The drug and biotech sector is expected to see a favorable operating environment in 2023 despite macroeconomic uncertainty and the rising risk of a global recession.

The drug and biotech sector bounced back in the second half of 2022 from a rather weak performance in the first half. An uptick in M&A deals, strong earnings performance, new drug approvals, a favorable regulatory environment and pipeline successes helped the sector turn around.

While the broader market is grappling with rising interest rates and inflation, innovation — the sector’s driving force — continues to take place, with the trend expected to continue in 2023. M&A in the drug and biotech sector is also expected to pick up noticeably.

It is a defensive sector to invest in the present environment of rising interest rates and economic uncertainty.

Several companies in the drug and biotech sector have returned 40% or more in 2022 so far and have room for more growth in 2023. Here we discuss four such companies, Merck (MRK Quick QuoteMRK - Free Report) , Vertex Pharmaceuticals (VRTX Quick QuoteVRTX - Free Report) , Immunocore Holdings (IMCR Quick QuoteIMCR - Free Report) , and Immunovant (IMVT Quick QuoteIMVT - Free Report) .

Merck

Based in Kenilworth, NJ, Merck boasts more than six blockbuster drugs in its portfolio, with PD-L1 inhibitor, Keytruda, approved for several types of cancer and alone accounting for around 40% of the company’s pharmaceutical sales. An ongoing recovery from the disruptions related to the pandemic and strong global underlying demand across its business, particularly for Keytruda and Gardasil vaccines to prevent HPV-related cancers, are boosting Merck’s sales performance.

Keytruda is continuously growing and expanding into new indications and markets globally. With continued label expansion into new indications & early-stage settings, Keytruda is expected to remain a key top-line driver. Merck’s Animal Health business has been a key contributor to its top-line growth, with the company recording above-market growth. The trend is expected to continue in 2023. Merck boasts a strong cancer pipeline, including Keytruda, which should help drive long-term growth.

Merck’s stock has risen 43.0% this year so far. The Zacks Consensus Estimate for 2022 has risen from $7.31 per share to $7.38 per share while that for 2023 has gone up from $7.21 per share to $7.34 per share over the past 60 days. Merck has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Vertex Pharmaceuticals

Vertex’s main area of focus is cystic fibrosis (CF). With its four CF medicines, Vertex treats the majority of the 83,000 patients living with CF in the United States, Europe, Canada and Australia. Vertex’s CF sales continue to grow driven by its triple therapy, Trikafta/Kaftrio. New reimbursement agreements in ex-U.S. markets and label expansions to younger age groups in the United States are driving Trikafta/Kaftrio sales higher. Vertex faces only minimal competition in its core CF franchise.

While Vertex’s main focus is the development and strengthening of its CF franchise, the company also has a rapidly advancing mid- to late-stage pipeline in seven additional diseases like acute pain, sickle cell disease, beta-thalassemia, APOL1-mediated kidney diseases, alpha-1 antitrypsin deficiency and cell therapy for type I diabetes. Many of these candidates represent multibillion-dollar opportunities. Programs in five disease areas are now entering or progressing through late-stage clinical development. Multiple late-stage projects have established proof of concept. Several data readouts are scheduled for 2023 that can be important catalysts for the stock.

Vertex Pharmaceuticals’ stock has risen 40.4% this year so far. Estimates for Vertex’s 2022 earnings have gone up from $14.21 to $14.65 per share, while that for 2023 have increased from $15.10 to $15.62 per share over the past 60 days. Vertex has a Zacks Rank of 3.

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Immunocore Holdings

Immunocore has made the world’s first soluble TCR therapy, KIMMTRAK, which has been approved for the treatment of unresectable or metastatic uveal melanoma, a rare and aggressive form of melanoma, which affects the eye, in several countries, including the United States. KIMMTRAK has witnessed strong uptake in academic and community treatment centers. Immunocore, also at a recent medical meeting, announced promising clinical data on its first molecule to target the PRAME antigen, IMC-F106C-101.

In July, Immunicore announced a private investment in public equity (“PIPE”) financing with four existing investors for net proceeds of $139.6 million. This PIPE financing, along with the strong commercial performance of KIMMTRAK, boosts the company’s growth prospects.

Immunocore’s stock has risen 73.5% this year so far. Loss estimates for 2022 have narrowed from $1.25 to 54 cents per share, while that for 2023 have improved from $1.69 to 70 cents per share over the past 60 days. Immunocare has a Zacks Rank of 2.

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Immunovant

Immunovant is progressing well with the development of its lead pipeline candidate, batoclimab (formerly IMVT-1401), for the treatment of several types of autoimmune diseases. Immunovant is developing batoclimab, with an initial focus on the treatment of myasthenia gravis, thyroid eye disease and warm autoimmune hemolytic anemia.

The company believes that, if approved, the candidate will become a cornerstone therapy for treating many auto-antibody-driven diseases and would be a unique treatment, different from the currently available ones that are more invasive for advanced immunoglobulin G-mediated autoimmune diseases.

Immunovant’s stock has risen 78.5% this year so far. Loss estimates for 2022 have narrowed from $1.64 to $1.56 per share, while that for 2023 have improved from $1.83 to $1.60 per share over the past 60 days. Immunovant also has Zacks Rank #3.

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