Shares of Bristol-Myers Squibb (BMY) are sliding after the company announced that it will not pursue an accelerated regulatory path for the Opdivo/Yervoy combination, with research firm Cowen downgrading the stock to Market Perform following the news. This comes only one week after the Food and Drug Administration accepted for priority review its competitor Merck's (MRK) application for immunotherapy drug Keytruda with chemotherapy as an initial treatment for advanced lung cancer.

NO ACCELERATED PATH: Last night, Bristol-Myers announced that it has decided not to pursue an accelerated regulatory pathway for the combination of Opdivo plus Yervoy in first-line lung cancer in the U.S. based on a review of data available. However, the company did not provide any additional details "in order to protect the integrity of ongoing registrational studies."

MOVING TO THE SIDELINES: In a research note this morning, Cowen analyst Steve Scala downgraded Bristol-Myers to Market Perform from Outperform, saying opportunities and risks are balanced. While the analyst noted that his longstanding view that the combination of the company's Opdivo plus Yervoy has disruptive potential in immuno-oncology is unchanged, the fact that an early filing in first-line treatment of non-small cell lung cancer, or NSCLC, is no longer possible, simultaneous with increased visibility on competitor strategies, adds more risk to Opdivo sales and Bristol-Myers' earnings per share prospects over the intermediate term. The company has other avenues to file in first-line NSCLC but with lower probability opportunities, Scala told investors, adding that it likely will need to wait for full CM-227 data in the first half of 2018. If so, Bristol-Myers will reach the first-line lung market only in the second half of 2018, two years after Merck, one year after AstraZeneca (AZN) and possibly behind Roche (RHHBY), he argued. Scala also lowered his price target on Bristol-Myers' shares to $65 from $85.

DISAPPOINTING UPDATE: In a note of his own, JPMorgan analyst Chris Schott told investors that Bristol-Myers' decision not to move forward with its early filing strategy for its Opdivo/Yervoy combo in frontline lung removes a near-term upside event for the company's shares. Further, the analyst said he sees this update as disappointing, particularly given the FDA's acceptance of Merck's sBLA for the Keytruda/chemo combo based on early stage data. Nonetheless, Schott noted that he continues to believe in Bristol-Myers' Opdivo/Yervoy combo based on "strong early stage data" and sees the company as an important player in lung cancer, assuming success of CM-227. Schott reiterated an Overweight rating on Bristol shares.

WHAT'S NOTABLE: Earlier this month, the FDA agreed to review on an expedited basis Merck's Keytruda in combination with chemotherapy as a first-line treatment for NSCLC, seeking to make a decision on the drug on May 10, 2017, according to Merck. Following the news, Morgan Stanley analyst David Risinger upgraded Merck to Overweight, saying the company's growth is poised to accelerate as its leadership position in immuno-oncology strengthens. Predicting that Keytruda and chemotherapy would be approved for "nearly all" NSLC cases by May 10, the analyst expects Merck to have a head start of a least several months in the indication versus its competitors. Piper Jaffray analyst Richard Purkiss also voiced a similar opinion, saying that if FDA approves Keytruda and chemotherapy by May 10, Merck will have an early lead in the indication, harming the outlook of other immuno-oncology drug makers, including Bristol-Myers and AstraZeneca.

PRICE ACTION: In morning trading, shares of Bristol-Myers have dropped over 9%, while Merck's stock has gained almost 4%.