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Bristol-Myers Missing Hep C Data Raises Red Flags, May Boost Gilead, Idenix

4. BMS-094 has shown potential toxicity across multiple organ systems. Data presented in 2009 indicate that BMS-094 (again, known then as INX-189) has a relatively low CC50, a measure of cytotoxicity, across lymphoid, bone marrow, kidney, and liver cells. Bulls will, reasonably, counter by citing the drug's potency and resulting therapeutic index, an indicator of drug safety equivalent to the ratio of the drug's in vitro efficacy measured via the EC50 relative to CC50. For BMS-094, the therapeutic index is widest in lymphoid tissue and narrowest in the bone marrow, with liver in the middle. Again, this single data point isn't a smoking gun, but it does raise another red flag.

5. BMS-094 appears far less effective at lower doses than Gilead's GS-7977. After three days of dosing at 200 mg once daily, BMS-094 reduces median viral load by roughly 3.0 log. That's less than the 3.7 log viral load reduction seen with a 400 mg once-daily dose of Gilead's GS-7977 after three days, although in the same ballpark and therefore comparable and competitive.

At a 100 mg once-daily dose, however, BMS-094's impact is far less impressive, with a 1.15 log reduction in viral load. This brings BMS-094's effect size closer to Idenix's nuc IDX-184, which gets criticized for lackluster efficacy. I think the jury is still out on the Idenix nuc. Management claims the drug's effect size will improve over time. That's possible, since BMS-094 gains some efficacy with an additional few days of dosing.

If Bristol-Myers can't dose BMS-094 safely at 200 mg, the drug may not be competitive with Gilead's GS-7977. (Gilead's GS-7977 studies use a 400 mg once daily dose.) Importantly, none of Bristol-Myers' ongoing or publicly listed BMS-094 studies use the 200 mg once-daily dose. Not a good sign.

6. Bristol-Myers had limited safety data for BMS-094 when it purchased Inhibitex. Investors frequently cite a partnership or acquisition as validation of the smaller company's technology. I often disagree with the validation hypothesis, and that's true in this case. It seems very unlikely that Bristol-Myers had meaningful non-public safety data for BMS-094 prior to the company's January purchase of Inhibitex for $2.5 billion. This limited visibility might not raise a red flag, but I think it makes the validation defense less compelling.

Bristol-Myers is a big company so the investment impact of potential trouble in its hepatitis C drug pipeline is unclear. Most analyst models don't yet include forecasts for significant sales from the company's experimental hepatitis C drugs. The anticoagulant Eliquis, which has an FDA approval decision date in late June, is by far Bristol-Myers' most important near-term driver. I expect Eliquis to receive approval, and consensus earnings estimates look achievable but not necessarily low.

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