Bristol-Myers: Acquisition of Mirati Adds Promising Cancer Drug at a Fair Price

We’re not making significant changes to our $66 Bristol BMY fair value estimate or wide moat rating following the announced $4.8 billion acquisition of cancer-focused biotech Mirati. We believe Mirati’s KRAS G12C inhibitor Krazati is the main driver of the deal. The drug gained approval in second-line non-small cell lung cancer, or NSCLC, in late 2022. While Krazati was the second approved drug in its class (behind Amgen’s Lumakras), we think Krazati’s safety profile and data so far in combination with PD-1 antibodies looks promising (Keytruda combination moving to phase 3 this year) especially since Lumakras has shown safety issues preventing a similar combination from moving forward. Krazati’s position in the market could also improve if confirmatory data from a trial in second-line lung cancer is positive in the first-half of 2024, as an FDA advisory committee gave a poor review of Lumakras’ confirmatory study in this indication last week.

Beyond lung cancer, a combination of Krazati with cetuximab showed encouraging response rates in colorectal cancer data and will likely gain approval in the third-line setting in 2024. Phase 3 data in the second-line CRC setting is expected in 2024. However, Lumakras has also shown solid data in CRC.

With 14% of NSCLC and 4% of CRC patients showing the KRAS G12C mutation, we believe this drug has the potential to generate over $1 billion in annual peak sales. In the long term, competition is expected from Novartis’ JDQ443 and Roche’s divarasib, which could see pivotal data in lung cancer in 2024 and 2025, respectively.

Beyond Krazati, Mirati’s oncology-focused clinical-stage pipeline includes another KRAS inhibitor in phase 1 and a PRMT5/MTA inhibitor entering phase 2 in 2024. The acquisition also includes a contingent value right for the PRMT5 drug being filed with the FDA within seven years in certain lung cancer indications. However, our valuation of Mirati’s portfolio within our Bristol model rests largely on Krazati.