Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

Bristol-Myers Squibb has succeeded in recent years by swinging for the fences. But it just whiffed on a big pitch, to the delight of its rival Merck. 

Both companies make similar drugs that help the body's immune system fight tumors. They seem to work far better in patients whose cancers express a large amount of a certain protein the drugs target, called PD-L1. Merck has focused narrowly on testing for and treating such patients with its drug, Keytruda.  

Bristol, on the other hand, has targeted a much broader set of patients, and its drug can be used without advance testing. That has helped its drug, Opdivo, get a big sales lead -- it outsold Keytruda by more than $500 million in the second quarter.

But in one of the biggest possible treatment markets, newly diagnosed non-small-cell lung cancer, Bristol's approach has fallen flat. The company announced Friday morning that Opdivo had failed in its Phase 3 trial for the disease. Merck announced far better results for its approach in June.

Bristol's shares were down 17 percent Friday morning, while Merck's were up 6 percent. 

Merck Smirks, BMY Cries
After Bristol-Myers' risky clinical trial strategy blew up in its face, Merck will beat the firm to market in a huge set of lung cancer patients.
Source: Bloomberg
Intraday times are displayed in ET.

Before Friday, the big unknown about Bristol's trial was exactly how aggressive it was about patient selection. Really aggressive, it turns out! Merck's study was restricted to patients whose tumors had at least 50 percent PD-L1 expression. Bristol's cutoff , in contrast, was just 5 percent. If its approach had worked, then it might have gotten approval for treatment of a much wider population, cementing Opdivo's commercial dominance.

Instead it now faces an uncertain future in this treatment area -- its approval for use on its own in newly diagnosed patients could be long-delayed or abandoned altogether.

In a way, it made sense for Bristol to chase a wider patient population, an approach that has worked for it so far. But in this case, given the size of the potential market, it could have afforded to be more cautious. There's a whole lot of still-lucrative space between five and fifty percent PD-L1 expression. The cost of its gamble is a $33 billion total swing in market cap between it and Merck.

The news is vindication for Merck's caution. In the face of Opdivo's more-rapid sales growth, Merck has steadfastly maintained that focusing on the most promising patient population was the correct strategy. Now Merck's likely approval in newly diagnosed patients should narrow the sales gap with Opdivo. 

Catch Up Time
Bristol Myers' Opdivo has thrashed Merck's similar medicine, but a setback in a key clinical trial may begin to change that.
Source: Bloomberg

The long-term impact for Bristol is harder to nail down. Opdivo has a head start in many other treatment areas, particularly in trials of combinations with other drugs. Bristol is testing Opdivo alongside chemotherapy and another immuno-oncology drug, hoping it will make it effective in an even broader set of patients. Data may come as early as next year, and approval would give Opdivo sales another boost. Then again, AstraZeneca expects to have data from a similar combination trial first. 

Either way, Merck is likely to have a leg up in a big market. Bristol should take this lesson to heart and try hitting for average once in a while. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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