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Immuno-Oncology Blockbusters Will Boost--But Not Disrupt--Big Pharma

Immuno-Oncology Blockbusters Will Boost--But Not Disrupt--Big Pharma

For years, the foundations of cancer treatment were surgery, chemotherapy, and radiation therapy. Over the past two decades, a second generation of targeted therapies that prevent the proliferation of cancer cells have become the new standard. But over the next five years, a third generation of treatment--immuno-oncology drugs that use the body's own immune system to fight cancer cells--is set to shake up the pharmaceutical industry. We expect global spending on immuno-oncology to surge from $20 billion in 2018 to more than $70 billion by 2024 as new drugs come on to the market, reaping significant market share gains for successful players. Four pharmaceutical groups--Merck & Co., Bristol-Myers Squibb, Roche, and AstraZeneca--are clearly dominating the burgeoning immuno-oncology market with blockbuster drugs (those generating annual sales of at least $1 billion a year). Merck & Co.'s drug Keytruda looks set to become the largest blockbuster ever, with potential for annual sales of about $20 billion (see chart 1). Most Big Pharma players have now embarked on these new breakthrough treatments, paving the way for intense competition over the coming years.

Yet, in spite of immuno-oncology's rapid growth, it has limitations that are still tempering its success. Some cancers cannot be cured with immuno-oncology. And among those cancers it can treat, currently only 20%-30% of patients respond well to therapies. It is also still heavily skewed toward lung cancer treatment, which accounts for a large chunk of drug sales. What's more, the high cost of immuno-oncology treatments could also hinder its progress given the cost pressures on national health systems. The average cost for a course of treatment with Keytruda in the U.K., for example, is £84,000, although the NHS receives a discount. Some therapies are even more expensive. Overall, we forecast immuno-oncology will only account for one-quarter of total global oncology spending by 2024- It is only a segment of the wider immunology franchise revolutionizing the global health-care industry. We therefore don't expect the latest developments in immuno-oncology to be disruptive to other pharma companies with oncology portfolios. However, it will clearly shake up the industry, with sizable R&D investments inducing significant returns for successful players.

Chart 1


The Top Pharma Players In Immuno-Oncology

Merck & Co: Keytruda is likely to become the world's best-selling drug

The U.S. multinational Merck & Co. is the most advanced player in immuno-oncology, through its drug Keytruda, an anti PD-1 treatment, which has now been approved for many indications and is in Phase III (late-stage development) for many more (see table 1). First approved five years ago to treat melanoma skin cancer, a disease for which it boasts impressive survival rates, Keytruda was since filed for the most common lung cancer. We estimate that Keytruda has clear potential to become the world's best-selling drug. In the third quarter of 2019, it generated $3.07 billion, making it a mega blockbuster that will exceed the $10 billion sales mark for the full year. The market expectation is that Keytruda has the potential to approach peak sales of $20 billion.(see chart 2).

Among others, Keytruda recently received approval in China as monotherapy for first-line treatment in non-small lung cancer (NSCLC). In studies, patients who received Keytruda in addition to chemotherapy were 51 per cent less likely to die during the trials than those taking chemo on its own, according to a study of 616 participants. NSCLC is the largest and most lucrative market given the large numbers of sufferers: about 2 million people each year are diagnosed.

Keytruda has also performed well in other studies. It has proved equally as efficient as chemotherapy in treating gastric cancer, with fewer side effects. Because immuno-therapy targets cancer cells more directly than chemotherapy, it causes less damage to healthy cells.

Table 1

Keytruda Indication Approvals and Late-Stage Filings
Approved indications Last-stage filing
Melanoma Liver cancer
Non small lung cancer Breast cancer
Head and neck squamous cell cancer Prostate cancer
Hodgkin lymphoma Colorectal cancer
Mediastinal B-cell lymphoma Ovarian cancer
Urothelial cancer Small cell lung cancer
Gastric cancer
Esophagus squamous cell cancer
Cervical cancer
Hepatocellular carcinoma
Renal cell carcinoma

Chart 2


Alongside its success with Keytruda, Merck & Co. is also present in PARP inhibitor therapy. It is teaming up with AstraZeneca on Lynparza, which is now approved in over 60 countries for the treatment of ovarian cancer.

