$BMY – this deucra / Sotyktu approval changes profile of terminal value completely (bad for $AMGN)

Key bear thesis on Bristol Myers Squibb had been massive loss of exclusivity problem – coming from Revlimid ($10bn franchise) and Eliquis ($6bn) franchise with no material pipeline asset to continue the growth.

Milvexian was viewed as a solution, but with disappointing data last week (as shown below – there is no clear dose response), investors went back to the drawing board.

Bristol was viewed as a cheap US large cap pharma – but with milvexian result, investors realized $BMY was cheap for a reason and many have sold off the stock with disappointment.

BMY looked like a secular short with unclear future – BMY will have to keep overpaying for assets because BMY would be pushed against the corner as it struggles to find next lever of growth.

BUT TODAY – $BMY FOUND NEW HOPE AND THAT IS DEUCRAVACITINIB – NOW UNDER BRAND NAME OF SOTYKU – A TYK2 INHIBITOR

Many investors had low expectations for Sotyktu / deucravacitinib because many investors thought the drug would be approved with blackbox warning that is with JAK inhibitors – because TYK2 pathway is part of JAK family.

JAK inhibitors have gruesome warning – it warns against serious infections, mortality, malignancy (cancer), major adverse CV events, and thrombosis.

All of which were observed with Pfizer’s Xeljanz – the first gen JAK inhibitor that is often viewed as the dirtiest JAK – however, it has plagued the entire class – relegating the entire class behind biologics, like Humira.

This was the reason why investors had very low expectations for Sotyku – it would compete against other JAK inhibitors – which are owned / commercialized by I&I powerhouses, like Pfizer and Abbvie.

However, Sotyku was approved and the approval label is essentially homerun case for following reasons:

THERE IS NO BLACKBOX WARNING

Black box warning is a significant deterrent for doctors to prescribe the drug because it comes with legal implications. Doctors feel highly concerned to use any product with blackbox warning because they could get sued if something bad happens to patients with potential risk factors.

JAK products, like Rinvoq and Xeljanz, significantly lost volume after blackbox label was added to the label. They were particularly vulnerable because they are high volume products that are heavily utilized at community setting.

Without blackbox warning, Sotyku will NOT compete with JAK inhibitors, but will be placed ahead of JAK inhibitors because it is a safer product that does not compromise on efficacy.

JAK inhibitors are all blockbusters – Sotyktu has better label than any of them – Sotyktu will be a bigger product than JAK inhibitors.

INDICATION IS WIDER THAN EXPECTED!

The earlier in the disease the drug gets used, the bigger the product it will be (bigger revenue) because your product will target bigger TAM and less severe patients tend to stay on the drug longer.

Sotyktu label includes patients who are CANDIDATES FOR SYSTEMIC THERAPY OR PHOTOTHERAPY. This means the drug will likely get used before systemic therapies or phototherapy because it is an oral drug while most systemic therapies are biologics (products that need to be infused), like Humira.

Oral delivery is very important for drug potential because doctors / patients / payors like them.

Patients like them because they are convenient. Payors like them because they are much cheaper than infusion (infusion products are expensive, but also there is high cost of infusion process as well). Doctors like them because oral drugs tend to be easier to manage for patients.

In this particular indication, $AMGN has a product – Otezla. Otezla is an inferior product to Sotyktu with lower efficacy, but is generating over >$2bn of annual sales because it is an oral product that gets used before patients move onto biologics).

With approval, Amgen is likely to lose a lot of business to Bristol Myers Squibb – and Sotyktu now appears to be a product that can deliver at least $2bn of annual sales.

For BMY, the drug can be a game changer given that stock trades at <9x 2023 P/E – a level that implies that investors have minimal hope on pipeline to deliver and are expecting significant earnings erosion over the years.

$BMY trading below 9x 2023 P/E is a sharp contrast to ABBV trading at ~12x 2023 P/E when ABBV is right in front of the biggest LOE in bio pharma history – Humira is facing biosimilar entry in 2023.

Additionally, investors could gain some more confidence on the remaining diverse portfolio for which BMY has been getting minimal credit.

It is hard to find good longs in this market – $BMY certainly looks like a potential long target to study for investors given this fundamental update.

This reminds me of Roche in 2017 – lack of conviction pushed the stock down (disappointment on APHINITY trial outcome), but single growth driver (Perjeta commercial execution) changed the path of stock price through earnings revision PLUS multiple expansion

*not investment update