One Up, One Down: Morgan Stanley Flips Merck, Bristol-Myers Ratings

Merck & Co., Inc. MRK’s Keytruda returned better-than-expected results in the Keynote-189 lung study — a feat seen to lend a competitive edge over Bristol-Myers Squibb Co BMY.

The Rating

Morgan Stanley analyst David Risinger upgraded Merck from Equal-weight to Overweight and increased the price target from $63 to $68.

At the same time, he downgraded Bristol-Myers from Overweight to Equal-weight and slashed the price target from $78 to $58.

The Thesis

Keytruda beat out Bristol-Myers’ Opdivo-Yervoy combination in both the progression-free survival hazard ratio and overall survival in a chemo combination. By comparison, the Bristol-Myers data appears “disappointing," Risinger said in a Tuesday note.

“Although the BMY survival figure should improve with longer follow up, we think it is unlikely to match Merck’s impressive results,” Risinger said, noting the latter will maintain its lead in the largest cancer market.

Morgan Stanley increased 2023 Keytruda revenue forecasts by 13 percent to represent a doubling of sales over five years. Estimates for 2019 earned a 10-percent boost. The two correlate with respective 8-percent and 5-percent increases in EPS forecasts.

Morgan Stanley lowered its estimates for 2019 Opdivo sales by 17 percent, leading to a projected 5-percent drop in total revenue and 8-percent fall in EPS. Looking five years out, Risinger lowered Bristol-Myers’ top-line expectations by 13 percent and bottom line by 21 percent on “lower growth projections and diminished prospects for strategic optionality.”

It is worth noting that Opdivo is expected to outperform Keytruda in non-1L lung indications, yielding an opportunity in second-line non-squamous NSCLC. Upcoming 1L squamous results from Merck and Roche will determine Opdivo’s potential in second-line non-squamous NSCLC, Risinger said. 

Merck has additional opportunity to advance Keytruda in other tumors and earlier-stage therapies, and it will also release updates on novel vaccines and HIV products throughout the next year, according to Morgan Stanley. 

Price Action

At the time of publication, Merck was trading up 1.7 percent and Bristol-Myers down 2.3 percent.

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