Bristol-Myers’ Diabetes Drug Shows Promise

On June 25, Bristol-Myers Squibb (BMY - Analyst Report) and collaboration partner AstraZeneca (AZN - Analyst Report) announced that they received a positive opinion from the Committee for Medicinal Products for Human Use (CHMP) for their marketing authorization application for Onglyza (saxagliptin).

Onglyza is a dipeptidyl peptidase-4 (DPP-IV) inhibitor, which is a class of compounds that work by affecting the action of natural hormones in the body called incretins.

The companies are seeking approval for the use of Onglyza for the treatment of type II diabetes in adults as add-on therapy with metformin, a thiazolidinedione or a sulphonylurea. A decision from the EU regulatory authority should be out in the coming months.

The U.S. FDA action date for Onglyza is also fast approaching – a decision should be out by July 30. Last April, an FDA safety panel voted that data supporting the NDA was sufficient to rule out unacceptable cardiovascular risk. The panel recommended that the companies should conduct a post-marketing study to confirm the cardiovascular risk profile of the candidate.

Meanwhile, Bristol-Myers recently received a bosst at the cost of its competitor Takeda that has been asked by the FDA to conduct an additional cardiovascular study with its DPP-IV inhibitor alogliptin in order to gain approval. This should delay alogliptin’s launch significantly. If approved in July, Onglyza could become the second entrant in the DPP-IV market.

We are currently modeling Onglyza’s launch in the third quarter of 2009. Once launched, Onglyza will be competing with products like Merck’s (MRK - Analyst Report) Januvia. Impressive efficacy and safety results from phase III trials evaluating Onglyza in combination with metformin vs metformin alone in treatment-naïve patients should help the product compete with Januvia.

An impressive pipeline, solid financial position and reinvestment in higher-growth opportunities should help Bristol-Myers weather the loss of revenues that will take place following the genericization of Plavix and Avapro in 2011 and 2012, respectively.

Although we expect EPS growth to fall in 2012, we believe Bristol can return to positive EPS growth from 2014 or sooner, depending on possible further licensing/partnering deals and/or acquisitions. We continue to rate Bristol-Myers a Buy with a price target of $27.