As a result of the recent FDA acceptance and priority review of Merck’s lung cancer drug Keytruda, the sales growth outlook has materially turned in their favour at the expense of Bristol Myers’ Opdivo. As Bristol Myers was already trading at a premium valuation to Merck, this announcement will make it look even more expensive.
Taking into account that Merck’s earnings growth rate should start to accelerate with Bristol Myers’ growth slowing somewhat, I am recommending a direct switch out of Bristol Myers into Merck.
Peter McMurtry, B.Com, CFA
January 11, 2017