1st 2018 NCT02231749/
CheckMate 214
III Nivo/ ipi combo vs. sunitinib in 1st line RCC (CheckMate214)
2nd 2018 NCT02231749/
CheckMate 214
III Nivo/ ipi combo vs. sunitinib in 1st line RCC (CheckMate214)
3rd 2018 NCT02231749/
CheckMate 214
III Nivo/ ipi combo vs. sunitinib in 1st line RCC (CheckMate214)
Source: Clinicaltrials.gov, Jefferies estimates, company data
Exhibit 68: Merck & Co. – Summary of enabling studies for Keytruda in RCC
Regimen Line of
treatment
Year of
approval (JEFe)
Enabling
study
Study
stage
Study description/ comments
Monotherapy 1st NA NA NA No dedicated study for Keytruda monotherapy
2nd NA NA NA No dedicated study for Keytruda monotherapy
3rd NA NA NA No dedicated study for Keytruda monotherapy
Combination 1st 2020 Unknown I Assume approval on a Phase III study initiated after gathering sufficient data
from Phase I/II study (NCT02014636 or KEYNOTE-018) and Phase I study
(NCT02133742) evaluating combo with pazopanib or Inlyta in untreated pts.
2nd 2020 Unknown I Assume approval on a Phase III study initiated after gathering sufficient data
from Phase I/II study (NCT02014636 or KEYNOTE-018) and Phase I study
(NCT02133742) evaluating combo with pazopanib or Inlyta in untreated pts.
3rd 2020 Unknown I Assume approval on a Phase III study initiated after gathering sufficient data
from Phase I/II study (NCT02014636 or KEYNOTE-018) and Phase I study
(NCT02133742) evaluating combo with pazopanib or Inlyta in untreated pts.
Source: Clinicaltrials.gov, Jefferies estimates, company data
Exhibit 69: Roche – Summary of enabling studies for atezolizumab in RCC
Regimen Line of
treatment
Year of
approval (JEFe)
Enabling
study
Study
stage
Study description/ comments
Monotherapy 1st NA NA NA No dedicated study for atezolizumab monotherapy
2nd NA NA NA No dedicated study for atezolizumab monotherapy
3rd NA NA NA No dedicated study for atezolizumab monotherapy
Combination 1st 2017 NCT02420821 III Atezolizumab plus Avastin vs. sunitinib in 1st line RCC (assume approval on
Phase II study)
2nd 2017 NCT02420821 III Atezolizumab plus Avastin vs. sunitinib in 1st line RCC (assume approval on
Phase II study)
3rd 2017 NCT02420821 III Atezolizumab plus Avastin vs. sunitinib in 1st line RCC (assume approval on
Phase II study)
Source: Clinicaltrials.gov, Jefferies estimates, company data
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page 44 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Exhibit 70: AstraZeneca – Summary of enabling studies for durvalumab in RCC
Regimen Line of
treatment
Year of
approval (JEFe)
Enabling
study
Study
stage
Study description/ comments
Monotherapy 1st NA NA NA NA
2nd NA NA NA NA
3rd NA NA NA NA
Combination 1st NA NA NA NA
2nd NA NA NA NA
3rd NA NA NA NA
Source: Clinicaltrials.gov, Jefferies estimates, company data
Exhibit 71: Pfizer – Summary of enabling studies for avelumab in RCC
Regimen Line of
treatment
Year of
approval (JEFe)
Enabling
study
Study
stage
Study description/ comments
Monotherapy 1st NA NA NA NA
2nd NA NA NA NA
3rd NA NA NA NA
Combination 1st 2020 Unknown I Assume approval on a Phase III study initiated after gathering sufficient data
from the Phase I study (NCT02493751) evaluating avelumab/ Inlyta combo
2nd 2020 Unknown I Assume approval on a Phase III study initiated after gathering sufficient data
from the Phase I study (NCT02493751) evaluating avelumab/ Inlyta combo
3rd 2020 Unknown I Assume approval on a Phase III study initiated after gathering sufficient data
from the Phase I study (NCT02493751) evaluating avelumab/ Inlyta combo
Source: Clinicaltrials.gov, Jefferies estimates, company data
Company-specific estimates
Based on our estimates, we estimate Bristol-Myers’ Opdivo could reach c$1.3bn in peak
de-risked sales in the RCC indication, Merck & Co.’s Keytruda could reach c$400m,
Roche’s atezolizumab could reach c$1.3bn, and Pfizer’s avelumab could reach c$500m.
We do not include any revenue estimates for AstraZeneca in this indication. Our market
share allocations are based on timing of market entry, combinations under development,
and the currently available data for these drugs.
Exhibit 72: Bristol-Myers – RCC revenue estimates for Opdivo ($m, rounded
to nearest $50m)
Regimen Line of treatment Market share (JEFe) Revenue ($m)
Monotherapy 1st 50% $400
2nd 70% $100
3rd 70% $0
Combination 1st 30% $450
2nd 30% $250
3rd 30% $100
Total $1,300
Source: Jefferies estimates
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page 45 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Exhibit 73: Merck & Co. – RCC revenue estimates for Keytruda ($m, rounded
to nearest $50m)
Regimen Line of treatment Market share (JEFe) Revenue ($m)
Monotherapy 1st 10% $100
2nd 5% $0
3rd 5% $0
Combination 1st 13% $200
2nd 13% $100
3rd 13% $0
Total $400
Source: Jefferies estimates
Exhibit 74: Roche – RCC revenue estimates for atezolizumab ($m, rounded to
nearest $50m)
Regimen Line of treatment Market share (JEFe) Revenue ($m)
Monotherapy 1st 20% $150
2nd 20% $50
3rd 20% $0
Combination 1st 40% $650
2nd 40% $300
3rd 40% $100
Total $1,250
Source: Jefferies estimates
Exhibit 75: Pfizer – RCC revenue estimates for avelumab ($m, rounded to
nearest $50m)
Regimen Line of treatment Market share (JEFe) Revenue ($m)
Monotherapy 1st 10% $100
2nd 5% $0
3rd 5% $0
Combination 1st 15% $250
2nd 15% $100
3rd 15% $50
Total $500
Source: Jefferies estimates
Exhibit 76: RCC - De-risked anti-PD-1/ L1 drug sales by year
($m)
Source: Jefferies estimates, company data
Exhibit 77: RCC - Risk-adjusted anti-PD-1/ L1 drug sales by
year ($m)
Source: Jefferies estimates, company data
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
De-r
iske
d S
ale
s ($
m)
Keytruda Opdivo atezolizumab Avelumab
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
Ris
k-A
dju
sted
Sale
s ($
m)
Keytruda Opdivo atezolizumab Avelumab
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page 46 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Metastatic Melanoma Bristol-Myers leads in melanoma due to strong IO portfolio
Bristol-Myers and Merck & Co. have invested heavily in melanoma and are reaping the
rewards with approved PD-1 inhibitors. We see Bristol-Myers as the leader in this
indication given its breadth of mono and combination IO therapeutic offerings supported
by strong pivotal data. Merck & Co.’s Keytruda has had strong sales since launch and
appears to have an early commercial advantage, though we see the lack of an in-house
combination as a possible drag on its competitiveness against Opdivo in melanoma.
Bristol-Myers’s Opdivo/ Yervoy combo shows strong efficacy
While Bristol-Myers’ Opdivo and Merck & Co.’s Keytruda appear similar as
monotherapies, the impressive efficacy data in the Phase III CheckMate-067 study for the
Opdivo/ Yervoy combo in 1st line melanoma supports Bristol-Myers’ front-runner
position, in our view. The PDUFA for Opdivo/ Yervoy in 1st line melanoma is coming up
on September 30, 2015. Key results from CheckMate-067 (Exhibit 78) showed that:
The median OS were not reached for either arm as of ASCO 2015 and will be
important for assessing the efficacy of Opdivo/ Yervoy combo relative to a PD-1
monotherapy,
Opdivo/ Yervoy combo showed a statistically significant improvement over
Opdivo or Yervoy monotherapy in median PFS for PD-L1- patients (Opdivo/
Yervoy vs. Opdivo vs. Yervoy: 11.2 months vs. 5.3 months vs. 2.8 months), but
not in the PD-L1+ patients (14.0 months vs. 14.0 months vs. 4 months).
