Which Pharma Stocks Are Relying on Immunology for Future Growth?

Faced with patent cliffs, big pharmaceutical firms like AbbVie and Merck are pinning future sales growth on immunology products. Precision, or personalised, medicine could be a key to the future of immunology diagnosis and treatment.

• Exclusivity on AbbVie’s Humira ends this year, but the company sees Rinvoq and Skyrizi driving future immunology growth.
• Global immunology sales are forecast to grow at a CAGR of 13% between 2021 and 2028, says Global X.
• How to invest in immunology: the Invesco Pharmaceuticals ETF is up 5.5% in the past year.

Immunology, it could be argued, is the lifeblood of the pharmaceutical industry.

Immunology is the study of the immune system’s defence against viruses and infections. While oncology, neurology and cardiovascular care are critical to the healthcare system, if the immune system doesn’t function properly, it could trigger allergies or autoimmunity, where the body can’t tell the difference between its own cells and foreign cells, or even cancer.

The spotlight on immunology has been shining brighter since the pandemic, as scientists and researchers studied how Covid-19 affects different people’s immune systems.

Today, the immunology market is very much open for business. According to GlobalData, there were 17 pharmaceutical M&A deals targeting immuno-oncology announced in the second quarter (Q2) of 2023, totalling a combined value of $4bn. Among those moves was Novartis’ [NOVN.SW] $3.5bn buyout of Chinook Therapeutics, whose portfolio includes a drug targeting a rare, progressive chronic kidney condition.  

In April this year, Merck [MRK] bought Prometheus Sciences for nearly $11bn, strengthening its immunology portfolio with a drug targeting ulcerative colitis, which Merck has rebranded as MK-7240. The deal was valued at a 75% premium to the last closing price prior to the announcement.

“Prometheus brings us a potential best-in-class candidate that creates an opportunity for us to transform treatment for patients with immune-mediated diseases,” said Merck CEO Robert Davis in a regulatory release.

The Patent Cliff Problem

A key reason why a number of big pharmaceutical firms are going shopping for immunology drugs is because they are facing a patent cliff.

The patent for Merck’s blockbuster oncology treatment Keytruda expires in 2028, after which competitors will be able to enter the market, potentially undercutting the price of Keytruda.

MK-7240 could help to fill any revenue gap should Merck fail to extend Keytruda’s patent protection. The drug scored two sets of positive results last December for phase-two studies trialling it as a treatment for two types of inflammatory bowel disease.

Meanwhile, AbbVie’s [ABBV] blockbuster anti-inflammatory drug Humira loses its exclusivity this year. Although the company has patents that don’t expire until the next decade, AbbVie will no longer corner the market, and patients should be able to access cheaper alternatives, also known as biosimilars.

American investor, businessman and TV personality Mark Cuban announced in July that he’ d be offering Coherus Biosciences’ [CHRS] biosimilar, Yusimry, at his online pharmacy Cost Plus Drugs at a significant discount — $995 per carton, compared with Humira’s price of $6,922 per carton, reported Reuters.

AbbVie is pinning its hopes on two other immunology drugs: Rinvoq, which is used to treat rheumatoid arthritis and bowel conditions, and Skyrizi, which is used to treat patients with psoriasis.

AbbVie’s Immunology Sales Soar

In the three months to the end of June, immunology revenue counted for almost half of AbbVie’s total revenue and was down 5% year-over-year. Humira revenue dropped 25.2% year-over-year to $4bn, with $3.5bn from US sales. But, in stark contrast, Rinvoq revenue climbed 56.7% to $918m, and Skyrizi sales soared 50.4% to $1.9bn.

“When you consider that Skyrizi is capturing roughly one out of every two in-play patient[s] … there remains substantial opportunity for continued robust sales growth,” said AbbVie Executive Vice President and Chief Commercial Officer Jeff Stewart on the Q2 earnings call.

During the quarter, Rinvoq received FDA approval for the treatment of Crohn's disease, marking “its seventh FDA approval across gastroenterology, rheumatology and dermatology”, Tom Hudson, Senior Vice President of R&D and Chief Scientific Officer, said on the call.

Both Rinvoq and Skyrizi are expected to “deliver robust growth into the next decade and significantly exceed Humira peak revenue”, according to Vice Chairman and President Rob Michael.

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Global Immunology Sales to Grow to $97bn by 2028

Looking ahead, research by Global X has forecast that immunology will see the highest rate of sales growth among therapeutics categories. Revenue could rise at a CAGR of 13% from $42bn in 2021 to $97bn in 2028. Oncology is expected to grow at a CAGR of 12%, from $173bn to $372bn; gastrointestinal at 8%, from $31bn to $53bn; and cardiovascular at 5%, from $46bn to $65bn.

There’s likely to be an uptick in M&A activity in immunology and autoimmune disorders, according to Global X, as the two fields attract more interest in the coming years while the population ages — it’s widely recognised that the immune system weakens as people get older.

The Future of Immunology Will Be Personalised

Global X expects precision medicine — defined as diagnosis and treatment that is personalised to an individual's genetic makeup, environments and lifestyle — to expand into immunology and immuno-oncology in particular.

Personalised diagnosis could involve an individual’s genetic code being sequenced. This code could then be analysed to identify any variants within the code that are linked to an auto-immune disease. Then the variants could be modelled in test subjects, such as mice, to work out how they cause the disease. Specific treatments and therapies could be developed and used on the individual — if this is a success, a treatment could be commercialised and used to treat other patients with the same disease.

How to Invest in Immunology

ETFs, or exchange-traded funds, offer an economical and diversified way to invest in a variety of stocks within a particular theme.

Funds in Focus: the iShares Genomics Immunology and Healthcare ETF

The iShares Genomics Immunology and Healthcare ETF [IDNA] has allocated 94.6% of its portfolio to healthcare and 5.2% to materials as of 20 September. The fund is down 24.2% in the past year and down 10.4% in the past six months.

The VanEck Pharmaceutical ETF [PPH], which has AbbVie and Merck in its top 10 holdings, has allocated 95.6% of its portfolio to the healthcare sector and 4.25% to consumer staples as of 31 August. The fund is up 22.4% in the past year and up 9.7% in the past six months.

The Invesco Pharmaceuticals ETF [PJP], which also holds AbbVie and Merck, has allocated pharmaceuticals 58% of its portfolio, as of 30 June. Biotechnology and healthcare equipment have respective weightings of 35.8% and 6.2%. The fund is up 5.5% in the past year and flat in the past six months.