The race for immuno-oncology drugs is on. According to some estimates, the market could be as big as $35 billion. There is huge opportunity to profit from successful drugs given that small molecule R&D productivity has declined during the last decade. Given their focus on biologics and relatively strong immuno-oncology pipeline, Merck (NYSE:MRK), Britol-Myers Squibb (NYSE:BMY) and Roche Diagnostics stand to gain. We expect a strong focus from each of these companies on both in-house research and development, as well as co-development partnerships, will allow each to stay ahead of the curve and try to tap in the market as early as possible. Let’s take a look at what these pharmaceutical giants are doing in this area.
Our current price estimate for the company stands at $53, implying a discount of about 5% to the market price.
- Why Vallee S.A. Acquisition Could Boost Merck’s Animal Health Business’ Growth In South America?
- Key Trends To Watch Out For Merck This Year
- Why We Are Bullish On Merck
- How Much Revenue Can Merck’s Cancer Drug Keytruda Add In 2020?
- Why Merck’s Cancer Drug Keytruda Can Be Key To Its Long Term Growth?
- Considering The EU Launch Of Biosimilar For Remicade, Merck’s 2nd Largest Drug, Does The Company Face Meaningful EPS Decline In 2016?
What Is Bristol-Myers Squibb Doing?
Bristol-Myers Squibb has collaborated with CytomX Therapeutics to develop immuno-oncology drugs. The company will make an upfront payment of $50 million, fund the research and make additional payments of up to $298 million on achieving key milestones.  That’s not a lot considering the potential reward from making a breakthrough in this multi-billion dollar market. Additionally, Bistol-Myers Squibb is also partnering with Incyte to evaluate the safety and efficacy of its PD-1 immune checkpoint inhibitor nivolumab, which is currently an investigational drug.
Where Does Roche Excel?
Treating Cancer can be tricky as it is a not a single disease, and has more than 200 types and thousands of subtypes affecting more than 60 organs. This means that the medicines have to be very specific and targeted. Being the biggest biotech firm in the world with a strong technical know-how, Roche has developed several biologics that induce the immune system to treat cancer. Unlike small molecule drugs, biologics tend to be more targeted and attach themselves to specific cell receptors associated with the disease process.
Three of its major biologics Rituxan/MabThera, Avastin and Herceptin are used for treating a variety of cancer forms including blood cancer, breast cancer and colorectal cancer. The combined sales from these drugs stood at over CHF 19.28 billion in 2013, or roughly $21.8 billion at the current exchange rate. This accounted for around 53% of Roche’s total pharmaceutical revenues during the year. Additionally, its total oncology (cancer therapeutics) sales constituted roughly 62% of its pharmaceuticals business which clearly showcases Roche’s success in this area. Despite the fact that individual sales of Rituxan/MabThera, Avastin and Herceptin stood between $6.8 and $7.8 billion, their growth was still healthy. Avastin saw its revenues jump by 13% in 2013, due to its demand for the treatment of ovarian cancer in Europe and increased use for colorectal cancer in both, Europe and the U.S.
The company is also testing a new PDL1 inhibitor drug MPDL3280A for treatment of advanced melanoma, lung cancer and kidney cancer. The drug is essentially an antibody which destroys the tumor’s ability to camouflage itself, thus helping the body’s immune system in recognizing and killing it.
Here Is What Merck’s Pipeline Holds
MK-3475 (or lambrolizumab) is Merck’s investigational PD-1 specific monoclonal antibody for the treatment of advanced malignancy. The drug essentially enables a patient’s immune system to detect cancerous cells that are otherwise extremely hard to identify. T cells can then target and kill these exposed tumor cells. In June 2013, Merck reported that 38% of the cancer patients under trial responded positively to this drug. Investors have welcomed the company’s decision to investigate the drug’s effectiveness in combination with other investigational agents. The drug is currently being studied in 17 clinical trials estimated to enroll over 4,000 patients across more than 30 types of cancer.  MK-3475 is a new class of drugs and could well be the future of cancer treatment. Bristol-Myers Squibb has a similar drug in clinical trial under the name Nivolumab and is expected to garner $6 billion in peak sales. Currently these drugs are being tested for melanoma (skin cancer), and if their usage expands to other cancer types, it could open a much bigger market for these pharmaceutical companies. Merck has already initiated a study to identify other cancer types where the drug can have a therapeutic effect. The company could revive its oncology division if MK-3475 is successful.Notes:
- Bristol-Myers Squibb Partners With CytomX, Incyte in Immunotherapy, The Wall Street Journal, May 27 2014 [↩]
- Merck’s Q1 2014 Earnings Transcript [↩]