Exhibit 78: Bristol-Myers Phase III CheckMate-067 study summary
Arms Opdivo/ Yervoy Opdivo Yervoy
Dose Opdivo 1mg/kg + Yervoy 3mg/kg Q3W,
then Opdivo 3mg/kg Q2W
Opdivo 3mg/kg Q2W Yervoy 3mg/kg Q3W (4 doses)
ORR 58% 44% 19%
mPFS (months) 11.5 6.9 2.9
HR (vs. Yervoy, both
p<0.00001)
0.42 0.57
Overall grade 3-4 TRAE rate 55% 16% 27%
Grade 3-4 rates for select AEs
Skin 6% 2% 3%
Gastrointestinal 15% 2% 12%
Hepatic 19% 3% 2%
Endocrine 5% 1% 2%
Source: Company data, Jefferies Research
The CheckMate-067 ASCO presentation discussant, Dr. Michael Atkins, was aligned with
many other KOLs in that they do not believe that the current data are sufficient to allow
for patient stratification by PD-L1 expression. However, Dr. Atkins proposed that in the
absence of a better biomarker, the Opdivo/ Yervoy combo could be a preferred treatment
for those who need a quick response and can tolerate the higher toxicity associated with
the combo, while Opdivo monotherapy should be used irrespective of PD-L1 expression
in patients where toxicity is a concern. At ASCO 2014, early Phase I data showed that the
Opdivo/ Yervoy combo can lead to impressive 2-year OS rate of 79% for melanoma.
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page 47 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Merck & Co’s Keytruda similar to Opdivo as monotherapy
Both Opdivo and Keytruda are approved as monotherapies in Yervoy-relapsed patients
and both drugs already have NCCN recommendation supporting 1st line use. We and
many physicians see these two drugs as similar in melanoma monotherapy, with the only
tangible difference being dosing as Keytruda is administered once every three weeks
while Opdivo is administered once every two weeks.
Strong Phase III KEYNOTE-006 and CheckMate-066 data for Keytruda and Opdivo,
respectively, have solidified confidence in these drugs as 1st line melanoma treatments
(Exhibit 79).
Bristol-Myers is expecting a FDA approval decision for Opdivo in 1st line melanoma by
November 27, 2015 while Merck is expecting a similar decision for Keytruda by December
19, 2015.
Exhibit 79: Comparison of Bristol-Myers’ CheckMate-066 and Merck & Co.’s KEYNOTE-006 studies
CheckMate-066 KEYNOTE-006
Patient population Untreated BRAF wildtype Yervoy naïve
Arm Opdivo dacarbazine Keytruda Keytruda Yervoy
Dose 3mg/kg Q2W 1000mg/m2 Q3W 10mg/kg Q2W 10mg/kg Q3W 3mg/kg Q3W (4 doses)
ORR 40% 14% 34% 33% 12%
mPFS (months) 5.1 2.2 5.5 4.1 2.8
1-year OS (%) 73% 42% 74% 68% 58%
Overall grade 3-4 drug-
related AE rate
12% 18% 13% 10% 20%
Source: Company data, Jefferies Research
Keytruda and Opdivo are the only approved PD-1 inhibitors in the US
In September 2014, Merck & Co.’s Keytruda became the first PD-1 inhibitor to be
approved in the US. The drug is administered as 2mg/kg infusion Q3W, and is prescribed
for the treatment of melanoma following progression on Yervoy, or following the
progression of both Bristol-Myers’ Yervoy and a BRAF inhibitor in BRAF V600 mutation
positive patients. Merck & Co. priced Keytruda at wholesale acquisition cost of $2,158 for
a 50mg vial (lyophilized), or around $9,200 per month for an average patient with a
weight of 80kg.
While Keytruda was first PD-1 inhibitor to reach the market, it lost much of its first-mover
advantage when Bristol-Myers’ Opdivo received accelerated approval (brand name:
Opdivo) on December 22, 2014, more than three months ahead of the scheduled PDUFA
of March 30, 2015. The Opdivo indication is similar to that for Keytruda, although it is
approved as a 3mg/kg infusion Q2W, which is slightly less convenient than that for
Keytruda but has not been mentioned as a significant disadvantage relative to Keytruda in
the physician community. For an average patient, Bristol-Myers estimates the monthly
cost of Opdivo at around $12,500.
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page 48 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Exhibit 80: Objective response rates for anti-PD-1/ L1 regimens in melanoma
Source: Company reports, Jefferies LLC
Exhibit 81: Objective response rates for anti-PD-1/ L1 regimens by PD-L1
expression in melanoma
Source: Company reports, Jefferies LLC
Updates to anti-PD-1/ L1 market model
In addition to updating our model for new study initiations, progression of ongoing
studies, key data readouts, and increased visibility around approval timelines, we made
the following important revisions:
Allocated higher monotherapy market share to Opdivo and Keytruda based on
their strong launches, and
Allocated higher combo market share to Bristol-Myers and Roche given the
potential for their in-house combos.
0%
10%
20%
30%
40%
50%
60%
70%
OR
R (
%)
0%
10%
20%
30%
40%
50%
60%
70%
80%
% O
RR
PD-L1 positive PD-L1 negative
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page 49 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Exhibit 82: Anti-PD-1/ L1-treated patient years by line of
melanoma therapy
Source: Jefferies estimates, Globocan 2012, company data
Exhibit 83: Peak Anti-PD-1/ L1 sales by line of melanoma
therapy, ($m, rounded to nearest $50m)
Source: Jefferies estimates, company data
Exhibit 84: Bristol-Myers – Summary of enabling studies for Opdivo in melanoma
Regimen Line of
treatment
Year of
approval (JEFe)
Enabling
study
Study
stage
Study description/ comments
Monotherapy 1st 2015 (NCCN
recommended)
NCT01721772/
CheckMate 066
III Monotherapy in untreated pts, vs. dacarbazine. (CheckMate 066)
2nd Approved NCT01721746/
CheckMate 037
III Monotherapy in anti-CTLA4-treated pts, vs. dacarbazine or carboplatin plus
paclitaxel. (CheckMate 037)
3rd Approved NCT01721746/
CheckMate 037
III Monotherapy in anti-CTLA4-treated pts, vs. dacarbazine or carboplatin plus
paclitaxel. (CheckMate 037)
Combination 1st 2015 (PDUFA
Sept 30)
NCT01844505/
CheckMate 067
III Opdivo/Yervoy combo vs. Opdivo vs. Yervoy in untreated pts. (CheckMate
067)
2nd 2015 (PDUFA
Sept 30)
NCT01844505/
CheckMate 067
III Opdivo/Yervoy combo vs. Opdivo vs. Yervoy in untreated pts. (CheckMate
067)
3rd 2015 (PDUFA
Sept 30)
NCT01844505/
CheckMate 067
III Opdivo/Yervoy combo vs. Opdivo vs. Yervoy in untreated pts. (CheckMate
067)
Source: Clinicaltrials.gov, Jefferies estimates, company data
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
1st line 2nd line 3rd lineAn
ti-P
D-1
/L1
Tre
ate
d P
ati
en
t Y
ears
PD-1 monotherapy PD-1 combo therapy
$0
$500
$1,000
$1,500
$2,000
1st line 2nd line 3rd line
Peak
Sale
s ($
m)
PD-1 monotherapy PD-1 combo therapy
Healthcare
Target | Estimate Change
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page 50 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Exhibit 85: Merck & Co. – Summary of enabling studies for Keytruda in melanoma
Regimen Line of
treatment
Year of
approval (JEFe)
Enabling
study
Study
stage
Study description/ comments
Monotherapy 1st 2015 (NCCN
recommended)
NCT01866319/
KEYNOTE-006
III Monotherapy in Yervoy-naïve pts, vs. Yervoy (KEYNOTE-006)
2nd Approved NCT01295827/
NCT01704287
III Phase I (001) study of Keytruda in advanced melanoma pts and Phase II (002)
study in pretreated pts vs. investigator's choice (e.g., carboplatin plus
paclitaxel, paclitaxel, dacarbazine).
3rd Approved NCT01295827/
NCT01704287
III Phase I (001) study of Keytruda in advanced melanoma pts and Phase II (002)
study in pretreated pts vs. investigator's choice (e.g., carboplatin plus
paclitaxel, paclitaxel, dacarbazine).
Combination 1st 2020 Unknown NA Assume approval on a Phase III study initiated after gathering sufficient data
from Phase I/II study (NCT02089685/ KEYNOTE-029) evaluating Keytruda in
combo with pegInterferon or Yervoy and Phase I/II (NCT02130466/ KEYNOTE-
022) evaluating Keytruda in combo with Tafinlar or Mekinist or both.
