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Ono Pharma’s Wild 2016 Ride Cuts Stock Valuation by $16 Billion

  • Worst performance in 50 years on Opdivo competition, price cut
  • Follows quintupling of shares over previous three years

The rise and fall of Ono Pharmaceutical Co. in 2016 was a tale of two halves, and one drug.

Having surged as much as 34 percent as of mid-April, the stock finished the year down more than 41 percent, marking its worst performance in more than 50 years. The swing reduced its market capitalization by about 1.87 trillion yen ($15.9 billion) from a record high in April.

Ono’s shares had surged almost fivefold from the start of 2013 through 2015, helped in large part by expectations for Opdivo, an immune-based cancer therapy that Ono co-developed with Bristol-Myers Squibb Co. The upward trend appeared poised to continue last year.

In Japan’s pharmaceutical sector, 2016 was “in every sense, the ‘year of Opdivo’,” Motoya Kohtani, a Tokyo-based analyst at Nomura Securities Co., wrote in a report dated Dec. 29. Ono in April forecast a sixfold annual increase in sales of the drug, which was first approved in 2014 for melanoma and has since been cleared to treat lung tumors and head and neck cancer.

Fortunes changed in August, when Opdivo failed to meet its goal in a trial for untreated non-small cell lung cancer. This allowed Merck & Co.’s rival drug Keytruda to achieve "first-mover advantage" as a first-line lung cancer treatment and narrow the market-share gap with Opdivo, according Michael Shah, an analyst at Bloomberg Intelligence.

"While Ono started the year as the pharmaceutical sector stock attracting the most attention from investors, with the August announcement of these trial results it became the stock with the worst share price performance in the sector," says Nomura’s Kohtani, who rates Ono shares neutral.

The troubles were compounded by the Japan Health Ministry’s decision in November to lower Opdivo’s price by half, forcing Ono to lower its profit outlook for the current fiscal year by 25 percent.

Opdivo still has chances to increase sales through approvals for other types of cancer. Ono’s stock got a lift last week after the company said it applied for approval to treat gastric cancer. In addition, Ono and Bristol-Myers have launched a patent infringement lawsuit against Merck, due to go to trial in April, that could allow it to "claw back" around 10 percent of royalties on sales of Keytruda, Nomura’s Kohtani says.

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