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.

The fallout from Merck's cancer-treatment coup continues.

Merck & Co. Inc. stunned pharma last week with news its combination of an immune-boosting cancer drug and chemotherapy may get early FDA approval to treat lung cancer. Now it seems this development might hurt AstraZeneca PLC's efforts to quickly gain relevance in immune-oncology (IO), one of its biggest potential growth avenues. On Tuesday, Astra announced changes to a key IO clinical trial that may further delay its market arrival and curtail its opportunity. 

AstraZeneca's shares have languished since the company fought off a Pfizer acquisition attempt
Source: Bloomberg

In 2014, as Pfizer Inc. was trying to buy it, AstraZeneca pledged to hit $45 billion in revenue by 2023. That target has since shifted to $40-41 billion to reflect a stronger dollar. Even with that slight downgrade, such numbers are increasingly hard to take as anything but bravado -- particularly with the recent patent expirations of Nexium and Crestor, which brought in an estimated $6 billion in revenue in 2016.

That's Not 40!
Analysts are skeptical of AstraZeneca's ability to reach $40 billion revenue in 2023
Source: Bloomberg

One of Astra's chosen paths to $40 billion was to become a major player in the rapidly growing IO market, which neared $10 billion in total sales last year. This approach was always a longshot, though; Bristol-Myers Squibb Co., Roche Holding AG, and Merck already have drugs on the market approved to treat multiple cancers, while Astra's lead drug durvalumab is still awaiting its first approval. 

Astra's strategy for jumping ahead of all that competition depended on the next frontier for these promising drugs: combining them with others to boost effectiveness. Its biggest bet is on a combination of durvalumab with another IO drug called tremelimumab. This approach accounts for a substantial majority of Astra's IO trials. 

Before Tuesday, Astra had been expected to report Phase 3 data on its drug combo early this year in lung cancer and use that data to file for FDA approval. The trial changes announced Tuesday will push that Phase 3 data release until later this year, and Astra may not be able to file for approval until 2018. Astra also started an extra trial testing durvalumab alone, a somewhat puzzling move for a company that has been so combo-focused. 

Merck's strategy of combining IO with chemo was already a competitive threat to Astra's approach -- IO-plus-chemo seems safer than IO/IO combos, and nearly as effective. Adding a long FDA approval delay to the mix will make it even harder for Astra to play catch-up.   

Running Late
AstraZeneca's entry in the red-hot market for immune-oncology drugs is expected to come in a distant fourth place
Source: Bloomberg

It's hard to imagine Astra's decision to change its trials wasn't based partly on the knowledge that it needs to top Merck's risk-benefit ratio to stay competitive. Astra's trial changes give it more options and likely reduce the likelihood of an outright disaster, such as Bristol-Myers's failure to get its IO drug, Opdivo, approved for newly diagnosed lung-cancer patients due to overly aggressive trial design. That misstep knocked $20 billion off Bristol-Myers's market cap in one August day.

But the delay puts Astra in a difficult position. Its near-term opportunity is curtailed by Merck's head start. It may have to contend with a similar approach to Merck's from Roche. And it no longer seems as likely to get to market ahead of Bristol-Myers -- which is taking the exact same IO/IO approach in the near term -- to the combination market. 

And its long-term opportunity may be cut down by newer approaches -- such as Merck's combination of its IO drug Keytruda with a different type of IO drug from Incyte -- that may be substantially more effective.

Astra's trial tweaks are an important acknowledgement that things have changed. But the degree of the company's focus on these combos means that a broader strategic rethink in cancer might be needed.

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

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