2nd 2020 Unknown NA Assume approval on a Phase III study initiated after gathering sufficient data
from Phase I/II study (NCT02089685/ KEYNOTE-029) evaluating Keytruda in
combo with pegInterferon or Yervoy and Phase I/II (NCT02130466/ KEYNOTE-
022) evaluating Keytruda in combo with Tafinlar or Mekinist or both.
3rd 2020 Unknown NA Assume approval on a Phase III study initiated after gathering sufficient data
from Phase I/II study (NCT02089685/ KEYNOTE-029) evaluating Keytruda in
combo with pegInterferon or Yervoy and Phase I/II (NCT02130466/ KEYNOTE-
022) evaluating Keytruda in combo with Tafinlar or Mekinist or both.
Source: Clinicaltrials.gov, Jefferies estimates, company data
Exhibit 86: Roche – Summary of enabling studies for atezolizumab in melanoma
Regimen Line of
treatment
Year of
approval (JEFe)
Enabling
study
Study
stage
Study description/ comments
Monotherapy 1st NA NA NA NA
2nd NA NA NA NA
3rd NA NA NA NA
Combination 1st 2019 Unknown NA Assume approval on a Phase III study initiated after gathering sufficient data
from Phase I study (NCT01656642) of atezolizumab/ vemurafenib combo in
untreated pts with BRAF V600 mutation.
2nd 2019 Unknown NA Assume approval on a Phase III study initiated after gathering sufficient data
from Phase I study (NCT01656642) of atezolizumab/ vemurafenib combo in
untreated pts with BRAF V600 mutation.
3rd 2019 Unknown NA Assume approval on a Phase III study initiated after gathering sufficient data
from Phase I study (NCT01656642) of atezolizumab/ vemurafenib combo in
untreated pts with BRAF V600 mutation.
Source: Clinicaltrials.gov, Jefferies estimates, company data
Healthcare
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page 51 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Exhibit 87: AstraZeneca – Summary of enabling studies for durvalumab in melanoma
Regimen Line of
treatment
Year of
approval (JEFe)
Enabling
study
Study
stage
Study description/ comments
Monotherapy 1st NA NA NA NA
2nd NA NA NA NA
3rd NA NA NA NA
Combination 1st 2019 Unknown NA Assume approval on a Phase III study initiated after gathering sufficient data
from Phase I/II study (NCT02027961) of durvalumab in combination with
dabrafenib/ trametinib or trametinib alone in BRAF V600 mutation positive or
wild type BRAF pts.
2nd 2019 Unknown NA Assume approval on a Phase III study initiated after gathering sufficient data
from Phase I/II study (NCT02027961) of durvalumab in combination with
dabrafenib/ trametinib or trametinib alone in BRAF V600 mutation positive or
wild type BRAF pts.
3rd 2019 Unknown NA Assume approval on a Phase III study initiated after gathering sufficient data
from Phase I/II study (NCT02027961) of durvalumab in combination with
dabrafenib/ trametinib or trametinib alone in BRAF V600 mutation positive or
wild type BRAF pts.
Source: Clinicaltrials.gov, Jefferies estimates, company data
Company-specific estimates
Based on our estimates, we estimate Bristol-Myers’ Opdivo could reach c$1.2bn in peak
de-risked sales in the melanoma indication, Merck & Co.’s Keytruda could reach c$600m,
Roche’s atezolizumab could reach c$350m, and AstraZeneca’s durvalumab could reach
c$150m. Our market share allocations are based on timing of market entry, combinations
under development, and the currently available data for these drugs. We have not
included any revenue estimates for Pfizer in this indication.
Exhibit 88: Bristol-Myers – Melanoma revenue estimates for Opdivo ($m,
rounded to nearest $50m)
Regimen Line of treatment Market share (JEFe) Revenue ($m)
Monotherapy 1st 40% $400
2nd 40% $0
3rd 40% $0
Combination 1st 60% $350
2nd 60% $350
3rd 60% $50
Total $1,150
Source: Jefferies estimates
Exhibit 89: Merck & Co. – Melanoma revenue estimates for Keytruda ($m,
rounded to nearest $50m)
Regimen Line of treatment Market share (JEFe) Revenue ($m)
Monotherapy 1st 55% $500
2nd 55% $0
3rd 55% $0
Combination 1st 5% $50
2nd 5% $50
3rd 5% $0
Total $600
Source: Jefferies estimates
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August 27, 2015
page 52 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Exhibit 90: Roche – Melanoma revenue estimates for atezolizumab ($m,
rounded to nearest $50m)
Regimen Line of treatment Market share (JEFe) Revenue ($m)
Monotherapy 1st 3% $50
2nd 3% $0
3rd 3% $0
Combination 1st 25% $150
2nd 25% $150
3rd 25% $0
Total $350
Source: Jefferies estimates
Exhibit 91: AstraZeneca – Melanoma revenue estimates for durvalumab ($m,
rounded to nearest $50m)
Regimen Line of treatment Market share (JEFe) Revenue ($m)
Monotherapy 1st 3% $0
2nd 3% $0
3rd 3% $0
Combination 1st 10% $50
2nd 10% $50
3rd 10% $0
Total $150
Source: Jefferies estimates
Exhibit 92: Melanoma - De-risked anti-PD-1/ L1 drug sales
by year ($m)
Source: Jefferies estimates, company data
Exhibit 93: Melanoma - Risk-adjusted anti-PD-1/ L1 drug
sales by year ($m)
Source: Jefferies estimates, company data
$0
$250
$500
$750
$1,000
$1,250
$1,500
$1,750
$2,000
$2,250
$2,500
De-r
iske
d S
ale
s ($
m)
Keytruda Opdivo atezolizumab Durvalumab
$0
$250
$500
$750
$1,000
$1,250
$1,500
$1,750
$2,000
$2,250
$2,500
Ris
k-A
dju
sted
Sale
s ($
m)
Keytruda Opdivo atezolizumab Durvalumab
Healthcare
Target | Estimate Change
August 27, 2015
page 53 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Other Tumour Indications This section includes an overview of available PD-1/ L1 inhibitor data and development
progress for 20 key cancer indications (Exhibit 97) beyond metastatic melanoma,
metastatic NSCLC, and metastatic RCC. One or more of the top five PD-1/ L1 players have
ongoing studies in each of these indications, which collectively comprise approximately
half of the c$51bn peak de-risked sales potential for the anti-PD-1/ L1 class, based on our
model.
Head and neck cancer
AstraZeneca and Merck & Co. have both shown solid data for their PD-1/ L1s in this
indication, although Bristol-Myers has an ongoing Phase III study for Opdivo
monotherapy in this indication (CheckMate-141). It is not possible yet to determine which
PD-1/ L1 inhibitor is better in this indication, but we note that AstraZeneca is in a unique
position of having ongoing pivotal studies for durvalumab as both monotherapy and in
combination (with tremelimumab), which could give the company a competitive edge in
the long run.
At 2014 ESMO, updated Phase I monotherapy data for AstraZeneca’s durvalumab showed
an overall ORR of 11% in head and neck cancer patients, which is numerically lower than
the 25% ORR for Keytruda (n=117) presented at ASCO 2015. Both drugs have exhibited
benign tolerability profiles with limited Grade 3+ adverse events. Given the limited sample
sizes and different eligibility and screening criteria, it is not possible yet to say which drug
is better at this point.
Exhibit 94: Summary of key Phase I data for head and neck cancer
Keytruda Durvalumab
Dose 200mg Q3W 10mg/kg Q2W
Arm Overall HPV+ HPV- Overall PD-L1+ PD-L1- HPV+
Size 117 34 81 61 17 33 23
ORR 24.8% 20.6% 27.2% 11.3% 23.5% 3.0% 4.3%
Drug related grade
≥3 AE rate
9.8% na na 6.6% na na na
Source: 2014 ESMO and 2015 ASCO presentations, Jefferies LLC
Bladder cancer
The leading players in this indication are currently Roche and Merck & Co. It is difficult to
assess which product is superior based on available OS and safety data, but the
atezolizumab data in PD-L1 positive patients is impressive, in our view.