Bristol-Myers Squibb (BMS): Opdivo already exceeds the $ 7 billion mark

Although it has now been leapfrogged by Merck & Co. due to the success of Keytruda, the U.S-based pharma group BMS has also been a pioneer in immuno-oncology. BMS' best-selling drug Opdivo, an anti PD-1 treatment, has gained approval for multiple indications and reached sales of $1.8 billion in the third quarter of 2019.

BMS also markets Yeryoy, an activator of T cells that fights advanced melanoma. Yeryoy sales have expanded by 17% in year to date in 2019 year over year, and the drug has now reached blockbuster status.

BMS' recent acquisition of Celgene will also give it access to CAR-T technology. It has two programs --bb2121 and Liso-cel--in late-stage development with strong objective response rates on large B-cell lymphoma, a type of blood cancer. Celgene is also developing its own PD-1 inhibitor (Tislelizumab) with BeiGene, which was in 2016 the first Chinese bio-pharmaceutical company listed on the Nasdaq and is now partially owned by Amgen.

Chart 3


Roche: Tecentriq is maintaining the group's world-class positions

Swiss pharma group Roche, which has been the unparalleled world leader in oncology for many years, has also developed its own franchise in immuno-oncology. Tecentriq, a bladder and lung cancer treatment, reached Swiss franc (CHF) 782 million ($793 million) of sales in first-half 2019, conferring it blockbuster status. The drug will be key to maintaining the group's world-class positions in oncology. Importantly, Tecentriq is approved in combination with Avastin, the group's older-generation blockbuster, which should protect the sales of Avastin, which is now facing a patent cliff.

Roche's NSCLC lung cancer treatment Alecensa saw a 50% increase in sales in first-half 2019 and should also reach the blockbuster mark by year-end 2020. Although Merck & Co. is still the most advanced player in immuno-oncology with Keytruda, we believe that Roche now stands close behind, and potentially even ahead in areas like non-small lung cell, ovarian, bladder, and triple negative breast cancer.

Chart 4


AstraZeneca: Imfinzi currently faces no competition

British-Swedish multinational AstraZeneca (AZ) has also developed its own PDL-1 treatment, which it is now commercializing, called Imfinzi. This is now approved in more than 40 countries, including the U.S., Japan, and Europe, for the treatment of second-line bladder cancer and of locally advanced, Stage III non-small cell lung cancer. For the latter indication, Imfinzi currently faces no competition, additionally boosting its sales potential. We expect that Imfinzi could exceed the $3 billion annual sales mark within a few years, having already reached $1 billion in the first nine months of 2019.

AZ has also successfully launched the PARP inhibitor Lynparza. This is now approved in over 60 countries for the treatment of ovarian cancer and was also recently launched in the treatment of breast cancer in the U.S. Lynparza also has strong read-outs for pancreatic cancer, but this market is smaller. AZ and Merck & Co. share the development and commercialization costs for Lynparza and selumetinib monotherapy and non-programmed death-ligand 1 (PD-L1)/PD-L1 combination therapy opportunities. Merck & Co. is making milestone payments to AZ.

Pfizer and Merck KGaA: Bavencio treats a number of cancers  U.S. incorporated Pfizer and Germany-based Merck KGaA in 2014 formed a global alliance to jointly develop and commercialize anti PDL-1 treatments. Bavencio was successfully launched in 2017 and boasts approval for Merkel cell carcinoma (a type of skin cancer) and bladder cancer. It could also be filed for first-line lung cancer.

