Bristol-Myers Squibb Co (BMY) Sues Merck & Co., Inc. (MRK) Over Cancer Drug, Position Strong

Bristol-Myers Squibb Co (NYSE:BMY) along with Ono Pharmaceutical launched a lawsuit against Merck & Co., Inc. (NYSE:MRK) last Thursday, claiming that the company’s new cancer drug Keytruba (which was approved by the FDA the same day) violates their patent for a cancer drug that alters the body’s immune system to enhance its ability to fight the disease. Speaking on CNBC yesterday, Vamil Divan, Senior Analyst, U.S. Pharmaceuticals at Credit Suisse discussed the lawsuit, and believes Bristol-Myers Squibb Co (NYSE:BMY) to have a good case.

Bristol Myers Squibb Co. (NYSE:BMY)

“The whole patent estate that Bristol-Myers and their partner Ono have put together; we do think they have a pretty strong position here. Not uncommon at all in drug cases to see the different parties arguing that their patents hold or shouldn’t hold. So not surprising, and certainly not surprising to see Bristol and Ono file suit against Merck, given the patent that they have in place,” Divan said.

The implications of the lawsuit will be immense, given that the market for immunotherapy cancer drugs is expected to be a $30 billion one annually within the next decade. While Divan doesn’t think the lawsuit will outright prevent Merck & Co., Inc. (NYSE:MRK) from selling their drug, he believes it could result in royalties being paid to one or both companies.

“We wouldn’t expect, you know this could be the kind of thing some people would argue that maybe Bristol could prevent Merck from even launching the product; we don’t expect anything like that to happen, but it could be the kind of thing where Merck ends up paying some royalties back to Bristol-Myers and/or to Ono. And based on what we’ve seen historically, it could be in the 5%, 10% of sales range, but we’re talking about a $30 billion type class or $10 billion from this one type of immunocology asset like what Merck has. It could be meaningful revenues for both Bristol and Ono down the road if they do end up winning,” Divan said.

The Merck & Co., Inc. (NYSE:MRK) drug, generic name pembrolizumab, targets and blocks a receptor in the cells of the immune system called programmed death receptor 1 (PD-1). Blocking PD-1, which has been shown to negatively regulate T cell responses, gives the immune system more power to destroy cancerous cells. Ono’s own PD-1 blocking cancer treatment, nivolumab, has successfully treated patients with various forms of cancer in clinical trials, including melanoma, which Merck & Co., Inc. (NYSE:MRK)’s new drug is being targeted as a treatment for.

It’s expected that the broad set of patents Bristol-Myers Squibb Co (NYSE:BMY) and Ono hold on PD-1 blocking treatment methods will lead to generous royalties for the two companies from competitors like Merck & Co., Inc. (NYSE:MRK), as more drug companies make similar treatments in the future.

Disclosure: none