Exhibit 95: Summary of key Phase I data for bladder cancer
Keytruda* atezolizumab
Dose 10mg/kg Q2W 15mg/kg or 1200mg Q3W
Arm Overall Overall PD-L1+ (IC 2/3) ** PD-L1- (IC 0/1)
Number of patients 29 87 48 44
ORR 28% 34% 50% 17%
mPFS (months) 2 na 6 1
mOS (months) 12.7 na NR 8
Drug related grade
3-4 AE rate
15% 8% na na
*Keytruda study population are PD-L1 positive patients (≥1% expression); ** IC0 = <1% of IC PD-L1+, IC1= ≥1% but <5%, IC2 = ≥5%, IC3 =
≥10%
Source: 2015 ASCO presentations, Jefferies LLC
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August 27, 2015
page 54 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Colorectal cancer
At ESMO 2014, Roche presented early Phase I data for atezolizumab in combination with
Avastin with or without FOLFOX in colorectal cancer (CRC). A combination with Avastin
only demonstrated an 8% ORR in CRC (n=13), which we see as disappointing, but in line
with our low expectations for anti-cancer drug candidates in CRC in general.
Atezolizumab treatment resulted in 44% and 36% ORRs in the 1st line (n=18) and overall
CRC (n=25) populations, respectively, when combined with Avastin and FOLFOX.
However, the impact of atezolizumab is unclear as Avastin plus IFL (irinotecan/ 5-FU/
leucovorin) and IFL alone have demonstrated ORRs of 45% and 35%, respectively, in this
indication, according to the Avastin label.
Exhibit 96: Summary of key Phase I data for colorectal cancer
Atezolizumab/ Avastin Atezolizumab/ Avastin/ FOLFOX
Line of CRC therapy All lines All lines 1st line
Number of patients 13 25 18
ORR 8% 36% 44%
Drug related grade
3-4 AE rate
49% across multiple tumour types (but
only 3% attributed to atezo)
67% (but only 17% attributed to atezo) na
Source: 2014 ESMO, Jefferies LLC
Roche has initiated a Phase II biomarker-driven study evaluating atezolizumab in
combination with Avastin and chemotherapy vs. chemotherapy or biologic regimens in
1st-line CRC in the maintenance setting with estimated primary study completion in
December 2020.
In addition to Roche, a leading cancer expert that we spoke with mentioned that one of
the exciting developments he saw at ASCO 2015 was the Keytruda data in colorectal
(CRC) or non-CRC cancer patients with or without mismatch repair (MMR) deficiency,
where the tumours are highly mutated and are rich in CD8+ T cells and PD-L1 expression.
In this analysis, it was found that mismatch repair deficient CRC and non-CRC tumours
treated with Keytruda showed ORRs of 62% (n=13) and 60% (n=60%), respectively, while
the mismatch repair proficient CRC cohort (n=25) showed no ORR.
Hepatocellular carcinoma
At ASCO 2015, early Opdivo data showed an ORR of 19% (n=42) and 12-month overall
survival rate of 62%, suggesting the mOS could be much higher than 12 months in
patients who have received at least 1 systemic therapy for HCC. In contrast, the current
standard of care for advanced HCC, sorafenib, has only demonstrated mOS ranging from
6.5m-10.7m.
Triple negative breast cancer
At the 2014 San Antonio Breast Cancer Symposium, Roche and Merck & Co. presented
early data for atezolizumab and Keytruda, respectively, in this indication.
Keytruda: data in 27 PD-L1 positive patients showed an overall response rate of
18.5% and the median duration of response had not been reached at the time of
analysis, with 3 of 5 responders in therapy for 11 months or more.
Atezolizumab: In 9 evaluable patients, ORRs were 17% and 67% in IHC3 and
IHC2, or overall ORR of 33% in these high PD-L1 expressing patients.
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page 55 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Gastric cancer
Merck & Co. presented robust early data for Keytruda at ESMO 2014. Keytruda showed
an Initial ORR of 31% in PD-L1 positive gastric cancer patients (n=39), 67% of which had
received at least two prior lines of therapy. Whilst Keytruda monotherapy was generally
well-tolerated, there was one treatment related death from hypoxia and another
incidence of grade 4 pneumonitis. Merck & Co. plans to initiate a Phase II study in
advanced gastric cancer in 2015.
Ovarian cancer
Pfizer and Merck & Co. have released early data for their anti-PD-1/ L1s in this indication.
Given Pfizer’s robust early data for avelumab in ovarian cancer, we think the company
will likely accelerate development in this indication, with the potential to initiate a
registrational study in 2015.
Pfizer’s avelumab showed an ORR of 11% in 75 ovarian patients in updated data
at ASCO 2015.
Merck & Co.’s Keytruda showed a similar ORR of 12% in 26 patients in PD-L1
positive ovarian patients (≥1% PD-L1 expression) at ASCO 2015.
Adjuvant NSCLC
While we have not seen any data in this indication, Roche and AstraZeneca have initiated
or announced plans to initiate pivotal studies in this indication. We see this as a
potentially lucrative indication for the PD-1/ L1 players and we are currently modelling
peak de-risked sales of c$4.2bn for anti-PD-1/ L1 products, with the majority going to
Roche and AstraZeneca at the moment. However, we expect this to be a much longer
term opportunity since the studies will take a significant duration of time to reach its
primary endpoint of disease-free survival.
Adjuvant melanoma looks like the next frontier
We do not expect significant readouts in melanoma for PD-1 inhibitors in the near term
and see this space as a two-horse race between Bristol-Myers and Merck & Co. Both
companies have also initiated pivotal studies in adjuvant melanoma, which could support
use across a broader spectrum of melanoma patients.
Bristol-Myers: Phase III CheckMate-238 study comparing Opdivo to Yervoy in
stage III b/c and stage IV patients with estimated primary completion of the
study around June 2019.
Merck & Co.: Phase III KEYNOTE-054 study comparing Keytruda to placebo in
high risk stage III patients with estimated primary completion of the study
around May 2018.
Hodgkin lymphoma
At ASH 2014, Bristol-Myers and Merck & Co. presented impressive Phase I data for Opdivo
and Keytruda, respectively.
Phase I data for Opdivo (n=23) showed an overall objective response rate (ORR)
of 87% and a complete response rate (CR) of 17%. 3 of the 4 CRs were in
Adcetris-naïve patients.
Phase I data (KEYNOTE-013, n=29) for Keytruda demonstrated an overall ORR of
66% and a CR of 21%. In the 20 transplant failure patients, the ORR was 75%
with a CR of 20%.
Both drugs showed favorable tolerability profiles and pneumonitis was not a
concern.
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page 56 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
While the early response rate data favour Opdivo, we note that the patient populations
were different (e.g., 78% Adcetris failures in the Opdivo study vs. 100% for Keytruda;
unknown PD-L1 expression observed in the Opdivo study vs. 100% for Keytruda). In line
with the Keytruda data presenter, we do not see any major differences in the data
between Opdivo and Keytruda in this setting.
Non-Hodgkin lymphoma
Phase I Opdivo monotherapy data presented at 2014 ASH demonstrated ORRs of 36%
and 40% in diffuse large B-cell lymphoma and follicular lymphoma, respectively. Single
arm Phase II studies for Opdivo monotherapy in these two cancer indications are ongoing
with study completions in February and August 2016.
Multiple myeloma
Opdivo monotherapy showed no ORR in 27 multiple myeloma (MM) patients, although a
67% stable disease rate was observed. These data suggest that a combination strategy
may be the most viable path forward for PD-1/ L1 inhibitors in MM.
Updates to anti-PD-1/ L1 market model
Important updates to the “Other tumour indications” section of our anti-PD-1/ L1 model:
Addition of five new cancer indications to our model (i.e., adjuvant bladder,
ovarian cancer, small cell lung cancer, Merkel cell carcinoma, and adjuvant
NSCLC), which brings the total number of explicit cancer indications included in
our model to 24,
Breakout of Pfizer’s avelumab from the “Other” anti-PD-1/ L1 players given the
company’s commitment to accelerating development of this PD-L1 inhibitor and
participating in the initial wave of single agent PD-1/ L1 approvals in key
indications, and
Reallocation of market shares by indication between the five key players (i.e.,
Bristol-Myers, Merck & Co., Roche, AstraZeneca, Pfizer) based on initiation of
new studies and recent data presentations.
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page 57 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Following our update, we estimate that the total “Other tumour indications” could add
c$25.8bn in peak de-risked sales to anti-PD1/L1 drugs. We estimate Opdivo will take a
c$5.6bn share, Keytruda a c$5.9bn share, atezolizumab a c$6.2bn share, durvalumab a
c$6.0bn share, and avelumab a c$2.0bn share.
