A promising cancer drug combo from Bristol Myers Squibb is months away from being approved in the European Union to treat patients with a form of skin cancer.

In late July, the European Medicines Agency’s Committee for Medicinal Products for Human Use (CHMP) recommended approval for one of Bristol Myers Squibb ‘s ( BMY -0.69%) cancer drugs. More specifically, the CHMP recommended that Opdualag be approved to treat patients ages 12 and up who are diagnosed with unresectable or metastatic melanoma.

What is the data behind the CHMP’s decision to put Opdualag just one step away from approval to treat countless patients in the European Union? And what could this mean for Bristol Myers’ future financial prospects? Let’s dig into the data from phase 3 clinical trials and the European Union’s melanoma market to answer these questions. A potent pairing of drugs

Melanoma is a skin cancer that is marked by the unchecked growth of pigment-producing cells known as melanocytes. The overall survival rate for all types of melanoma from the time of initial diagnosis is 93% at five years. As is the case with most diseases, the prognosis depends upon the progression of the disease upon diagnosis.

The five-year survival rate for melanoma can be as high as 99% when it hasn’t spread to the lymph nodes or other more distant parts of the body. But in the 5% of diagnosed cases where the disease has spread into distant organs like the lungs or bones, the five-year survival rate is just 30%. These cases are called advanced or metastatic. And tumors are often not able to be surgically removed, which is referred to as unresectable.

Fortunately, the prognosis for metastatic melanoma is steadily improving. This is due to innovation from pharma companies that has doubled the survival rate since 2004. And this progress should continue in the years ahead as more effective treatments such as Opdualag hit the market.

The drug duo consists of a compound named nivolumab (branded as Opdivo) and another compound by the name of relatlimab. A phase 3 clinical trial of the two drugs yielded a median progression-free survival rate of 10.1 months, which was double the 4.6 months of Opdivo alone. This means that half of the patients receiving the two drugs didn’t experience a progression in their condition for at least 10.1 months. This may not sound like much, but it’s a breakthrough for a disease with such a poor prognosis. Image source: Getty Images. Huge overall sales potential

If approved in the European Union as it was in the U.S. in March, Opdualag will be a game-changer for metastatic melanoma patients. And it should be a nice winner for Bristol Myers, financially speaking.

In 2020, there were approximately 106,000 patients diagnosed with melanoma in the European Union. Factoring in that 5% of those patients have metastatic melanoma, and equally as many have unresectable melanoma, there are likely 10,000 patients eligible to receive Opdualag.

Given the remarkable efficacy of the drug combo, I believe that Opdualag can capture a 20% patient share. This is equivalent to 2,000 patients.

The annual U.S. list price of Opdualag is nearly $329,000. Adjusting for the fact that medications are around 50% cheaper in the European Union, the annual list price of the drug pairing is $164,000. Further accounting for patient assistance programs and negotiations with health insurers, I will assume an annual net price of $125,000. This works out to $250 million in annual sales potential for the indication.

By itself, this is just a 0.5% bump in revenue over the $46.1 billion that analysts are expecting for Bristol Myers in 2022. However, Opdualag is also in phase 3 clinical trials for colorectal cancer and clinical trials for solid tumors. This is why the total annual peak sales for Opdualag could reach into the billions. The stock is dirt cheap

As exciting as Opdualag is for Bristol Myers, the company currently has dozens of other compounds in clinical development. This explains how analysts are expecting the company to deliver 4.9% annual non-GAAP (adjusted) diluted earnings per share (EPS) growth through the next five years. And yet the market appears to be fixated on upcoming patent expirations, deeply discounting Bristol Myers’ stock.

Bristol Myers’ forward price-to-earnings (P/E) ratio of 8.4 is notably below the general drug manufacturer industry average of 10.6. This is arguably an attractive buying opportunity for value investors. Should you invest $1,000 in Bristol Myers Squibb Company right now?

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