Merck KGaA and GlaxoSmithKline (GSK): Bintrafusp aims to treat lung cancer

In the pipeline, Merck KGaA also has Bintrafusp, which is recording good data. Merck KGaA is now teaming up with U.K.-based GlaxoSmithKline (GSK) on a Phase II first-line treatment for patients with PD-L1-expressing lung cancer. Upfront payments, future approval, and commercial milestones amount to about €3.7 billion to be paid by GSK. Last year, GSK had already spent $5 billion to acquire Tesaro, which has developed a PARP inhibitor that has very good read-outs in ovarian cancer. Notably, in less than 12 months, GSK has invested substantially in immuno-oncology, a U-turn strategy from the decision made in 2015 to sell most of its cancer franchise to Novartis.

Novartis and Gilead: Kymriah and Yescarta use CAR-T technology

Sales of Switzerland-based Novartis’ once best-selling product, Gleevec, have now collapsed because this second-generation cancer drug has been facing patent expiry for several years now. Novartis' R&D in immuno-oncology focuses primarily on CAR-T technology, with Kymriah, which generated revenues of $79 million in third-quarter 2019. Kymriah, which treats certain types of blood cancer, is used in more than 20 countries for at least one indication. The patient base is relatively thin, with only 600 cases a year in the U.S. However, it is very expensive, at close to $500,000 per treatment. Kymriah generated fewer revenues than Gilead’s competitor treatment, Yescarta, which reached $120 million of revenues in the second quarter.

Other pharma companies

While other pharmaceutical players clearly lag these market leaders in immuno-oncology treatments, a few others hold good potential (see chart 5). These include:

  • In July 2019, the European Commission granted Sanofi authorization for Libtayo, for the treatment advanced cutaneous cell carcinoma, a skin cancer. We do not expect Libtayo to reach blockbuster status.
  • In May, 2018, Elli Lilly entered into a merger agreement to acquire ARMO BioSciences, Inc., a company that is developing a pipeline of novel, proprietary product candidates designed to activate the immune system of cancer patients to recognize and potentially eradicate tumors.
  • Johnson & Johnson has announced collaboration with BMS and AZ to evaluate an immuno-oncology combination. The group also recently acquired BeneVir Biopharm, Inc. a biopharmaceutical company specializing in the development of oncolytic immunotherapies.

Chart 5


Some Risks And Limitations

In spite of the rapid success of immuno-oncology treatments, trials have highlighted some risks to this form of cancer therapy. Some cancers cannot be cured with immuno-oncology. What's more, while between 20% and 30% of patients react well to immuno-oncology, most do not. Specifically, patients with lower levels of the PDL-1 protein tend to be less responsive. In addition, there have been many recent immuno-oncology test failures, notably in 2016 when BMS failed to demonstrate that Opdivo was superior to chemotherapy. Merck & Co. at that time leapfrogged BMS and became the most advanced player in immuno-oncology. Currently, R&D is focusing on combination therapies and many pharmaceutical companies are working on drugs for use in combination with Keytruda, Opdivo, or Tecentriq where immuno-oncology is used with chemotherapy or another active pharmaceutical ingredient. The reason for this is that cancer can be very resilient and return with a vengeance following initial tumor shrinkage. Attacking it with multiple agents can have synergistic benefits in destroying the cancer more completely. Consequently, the success of immuno-oncology also paves the way for adjacent treatments.

Another area of risk for immuno-oncology is its dependence on lung cancer, which accounts for about two-thirds of Keytruda sales (see chart 6). Strong readouts from Roche in lung cancer could possibly dent Keytruda's impressive trajectory in both volumes and prices.

Chart 6


Immuno-oncology should also be viewed in the context of the wider oncology and non-cancer immunology markets. Even if immuno-oncology reaches $70 billion by 2024, as forecast, it would still only account for 25% of the total oncology market, worth $250 billion (see chart 7). Notably, some immuno-oncology drugs are not some pharma companies' sell-selling products. Although Keytruda is set to become Merck & Co.'s main profit contributor, this is not true of Opdivo for BMS: the cardiovascular drug Revlimid, an older cancer drug legacy of Celgene, and the cardiovascular drug Eliquis are currently its best-sellers. Sales of Eliquis even expanded much faster than Opdivo in third-quarter (22% versus 1%) Likewise, Roche's top-performing drug is expected to be Ocrevus, a breakthrough treatment against multiple sclerosis. For these reasons, we do not expect immuno-oncology to be disruptive to other pharma companies.