Exhibit 97: Estimated sales for “other” cancer indications by anti-PD-1/ L1 drug, ($m, rounded to nearest $50m)
($ in millions, rounded) Opdivo Keytruda atezolizumab durvalumab avelumab other Total
Head and neck cancer $800 $800 $150 $1,300 $150 $0 $3,200
Colorectal cancer $350 $350 $350 $50 $50 $0 $1,150
Hepatocellular carcinoma $1,000 $300 $300 $300 $100 $0 $2,000
TNBC $50 $250 $350 $50 $50 $0 $750
Cervical $50 $100 $50 $50 $50 $0 $300
Follicular lymphoma $200 $50 $150 $150 $50 $0 $600
DLBCL $500 $50 $500 $300 $50 $0 $1,400
Chronic myeloid leukemia $250 $50 $150 $150 $50 $50 $700
Glioblastoma $100 $50 $50 $50 $0 $0 $250
Hodgkin's lymphoma $350 $250 $50 $50 $50 $0 $750
Multiple myeloma $200 $450 $350 $200 $50 $0 $1,250
Adjuvant melanoma $300 $300 $50 $50 $50 $0 $750
Urothelial bladder cancer $250 $400 $800 $100 $100 $0 $1,650
Myelodysplastic syndrome $150 $150 $400 $600 $50 $0 $1,350
Gastric cancer $250 $1,350 $250 $650 $150 $0 $2,650
Adjuvant bladder $0 $100 $250 $0 $0 $0 $350
Ovarian $150 $350 $150 $150 $650 $0 $1,450
Small Cell lung cancer $450 $300 $100 $100 $50 $0 $1,000
Merkel cell carcinoma $0 $0 $0 $0 $50 $0 $50
Adjuvant NSCLC $200 $200 $1,700 $1,700 $200 $200 $4,200
Total $5,600 $5,850 $6,150 $6,000 $1,950 $250 $25,800
Source: Globocan 2012, company data, clinicaltrials.gov, Jefferies estimates
Exhibit 98: Bristol-Myers Opdivo peak sales estimates for other indications
Source: Jefferies estimates
$0
$200
$400
$600
$800
$1,000
$1,200
Op
div
op
Peak
an
nu
al sa
les
est
imate
($
m)
Total = $5,600m
Healthcare
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August 27, 2015
page 58 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Exhibit 99: Merck & Co. Keytruda peak sales estimates for other indications
Source: Jefferies estimates
Exhibit 100: Roche atezolizumab peak sales estimates for other indications
Source: Jefferies estimates
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
Keytr
ud
a p
eak
an
nu
al sa
les
est
imate
($
m)
Total = $5,850m
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
Ate
zolizu
mab
peak
an
nu
al sa
les
est
imate
($
m)
Total = $6,150m
Healthcare
Target | Estimate Change
August 27, 2015
page 59 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Exhibit 101: AstraZeneca durvalumab peak sales estimates for other
indications
Source: Jefferies estimates
Exhibit 102: Pfizer avelumab peak sales estimates for other indications
Source: Jefferies estimates
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
Du
rvalu
mab
peak
an
nu
al sa
les
est
imate
($
m)
Total = $6,000m
$0
$100
$200
$300
$400
$500
$600
$700
Avelu
mab
peak
an
nu
al
sale
s est
imate
($
m)
Total = $1,950m
Healthcare
Target | Estimate Change
August 27, 2015
page 60 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
APPENDIX: Company Models
Exhibit 103: AstraZeneca annual income statement, 2014A-2020E
($) millions 2014A 2015E 2016E 2017E 2018E 2019E 2020E Incr. abs.
'14A-'20E
CAGR
'14A-'20E
Net sales 26,095 23,500 21,844 21,535 23,799 26,920 30,344 4,249 3%
Externalisation revenue 456 880 800 800 800 800 800 344
Total Revenue 26,551 24,380 22,644 22,335 24,599 27,720 31,144 4,593
COGS 4,888 3,944 3,531 3,540 3,898 4,449 5,039 151
Gross profit 21,663 20,436 19,112 18,795 20,701 23,272 26,105 4,442
Distribution (324) (317) (292) (289) (294) (309) (322) 2
R&D (4,941) (5,255) (5,153) (5,256) (5,361) (5,469) (5,578) -637
SG&A (10,216) (9,267) (7,331) (6,818) (7,636) (8,171) (8,579) 1,637
Other income 755 1,293 840 857 874 524 535 -220
Operating profit 6,937 6,890 7,176 7,289 8,283 9,848 12,161 5,224 10%
Net Finance Expense (493) (492) (552) (606) (621) (616) (602) -109
Joint Ventures (6) (17) (20) (20) (20) (20) (20) -14
Profit before Tax 6,438 6,381 6,603 6,663 7,643 9,212 11,540 5,102 10%
Taxation (1,040) (1,031) (1,222) (1,233) (1,414) (1,704) (2,135) -1095
Tax rate 16.2% 16.2% 18.5% 18.5% 18.5% 18.5% 18.5% +235bps
Profit after Tax 5,398 5,350 5,382 5,430 6,229 7,508 9,405 4,007 10%
Non-controlling interest (2) (21) (40) (40) (40) (40) (40) -38
Net Profit 5,395 5,329 5,342 5,390 6,189 7,468 9,365 3,970
CORE EPS $4.28 $4.22 $4.23 $4.26 $4.90 $5.91 $7.41 3.13 10%
Weighted avg. shares 1,262 1,264 1,264 1,264 1,264 1,264 1,264 2
Dividend per share 2.80 2.80 2.80 2.80 3.00 3.51 4.03 1.23 6%
Margin Analysis 2014A 2015E 2016E 2017E 2018E 2019E 2020E
COGS 18.7% 16.8% 16.2% 16.4% 16.4% 16.5% 16.6% -213bps
Gross margin 83.0% 83.2% 83.8% 83.6% 83.6% 83.5% 83.4% +38bps
R&D 18.9% 22.4% 23.6% 24.4% 22.5% 20.3% 18.4% -55bps
SG&A 39.1% 39.4% 33.6% 31.7% 32.1% 30.4% 28.3% -1088bps
Operating margin 26.6% 29.3% 32.9% 33.8% 34.8% 36.6% 40.1% +1350bps
Pretax margin 24.7% 27.2% 30.2% 30.9% 32.1% 34.2% 38.0% +1336bps
Net margin 20.7% 22.8% 24.6% 25.2% 26.2% 27.9% 31.0% +1031bps
Dividend payout ratio 65.4% 66.3% 66.3% 65.7% 61.2% 59.3% 54.4% -1103bps
% YoY Change 2014A 2015E 2016E 2017E 2018E 2019E 2020E
Net sales 1% -10% -7% -1% 11% 13% 13%
Gross profit 2% -6% -6% -2% 10% 12% 12%
Distribution 6% -2% -8% -1% 2% 5% 4%
R&D 16% 6% -2% 2% 2% 2% 2%
SG&A 15% -9% -21% -7% 12% 7% 5%
Other income 13% 71% -35% 2% 2% -40% 2%
Operating profit -17% -1% 4% 2% 14% 19% 23%
Profit before Tax -19% -1% 3% 1% 15% 21% 25%
Profit after Tax -15% -1% 1% 1% 15% 21% 25%
CORE EPS -15% -1% 0% 1% 15% 21% 25%
Weighted avg. shares 1% 0% 0% 0% 0% 0% 0%
Source: Jefferies estimates, company data
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Exhibit 104: Bristol-Myers annual income statement, 2014A-2020E (US$m)
(US$) millions 2014A 2015E 2016E 2017E 2018E 2019E 2020E Incr. abs.
