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Bristol-Myers Settles Litigation with Merck for Keytruda

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Bristol-Myers Squibb Company (BMY - Free Report) along with partner Ono Pharmaceutical Company, Ltd. announced that both the companies have signed a global patent license agreement with Merck & Co., Inc. (MRK - Free Report) to settle all patent-infringement litigation related to Merck’s anti-PD-1 therapy Keytruda.

We remind investors that Bristol-Myers Squibb and Ono had alleged that Merck’s sale of Keytruda has infringed the companies’ patents relating to the use of PD-1 antibodies to treat cancer in the U.S., Europe, Australia, and Japan.

As a result of the agreement, all patent litigation, between the two companies, related to Keytruda, will be dismissed. The settlement requires Merck to make an initial payment of $625 million to Bristol-Myers Squibb and Ono. In addition, Merck will pay ongoing royalties of 6.5% on global sales of Keytruda from Jan 1, 2017 through Dece 31, 2023, and 2.5% from Jan 1, 2024 through Dec 31, 2026. The royalties will be shared between Bristol-Myers Squibb and Ono in the ratio of 75% to 25% respectively.

Shares of Bristol-Myers have underperformed the Zacks classified Large Cap Pharmaceuticals industry in the past year. While the stock lost 21.8% during this period, the industry declined 1.7%.

Notably, shares of Bristol-Myers were down 11.3% on the last trading day after the company disclosed that it will not seek an accelerated approval in the U.S. for a combination of its two immuno-oncology treatments, Opdivo plus Yervoy, for first-line lung cancer. The company revealed that the decision was based on the available data reviews.

The news positively impacted rival Merck’s share price as the company is likely to get a head start with Keytruda. Earlier this month, Merck announced that under accelerated approval the FDA accepted its regulatory application for a label expansion of Keytruda and granted priority review status to the application. The company is looking to expand the label of Keytruda, in combination with chemotherapy (pemetrexed plus carboplatin), for the first-line treatment of patients with metastatic non-small cell lung cancer (NSCLC), regardless of PD-L1 expression and with no EGFR or ALK genomic tumor aberration. A final decision is expected by May 10, 2017.

While Bristol-Myers is a Zacks Rank #4 (Sell) stock, Merck carries a Zacks Rank #3 (Hold).

Key Picks

A couple of better-ranked stocks in the health care sector include Anika Therapeutics, Inc. (ANIK - Free Report) and Sucampo Pharmaceuticals . While Sucampo sports a Zacks Rank #1 (Strong Buy), Anika is a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Anika’s earnings estimates for 2016 and 2017 were up 3.9% and 0.5%, respectively, over the last 60 days. The company recorded a positive earnings surprise in each of the last four quarters, the average being 33.14%.

Sucampo’s estimates increased from $1.58 to $1.74 for 2017 over the last 30 days. The company posted a positive surprise in all of the four trailing quarters with an average beat of 35.55%.

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