Ono Pharmaceutical's recent Q1 2024 earnings call presented a company facing declining revenue, a drug price cut for its leading product Opdivo, and looming competition in the profitable gastric cancer market. However, beneath these struggles, there's a hint of a potential comeback, one that seems to have been overlooked by many analysts.

While acknowledging the challenges, Ono's management team, particularly Satoshi Takahaki, Executive Director of Sales and Marketing, expressed a quiet confidence in Opdivo's future. Their optimism wasn't based on vague hope but on solid data: a shift in Opdivo's new prescription trends, especially in the lung cancer market.

Lung cancer, with its large patient population, is a crucial area for Ono. Opdivo's share in the first-line treatment of lung cancer is currently at a seemingly low 17%, a number that has been decreasing due to concerns about the safety of its combination therapy with Yervoy. Public debate around the drug's safety, regarding potential cytokine release syndrome, has negatively impacted Opdivo's prospects.

However, Takahaki revealed a vital detail, stating that the decline in new prescriptions for Opdivo in lung cancer has "bottomed out." This statement implies that the negative perception surrounding Opdivo's safety may be changing. Ono's efforts to address these concerns, by working with expert doctors to provide information on managing potential side effects, seem to be paying off.

This shift in prescription trends is supported by Ono's continued focus on long-term follow-up data for Opdivo. Takahaki highlighted upcoming presentations of new follow-up data at the American Society of Clinical Oncology (ASCO) conference. This data, particularly for patients with negative PD-L1 expression – a group where competitor products haven't shown strong results – could reignite doctors' interest in Opdivo.

If Ono's hypothesis is accurate, and Opdivo's safety concerns are indeed diminishing, combined with the potential impact of new long-term data, a significant rebound in lung cancer prescriptions is possible.

Potential Revenue Impact of Lung Cancer Prescription Recovery

Let's explore the potential scale of this recovery. Assuming a conservative 5% annual growth in lung cancer prescriptions for Opdivo, driven by increased confidence in the drug's safety profile and new clinical data, the potential revenue impact could be significant. Based on Opdivo's current Japanese sales of approximately ¥125 billion, a 5% growth in lung cancer prescriptions alone could translate to an additional ¥6.25 billion in revenue.

However, Ono's ambitions for Opdivo extend beyond simply recovering in existing indications. The company anticipates further market expansion through the approval of new regimens in hepatocellular cancer, colorectal cancer, and urothelial cancer. These approvals, combined with the continuing growth in esophageal and urothelial cancer, suggest a potential multi-faceted Opdivo resurgence.

Ono has a history of surpassing expectations with Opdivo. In 2014, Opdivo became the first PD-1 inhibitor approved in Japan, ushering in a new era in cancer treatment. Since then, the drug has received approvals for numerous cancer types, becoming a cornerstone in Japanese oncology.

Nevertheless, the recent drug price reduction and the arrival of competing products, such as Keytruda, threaten to weaken Opdivo's market leadership. Ono's strategy to counter these challenges hinges on emphasizing Opdivo's long-term efficacy and safety data, particularly in gastric cancer, where the company aims to limit the impact of competitor entry to a maximum of 10%.

Ono's confidence in maintaining Opdivo's leadership is founded on data from the CheckMate-649 trial, which demonstrates the drug's sustained efficacy even after four years, alongside improvements in quality of life and tumor shrinkage.

Opdivo's Strengths in Gastric Cancer

While acknowledging the difficulties posed by the drug price cut and competition, Ono believes that Opdivo, supported by new clinical data and a renewed emphasis on safety management, can regain its momentum. This silent revival, if successful, could propel Opdivo back into blockbuster territory and reaffirm Ono's position as a pioneer in cancer immunotherapy.

"Fun Fact: Ono Pharmaceutical, founded in 1717, is one of Japan's oldest pharmaceutical companies, boasting a history of over three centuries. It started as a traditional medicine shop, showcasing the enduring legacy of Japanese herbal medicine."