'14A-'20E
CAGR
'14A-'20E
Net sales 15,873 15,955 16,226 17,860 18,693 21,205 22,375 6,502 6%
COGS 3,781 3,841 3,932 4,439 4,849 5,424 5,730 1,949
Gross profit 12,092 12,114 12,294 13,421 13,844 15,780 16,645 4,553 5%
MS&A 3,983 3,655 3,349 3,209 2,952 3,159 3,254 (729)
A&P 734 753 851 846 809 849 875 141
R&D 3,913 4,077 4,162 4,245 4,288 4,331 4,417 504
Operating income 3,462 3,630 3,933 5,121 5,795 7,441 8,099 4,637 15%
EBITDA 3,778 4,164 4,479 5,685 6,379 8,049 8,735 4,957 15%
Equity in (income) from affiliates (107) (92) (60) (40) (20) - - 107
Other (income)/expense, net (309) (314) (442) (446) (646) (552) (676) (367)
Pretax income 3,878 4,036 4,434 5,608 6,461 7,993 8,775 4,897 15%
Taxes 775 776 842 1,065 1,228 1,519 1,667 892
Tax rate 20.0% 19.2% 19.0% 19.0% 19.0% 19.0% 19.0% -0 bps
Minority interest expense 26 33 0 0 0 0 0 (26)
Net income 3,077 3,228 3,592 4,542 5,233 6,474 7,107 4,030 15%
Diluted EPS $1.85 $1.93 $2.16 $2.75 $3.19 $3.98 $4.40 16%
Wt. avg. dil. shares outstanding 1,667 1,676 1,666 1,652 1,639 1,626 1,614
Shares repurchased 0 4 14 13 13 12 12
Dividends per share $1.44 $1.48 $1.53 $1.57 $1.81 $2.44 $2.61 10%
Margin Analysis 2014A 2015E 2016E 2017E 2018E 2019E 2020E
Gross margins 76.2% 75.9% 75.8% 75.1% 74.1% 74.4% 74.4% -179 bps
MS&A 25.1% 22.9% 20.6% 18.0% 15.8% 14.9% 14.5% -1,055 bps
A&P 4.6% 4.7% 5.2% 4.7% 4.3% 4.0% 3.9% -71 bps
R&D 24.7% 25.6% 25.7% 23.8% 22.9% 20.4% 19.7% -491 bps
Operating margin 21.8% 22.8% 24.2% 28.7% 31.0% 35.1% 36.2% +1,439 bps
EBITDA margin 23.8% 26.1% 27.6% 31.8% 34.1% 38.0% 39.0% +1,524 bps
Pretax margin 24.4% 25.3% 27.3% 31.4% 34.6% 37.7% 39.2% +1,478 bps
Net margin 19.4% 20.2% 22.1% 25.4% 28.0% 30.5% 31.8% +1,238 bps
Dividend payout ratio 77.9% 76.9% 70.3% 56.8% 54.8% 57.4% 58.4% -1,953 bps
YOY % Change 2014A 2015E 2016E 2017E 2018E 2019E 2020E
Net sales -3% 1% 2% 10% 5% 13% 6%
Gross profit 0% 0% 1% 9% 3% 14% 5%
Marketing, selling & admin -2% -8% -8% -4% -8% 7% 3%
Advert. & Product promotion -14% 3% 13% -1% -4% 5% 3%
R&D 5% 4% 2% 2% 1% 1% 2%
Operating income 0% 5% 8% 30% 13% 28% 9%
EBITDA -3% 10% 8% 27% 12% 26% 9%
Pretax income 8% 4% 10% 26% 15% 24% 10%
Net income 2% 5% 11% 26% 15% 24% 10%
Diluted EPS 2% 4% 12% 28% 16% 25% 11%
Wt. avg. dil. shares outstanding 0% 1% -1% -1% -1% -1% -1%
Source: Jefferies estimates, company data
Healthcare
Target | Estimate Change
August 27, 2015
page 62 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Exhibit 105: Merck & Co. annual income statement, 2014A-2020E (US$ millions)
($) millions 2014A 2015E 2016E 2017E 2018E 2019E 2020E Incr. abs.
'14A-'20E
CAGR
'14A-'20E
Net sales 42,237 40,255 40,993 40,432 42,617 44,532 47,213 4,976 2%
COGS 11,032 9,999 10,091 10,240 10,570 10,742 11,125 93
Gross profit 31,205 30,257 30,902 30,192 32,047 33,789 36,088 4,883 2%
SG&A 10,979 10,043 10,041 9,740 10,032 10,333 10,643 (336)
R&D 6,532 6,602 6,606 6,672 6,806 6,806 6,942 410
Operating income 13,694 13,612 14,255 13,780 15,209 16,651 18,503 4,809 5%
EBITDA 15,102 15,712 16,355 15,880 17,309 18,751 20,603 5,501
Equity (income) from affiliates (256) (161) (24) (23) (21) (20) (19) 237
Other (income)/expense, net 361 678 611 635 634 623 618 257
Pretax income 13,589 13,094 13,668 13,167 14,597 16,048 17,904 4,315 5%
Taxes 3,305 2,984 3,007 2,897 3,211 3,531 3,939
Tax rate 24% 23% 22% 22% 22% 22% 22% (232)bps
Net income 10,215 10,102 10,641 10,251 11,366 12,497 13,945 3,730 5%
Non controlling interest 69 8 20 20 20 20 20
Diluted EPS 3.49 3.55 3.82 3.78 4.29 4.84 5.55 8%
wt. avg dil. shares outstanding 2,928 2,848 2,786 2,712 2,650 2,584 2,515
Dividend per share 1.77 1.81 1.90 2.05 2.18 2.51 2.85 8%
Margin Analysis 2014A 2015E 2016E 2017E 2018E 2019E 2020E
COGS 26.2% 24.8% 24.6% 25.3% 24.8% 24.1% 23.6% (269)bps
Gross margin 73.9% 75.2% 75.4% 74.7% 75.2% 75.9% 76.4% 256bps
SG&A 26.0% 24.9% 24.5% 24.1% 23.5% 23.2% 22.5% (345)bps
R&D 15.5% 16.4% 16.1% 16.5% 16.0% 15.3% 14.7% (76)bps
Operating margin 32.4% 33.8% 34.8% 34.1% 35.7% 37.4% 39.2% 677bps
EBITDA margin 35.8% 39.0% 39.9% 39.3% 40.6% 42.1% 43.6% 788bps
Pretax margin 32.2% 32.5% 33.3% 32.6% 34.3% 36.0% 37.9% 575bps
Net margin 24.2% 25.1% 26.0% 25.4% 26.7% 28.1% 29.5% 535bps
Dividend payout ratio 50.6% 51.2% 49.7% 54.4% 50.8% 51.8% 51.3%
% YOY Change 2014A 2015E 2016E 2017E 2018E 2019E 2020E
Net sales -4% -5% 2% -1% 5% 4% 6%
Gross profit -5% -3% 2% -2% 6% 5% 7%
Operating income -1% -1% 5% -3% 10% 9% 11%
EBITDA -1% 4% 4% -3% 9% 8% 10%
Pretax income 1% -4% 4% -4% 11% 10% 12%
Net income -2% -1% 5% -4% 11% 10% 12%
Diluted EPS 0% 2% 8% -1% 13% 13% 15%
wt. average diluted shares -2% -3% -2% -3% -2% -2% -3%
Source: Jefferies estimates, company data
Healthcare
Target | Estimate Change
August 27, 2015
page 63 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Roche annual income statement, 2014A-2020E
(CHF) millions 2014A 2015E 2016E 2017E 2018E 2019E 2020E Incr. abs.
