Healthcare companies are spending big on developing treatments for inflammatory bowel disease (IBD), which consists of either Crohn's disease or ulcerative colitis (UC), or both. The lure for IBD treatments is that there's no known cure for IBD, and it affects as many as 1.6 million people in the U.S., according to data from Johns Hopkins Medicine.

The autoimmune disorder, which can lead to colon cancer, appears to have a genetic component, and companies are trying a variety of treatments for the disease, from 5-aminosalicyclic acids, immunomodulators, corticosteroids, and biologics.

Any pharmaceutical company that can come up with an effective IBD drug stands to benefit greatly, particularly since such a therapy would likely show promise toward treating other autoimmune disorders. Roche (RHHBY 0.77%), Pfizer (PFE 0.55%), and Eli Lilly (LLY 1.19%) are all focusing on the disorder. Thanks to their IBD therapies, which is the best buy?

Roche taking a big leap of faith

On Oct. 23, Roche announced that it was spending $7.1 billion, plus a milestone payment of $150 million, to buy Telavant Holdings, one of several Roivant Sciences companies, because of Telavant's promising IBD therapy, RVT-3101.

In January, Roivant released data on RVT-3101's phase 3 trial that showed it had a strong safety profile and was effective in treating ulcerative colitis. Looking at the patients treated with the therapy, 32% showed clinical remission of UC, and endoscopic improvement rates were 40%. The drug is also in a phase 2 trial to treat Crohn's disease.

Roche pharmaceutical division chief Teresa Graham, in an interview with The Wall Street Journal, said Roche would quickly move the drug into worldwide phase 3 trials, leaving open the possibility that the drug could be approved in 2024. "This is a $15 billion market just in the U.S. and that's just in [IBD]," Graham said. "This molecule clearly has megablockbuster potential."

Roche's shares are down 16% so far this year, and the news of the deal didn't help the stock by much. However, the company is in a strong position to develop the drug. Through the first nine months of 2023, Roche's revenue was down 6% year over year. However, that's because sales of the company's COVID-19 therapies continue to decline. In two quarters, though, that comparison will go away, the company said.

Roche has been busy on other fronts, too. Led by Ocrevus, the company says it has a 24% share in the multiple sclerosis market. The company also has a relatively young pipeline that has been delivering this year with several key approvals.

In Europe, Hemlibra was approved for moderate hemophilia A, and Xofluza was approved to treat influenza. In the U.S., Polivy was approved by the Food and Drug Administration (FDA) as a combination therapy to treat diffuse large-cell lymphoma (DLBCL), Vabysmo was approved to treat retinal vein occlusion, and anti-PD-(L)1 cancer immunotherapy Tecentriq was approved in a subcutaneous form. Also, Columvi was approved to treat DLBCL in Europe and the U.S.

Pfizer may have a replacement for Xeljanz

Pfizer, even more so than Roche, has seen its revenue decline thanks to lower COVID-19-related sales. Through the first half of the year, the company reported revenue of $31 billion, down 42% year over year, and earnings per share (EPS) of $1.38, down 56% over the same period last year. Not surprisingly, considering its financials, the stock is down more than 40% this year.

Pfizer needs new approvals to halt the reversal, and on Oct. 13, it announced that the FDA had approved Velsipity as an oral pill to treat adults with moderate to severe active UC. That could give the company an edge as the pill is an option for patients who don't respond well to, or would rather not have, an injection of a biologic drug or steroid.

Like Roche, Pfizer paid for its therapy, spending $6.7 billion last year to buy Arena Pharmaceuticals, which had developed Velsipity. That move could pay off rather quickly, with Pfizer saying it intends to charge $6,164 for a 30-day wholesale supply of the drug. One analyst put the value of Velsipity at $2.2 billion a year in risk-adjusted sales by 2030, and that's probably not a stretch.

Pfizer already has Xeljanz, which is approved to treat UC, among other autoimmune disorders, but it is in the class of JAK inhibitors, which are seen as having more side effects. Plus, Xeljanz is facing a patent cliff by the end of the decade and is already seeing declining sales. Even so, Xeljanz brought in $1.8 billion last year in revenue, down 27% over the year before.

Lilly prepares to launch new IBD therapy

Eli Lilly is in a much stronger financial position than Roche or Pfizer. The stock is up more than 60% this year, buoyed by strong financials, thanks mainly to increased sales of Mounjaro, its diabetes therapy that is also being prescribed off-label for weight loss.

Through six months, the company reported revenue of $15.3 billion, up 7%, year over year. The company also updated guidance to say it expects yearly EPS of between $9.20 and $9.40, compared to $6.90 last year.

One thing that Lilly didn't have until recently is a blockbuster IBD therapy, but mirikizumab will likely change that situation. The investigational monoclonal antibody met all its primary and secondary endpoints in a phase 3 trial to treat adults with moderate to severely active Crohn's disease.

The company is looking for FDA approval early next year for mirikizumab as a Crohn's disease treatment. The drug, approved as a UC therapy in Japan and Europe, ran into a roadblock in the U.S. in April when the FDA issued a complete response letter regarding its biologics license application as a UC treatment. The concerns raised regarded the manufacturing of the drug, though, not its safety or efficacy, so Lilly is expected to resubmit its application.

Making a choice

Of the three stocks, Pfizer has the lowest price-to-earnings ratio of around 8. However, the company really needs an IBD win because the stock has the riskiest profile of the three due to its declining earnings.

Lilly, regardless of its potential IBD therapy, would be a slam dunk because, even with competition on the way from other diabetes and weight-loss therapies, its revenue will likely climb next year. However, it is trading at roughly 82 times earnings, so the stock may be priced a bit too high.

Roche makes the best sense right now as an investment. It's trading at less than 18 times earnings and will likely return to revenue growth in 2023. At $7.1 billion, its purchase of Televant could be a steal if RVT-3101 is approved.