Chart 7


Another important question is whether cost pressure could hold back immuno-oncology treatments. In November 2018, the U.K. National Health Service (NHS) approved Keytruda. The list price for each three-weekly infusion was £5,260, and the average cost for a course of treatment is £84,000, although the NHS receives a discount. CAR-T therapies are even more expensive: Kymriah treatment costs $475,000 in the U.S. At a time when governments are clamping down on health-care costs, immuno-oncology will have to continue to demonstrate high response rates compared to other treatments. For the time being, immuno-oncology clearly boasts an undisputed therapeutic edge for specific diseases, as well as lower side effects than chemotherapy. Still, reasonable pricing commands market access and is a key pillar to sustainability at a time when environmental, social, and governance considerations are becoming increasingly important.

A Boost But Not A Game-Changer

We expect immuno-oncology treatment to expand gradually in pace with the discovery and filing of new indications. We estimate the market could surpass 25% of the global oncology market in the long term given expert estimates that new cancer cases will increase by 20 million units per year in 2025.

Although we expect four pharmaceutical groups, Merck & Co., BMS, Roche, and AZ to dominate the immuno-oncology market over the coming years, we see room for more players in the wider and very large immunology market as a whole. Beyond cancer, this covers vaccines, allergies, autoimmune diseases, and immunodeficiency, treating a wide array of pathologies including hepatitis, psoriasis, lupus, rheumatology, asthma, and many others. For example, we expect Novartis, which has no real blockbuster in immuno-oncology, to remain a key player in the wider immunology industry. Novartis' immunology treatment against psoriasis, Cosentyx, is on its way to reach the $5 billion mark. We expect Novartis to keep its oncology franchise at about $14 billion per year, owing to a dozen products, of which only Kymriah operates in immuno-oncology for annual sales of less than $1 billion. Likewise, we anticipate that Sanofi will maintain solid positions through Dupixent a blockbuster treating atopic dermatitis plus several products targeting rare diseases. Finally, although Roche will likely lose its world crown in oncology, it will maintain an excellent position in cancer treatments, mainly through new monoclonal antibody products, as well as promising forecasts in hemophilia and multiple sclerosis.

Thanks to Keytruda, Merck & Co. will likely improve its global ranking in overall revenues, potentially boosting its revenues to about $50 billion by 2024 from about $35 billion today. Immuno-oncology will therefore shake up the industry, with sizable R&D investments inducing significant returns for the successful players. We do not anticipate that immuno-oncology will trigger ratings changes. On the upside, the spectacular success of Keytruda and Opdivo are already embedded in our ratings on Merck & Co. and BMS. On the downside, our ratings already capture substantial expenses to come in R&D and marketing as new products are filed and then launched. Still, a sizable acquisition by a player that decided to set foot in this fast-growing market, could have a rating impact. We expect immuno-oncology to drive M&A going forward: only this week, Merck and Sanofi announced two takeover bids of biotechs ArQule and Synthorx, respectively. These deals were however only bolt-on acquisitions, about $2.5 billion each, and had no rating impact.

Related Research

  • Oncology Is A Major Growth Opportunity For Big Pharma, Injected With Risk, Aug. 1, 2019
  • How Business Strength Varies Across The Top 15 Branded Pharmaceutical Companies, June 10, 2019
  • The Pharma Industry Outlook Is Negative On M&A, Pricing Pressure, Regulatory Scrutiny, And Opioid Litigation, March 11, 2019
  • Lessons Learned: What Leads To Rating Changes For Investment-Grade Pharmaceutical Companies, Jan. 22, 2019
  • Which Pharma Company Ratings Could Be At Risk If U.S. Drug Pricing Reforms Become Law?, Oct. 31, 2018

This report does not constitute a rating action.

Primary Credit Analyst:Nicolas Baudouin, Paris (33) 1-4420-6672;
Secondary Contact:David A Kaplan, CFA, New York (1) 212-438-5649;

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