'14A-'20E
CAGR
'14A-'20E
Sales 47,462 47,852 50,619 53,360 56,186 59,756 63,307 15,845 5%
Pharmaceuticals Sales 36,696 37,032 39,170 41,324 43,628 46,671 49,747 13,051 5%
Diagnostics Sales 10,766 10,820 11,450 12,036 12,558 13,085 13,560 2,794 4%
Royalties and Other Operating Income 2,404 2,292 2,466 2,635 2,143 2,149 2,255 -149 -1%
Total Revenues 49,866 50,144 53,086 55,995 58,329 61,905 65,562 15,696 5%
CORE Cost of Goods Sold 12,341 12,772 13,420 14,070 14,690 15,474 16,239 3,898 5%
Gross Profit 37,525 37,372 39,666 41,926 43,639 46,431 49,323 11,798 5%
CORE Marketing & Distribution 8,436 8,667 9,096 9,475 9,945 10,445 10,978 2,542 4%
CORE Research & Development 8,913 9,037 9,278 9,526 9,796 10,092 10,416 1,503 3%
CORE General & Administration 2,079 1,810 1,896 1,988 2,089 2,199 2,318 239 2%
Corporate General & Administration 461 401 420 441 463 488 514 53 2%
CORE Group Operating Income 17,636 17,481 18,976 20,495 21,346 23,209 25,097 7,461 6%
Associates - - - - - - - 0
Financial Income 246 (22) 101 127 145 168 211 -35 -3%
Financial Costs 1,362 1,094 972 815 635 455 410 -952 -18%
EBITDA 19,553 19,434 20,907 22,585 23,592 25,612 27,658 8,105 6%
Profit Before Tax 16,520 16,370 18,105 19,807 20,856 22,923 24,899 8,379 7%
Tax 3,987 4,231 4,526 4,952 5,214 5,731 6,225 2,238 8%
Tax Rate 24.1% 25.8% 25.0% 25.0% 25.0% 25.0% 25.0% 0bps
Net Income 12,533 12,139 13,578 14,855 15,642 17,192 18,674 6,141 7%
Non controlling interests / Minorities 204 222 231 241 250 260 271 67 5%
Net Attributable Profits 12,329 11,928 13,347 14,615 15,392 16,932 18,404 6,075 7%
CORE EPS (diluted) 14.29 13.84 15.49 16.96 17.86 19.65 21.36 7.07 7%
Dividend per Share 8.00 8.31 8.83 9.33 9.82 10.81 11.75 3.75 7%
Weighted Ave No of shares (m) 863 862 862 862 862 862 862 -1
Year end No of shares, diluted (m) 863 862 862 862 862 862 862
Margin Analysis 2014A 2015E 2016E 2017E 2018E 2019E 2020E
COGS margin 26.0% 26.7% 26.5% 26.4% 26.1% 25.9% 25.7% -35bps
Gross margin 79.1% 78.1% 78.4% 78.6% 77.7% 77.7% 77.9% -115bps
M&S margin 17.8% 18.1% 18.0% 17.8% 17.7% 17.5% 17.3% -43bps
R&D margin 18.8% 18.9% 18.3% 17.9% 17.4% 16.9% 16.5% -233bps
G&A margin 4.4% 3.8% 3.7% 3.7% 3.7% 3.7% 3.7% -72bps
CORE Operating Profit margin 37.2% 36.5% 37.5% 38.4% 38.0% 38.8% 39.6% 249bps
EBITDA margin 41.2% 40.6% 41.3% 42.3% 42.0% 42.9% 43.7% 249bps
PBT Margin 34.8% 34.2% 35.8% 37.1% 37.1% 38.4% 39.3% 452bps
Net Income Margin 26.4% 25.4% 26.8% 27.8% 27.8% 28.8% 29.5% 309bps
Payout Ratio 56% 60% 57% 55% 55% 55% 55%
Growth Metrics 2014A 2015E 2016E 2017E 2018E 2019E 2020E
Reported sales growth 1% 1% 6% 5% 5% 6% 6%
COGS growth 4% 3% 5% 5% 4% 5% 5%
Gross Profit growth 2% 0% 6% 6% 4% 6% 6%
M&S growth 2% 3% 5% 4% 5% 5% 5%
R&D growth 2% 1% 3% 3% 3% 3% 3%
G&A growth 35% -13% 5% 5% 5% 5% 5%
Group Operating Profit growth -1% -1% 9% 8% 4% 9% 8%
EBITDA growth -1% -1% 8% 8% 4% 9% 8%
Net Income growth 0% -3% 12% 9% 5% 10% 9%
CORE EPS growth 0% -3% 12% 9% 5% 10% 9%
Source: Jefferies estimates, company data
Healthcare
Target | Estimate Change
August 27, 2015
page 64 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Exhibit 106: Annual income statement for Pfizer, 2014A-2020E (US$)
($) millions except EPS 2014A 2015E 2016E 2017E 2018E 2019E 2020E Incr. abs.
'14A-'20E
CAGR
'14A-'20E
Pharmaceuticals 45,706 42,672 49,394 52,831 56,108 55,267 56,718 11,012 3.7%
Other Non-Pharma 3,699 3,841 4,026 4,254 4,457 4,669 4,892 1,193 4.8%
Net sales 49,405 46,513 53,420 57,086 60,565 59,936 61,609 12,205 3.7%
COGS 9,134 8,468 11,439 11,844 12,474 12,532 12,958 3,824
Gross profit 40,271 38,046 41,981 45,242 48,091 47,404 48,652 8,381
SI&A 13,721 13,551 14,091 14,388 14,448 14,723 14,993 1,272
R&D 7,153 7,522 8,066 8,260 8,360 8,550 8,725 1,572
Operating income 19,397 16,973 19,823 22,594 25,284 24,131 24,933 5,537 4.3%
EBITDA 21,049 18,419 21,259 24,030 26,710 25,545 26,338 5,289 3.8%
Adj. non op. (inc.)/exp. (414) (373) 531 861 820 757 697 1,111
Pretax income 19,811 17,346 19,292 21,733 24,464 23,374 24,236 4,426 3.4%
Taxes 5,250 4,358 4,847 5,433 5,871 5,376 5,574 324
Tax rate 26.5% 25.1% 25.1% 25.0% 24.0% 23.0% 23.0% -350bps
Minority interest and d/c
ops
32 35 40 40 40 40 40 8
Net income 14,529 12,953 14,405 16,260 18,553 17,958 18,622 4,093 4.2%
DILUTED EPS $2.26 $2.07 $2.33 $2.69 $3.12 $3.05 $3.20 6.0%
Diluted shares outstanding 6,432 6,262 6,175 6,053 5,956 5,883 5,824
Dividends per share $1.04 $1.12 $1.20 $1.28 $1.36 $1.44 $1.52 6.5%
Margin Analysis 2014A 2015E 2016E 2017E 2018E 2019E 2020E
COGS 18% 18% 21% 21% 21% 21% 21%
Gross margin 82% 82% 79% 79% 79% 79% 79% -254bps
SI&A 28% 29% 26% 25% 24% 25% 24% -344bps
R&D 14% 16% 15% 14% 14% 14% 14% -32bps
Operating margin 39% 36% 37% 40% 42% 40% 40% +121bps
EBITDA margin 43% 40% 40% 42% 44% 43% 43% +14bps
Pretax margin 40% 37% 36% 38% 40% 39% 39% -76bps
Net margin 29% 28% 27% 28% 31% 30% 30% +82bps
Dividend Payout ratio 45% 54% 51% 47% 43% 46% 47%
YOY % Change 2014A 2015E 2016E 2017E 2018E 2019E 2020E
Net sales -4% -6% 15% 7% 6% -1% 3%
COGS -1% -7% 35% 4% 5% 0% 3%
Gross profit -5% -6% 10% 8% 6% -1% 3%
SI&A -3% -1% 4% 2% 0% 2% 2%
R&D 9% 5% 7% 2% 1% 2% 2%
Operating income -10% -12% 17% 14% 12% -5% 3%
EBITDA -10% -12% 15% 13% 11% -4% 3%
Pretax income -6% -12% 11% 13% 13% -4% 4%
Net income -5% -11% 11% 13% 14% -3% 4%
Diluted EPS 2% -8% 13% 15% 16% -2% 5%
Diluted shares outstanding -2% -3% -2% -2% -1% -1% -1%
Source: Jefferies estimates, company data
Healthcare
Target | Estimate Change
August 27, 2015
page 65 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Company DescriptionAstraZeneca was formed in April 1999 when the UK-based Zeneca merged with Sweden's Astra AB, creating a company with 2011 revenuesof $33.6bn. AstraZeneca is an almost pure play Pharma/Biologics/Vaccines company, with only minor interests in other healthcare areas suchas patient care (Aptium), which accounts for less than 1% of group sales. AstraZeneca also has a significant joint venture with Merck & Co.from which the latter receives substantial royalties on a number of significant products including Prilosec and Nexium.
Bristol-Myers Squibb Company was incorporated under the laws of the state of Delaware in August 1933 under the name of Bristol-MyersCompany. In 1989, Bristol-Myers Company changed its name as a result of a merger. The company is engaged in the discovery, development,licensing, manufacturing, marketing, distribution and sale of pharmaceutical products.
Merck is a global research-driven company that discovers, manufactures, and markets a broad range of innovative products to improve humanand animal health. The company merged with Schering-Plough & Co. in 2009.
Pfizer Inc. is a research-based, global pharmaceutical company that was incorporated in Delaware in 1942 and discovers, develops,manufactures and markets leading prescription medicines. In 2009 the company acquired Wyeth.
Roche is a global healthcare company. The Group operates through two divisions: Pharmaceuticals and Diagnostics. The Pharmaceuticalsdivision develops prescription drugs through its discovery operations at Roche, Genentech in the US and Chugai in Japan. Its diagnosticsegment provides products and services in all fields of medical testing, and is the global leader. Roche has a controlling interest and fullyconsolidated sales from Chugai in which it has a 61.5% stake.
Analyst Certification:I, Jeffrey Holford, PhD, ACA, certify that all of the views expressed in this research report accurately reflect my personal views about the subjectsecurity(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specificrecommendations or views expressed in this research report.I, David Gu, PhD, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) andsubject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendationsor views expressed in this research report.I, Ian Hilliker, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) andsubject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendationsor views expressed in this research report.I, Sissi Qiong Hai, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) andsubject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendationsor views expressed in this research report.Registration of non-US analysts: Ian Hilliker is employed by Jefferies International Limited, a non-US affiliate of Jefferies LLC and is not registered/qualified as a research analyst with FINRA. This analyst(s) may not be an associated person of Jefferies LLC, a FINRA member firm, and therefore maynot be subject to the NASD Rule 2711 and Incorporated NYSE Rule 472 restrictions on communications with a subject company, public appearancesand trading securities held by a research analyst.
As is the case with all Jefferies employees, the analyst(s) responsible for the coverage of the financial instruments discussed in this report receivescompensation based in part on the overall performance of the firm, including investment banking income. We seek to update our research asappropriate, but various regulations may prevent us from doing so. Aside from certain industry reports published on a periodic basis, the large majorityof reports are published at irregular intervals as appropriate in the analyst's judgement.Jefferies Group LLC is advising Bristol Myers Squibb on its business combination with Reckitt Benckiser Group Plc regarding Latin American licenses
Company Specific DisclosuresFor Important Disclosure information on companies recommended in this report, please visit our website at https://javatar.bluematrix.com/sellside/Disclosures.action or call 212.284.2300.
Explanation of Jefferies RatingsBuy - Describes securities that we expect to provide a total return (price appreciation plus yield) of 15% or more within a 12-month period.Hold - Describes securities that we expect to provide a total return (price appreciation plus yield) of plus 15% or minus 10% within a 12-month period.Underperform - Describes securities that we expect to provide a total return (price appreciation plus yield) of minus 10% or less within a 12-monthperiod.The expected total return (price appreciation plus yield) for Buy rated securities with an average security price consistently below $10 is 20% or morewithin a 12-month period as these companies are typically more volatile than the overall stock market. For Hold rated securities with an averagesecurity price consistently below $10, the expected total return (price appreciation plus yield) is plus or minus 20% within a 12-month period. ForUnderperform rated securities with an average security price consistently below $10, the expected total return (price appreciation plus yield) is minus20% or less within a 12-month period.
Healthcare
Target | Estimate Change
August 27, 2015
page 66 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
NR - The investment rating and price target have been temporarily suspended. Such suspensions are in compliance with applicable regulations and/or Jefferies policies.CS - Coverage Suspended. Jefferies has suspended coverage of this company.NC - Not covered. Jefferies does not cover this company.Restricted - Describes issuers where, in conjunction with Jefferies engagement in certain transactions, company policy or applicable securitiesregulations prohibit certain types of communications, including investment recommendations.Monitor - Describes securities whose company fundamentals and financials are being monitored, and for which no financial projections or opinionson the investment merits of the company are provided.
Valuation MethodologyJefferies' methodology for assigning ratings may include the following: market capitalization, maturity, growth/value, volatility and expected totalreturn over the next 12 months. The price targets are based on several methodologies, which may include, but are not restricted to, analyses of marketrisk, growth rate, revenue stream, discounted cash flow (DCF), EBITDA, EPS, cash flow (CF), free cash flow (FCF), EV/EBITDA, P/E, PE/growth, P/CF,P/FCF, premium (discount)/average group EV/EBITDA, premium (discount)/average group P/E, sum of the parts, net asset value, dividend returns,and return on equity (ROE) over the next 12 months.
Jefferies Franchise PicksJefferies Franchise Picks include stock selections from among the best stock ideas from our equity analysts over a 12 month period. Stock selectionis based on fundamental analysis and may take into account other factors such as analyst conviction, differentiated analysis, a favorable risk/rewardratio and investment themes that Jefferies analysts are recommending. Jefferies Franchise Picks will include only Buy rated stocks and the numbercan vary depending on analyst recommendations for inclusion. Stocks will be added as new opportunities arise and removed when the reason forinclusion changes, the stock has met its desired return, if it is no longer rated Buy and/or if it triggers a stop loss. Stocks having 120 day volatility inthe bottom quartile of S&P stocks will continue to have a 15% stop loss, and the remainder will have a 20% stop. Franchise Picks are not intendedto represent a recommended portfolio of stocks and is not sector based, but we may note where we believe a Pick falls within an investment stylesuch as growth or value.
Risks which may impede the achievement of our Price TargetThis report was prepared for general circulation and does not provide investment recommendations specific to individual investors. As such, thefinancial instruments discussed in this report may not be suitable for all investors and investors must make their own investment decisions basedupon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Past performance ofthe financial instruments recommended in this report should not be taken as an indication or guarantee of future results. The price, value of, andincome from, any of the financial instruments mentioned in this report can rise as well as fall and may be affected by changes in economic, financialand political factors. If a financial instrument is denominated in a currency other than the investor's home currency, a change in exchange rates mayadversely affect the price of, value of, or income derived from the financial instrument described in this report. In addition, investors in securities suchas ADRs, whose values are affected by the currency of the underlying security, effectively assume currency risk.
Other Companies Mentioned in This Report• AstraZeneca PLC (AZN LN: p3,922.50, BUY)• Bristol-Myers Squibb (BMY: $57.88, HOLD)• Eli Lilly & Co. (LLY: $78.26, BUY)• GlaxoSmithKline Plc (GSK LN: p1,274.50, HOLD)• Merck & Co. (MRK: $51.17, HOLD)• Novartis AG (NOVN VX: CHF90.65, BUY)• Pfizer, Inc. (PFE: $31.34, BUY)• Roche (ROG VX: CHF257.00, BUY)• Sanofi (SAN FP: €85.00, HOLD)
Distribution of RatingsIB Serv./Past 12 Mos.
Rating Count Percent Count Percent
BUY 1108 52.99% 309 27.89%HOLD 838 40.08% 166 19.81%UNDERPERFORM 145 6.93% 15 10.34%
Healthcare
Target | Estimate Change
August 27, 2015
page 67 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
Other Important DisclosuresJefferies Equity Research refers to research reports produced by analysts employed by one of the following Jefferies Group LLC (“Jefferies”) groupcompanies:United States: Jefferies LLC which is an SEC registered firm and a member of FINRA.United Kingdom: Jefferies International Limited, which is authorized and regulated by the Financial Conduct Authority; registered in England andWales No. 1978621; registered office: Vintners Place, 68 Upper Thames Street, London EC4V 3BJ; telephone +44 (0)20 7029 8000; facsimile +44 (0)207029 8010.Hong Kong: Jefferies Hong Kong Limited, which is licensed by the Securities and Futures Commission of Hong Kong with CE number ATS546; locatedat Suite 2201, 22nd Floor, Cheung Kong Center, 2 Queen’s Road Central, Hong Kong.Singapore: Jefferies Singapore Limited, which is licensed by the Monetary Authority of Singapore; located at 80 Raffles Place #15-20, UOB Plaza 2,Singapore 048624, telephone: +65 6551 3950.Japan: Jefferies (Japan) Limited, Tokyo Branch, which is a securities company registered by the Financial Services Agency of Japan and is a memberof the Japan Securities Dealers Association; located at Hibiya Marine Bldg, 3F, 1-5-1 Yuraku-cho, Chiyoda-ku, Tokyo 100-0006; telephone +813 52516100; facsimile +813 5251 6101.India: Jefferies India Private Limited (CIN - U74140MH2007PTC200509), which is licensed by the Securities and Exchange Board of India as a MerchantBanker (INM000011443), Research Analyst (INH000000701) and a Stock Broker with Bombay Stock Exchange Limited (INB011491033) and NationalStock Exchange of India Limited (INB231491037) in the Capital Market Segment; located at 42/43, 2 North Avenue, Maker Maxity, Bandra-KurlaComplex, Bandra (East) Mumbai 400 051, India; Tel +91 22 4356 6000.This material has been prepared by Jefferies employing appropriate expertise, and in the belief that it is fair and not misleading. 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Healthcare
Target | Estimate Change
August 27, 2015
page 68 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.
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Healthcare
Target | Estimate Change
August 27, 2015
page 69 of 69 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 66 - 69 of this report.