Returns as of 02/18/2022
Returns as of 02/18/2022
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AbbVie ( ABBV -0.65% ) has taken an important step toward replacing the revenue decline that will result from Humira’s patent protection expiration in the U.S. next year.
That step is approval from the U.S. Food and Drug Administration (FDA) to use AbbVie’s Skyrizi to treat patients with active psoriatic arthritis, a disease that impacts around 1.5 million Americans.
Let’s dive into the phase 3 clinical trial results for Skyrizi and the U.S. psoriatic arthritis market to get a feel for how valuable this approval could be for AbbVie.
Image source: Getty Images.
Psoriatic arthritis is a type of inflammatory arthritis that occurs when the immune system attacks healthy tissue. This can cause joint pain, stiff joints, and fatigue. If psoriatic arthritis is left untreated for long enough, the condition can result in irreversible joint damage.
One treatment option that could now make a difference in the lives of countless psoriatic arthritis patients is Skyrizi, which works by controlling the release of interleukin-23 (IL-23) proteins, a different method than other drugs on the market.
AbbVie conducted two phase 3 clinical trials with patients who weren’t able to achieve meaningful improvement or were unable to tolerate biologic therapies or non-biologic disease-modifying anti-rheumatic drugs. Tumor necrosis factor (TNF) inhibitors like AbbVie’s blockbuster Humira are often the first-line therapy for psoriatic arthritis patients. While this drug class is highly effective in treating patients, it doesn’t work for everyone. In fact, 19% of patients on TNF inhibitors don’t greatly benefit from taking them. Those patients could benefit from Skyrizi.
Up to 57% of patients taking Skyrizi experienced at least a 20% improvement in their tender/swollen joint count and pain scale at week 24. This was statistically superior to the 34% of patients receiving placebo who experienced similar levels of improvement.
The maximum rate of serious adverse events in patients taking Skyrizi across both clinical trials was just 4%, which was lower than the placebo rate of 5.5%. This demonstrates Skyrizi to be safe and effective.
Since Skyrizi will mostly be prescribed to patients who didn’t experience improvement on TNF inhibitors, I think the drug’s biggest strength is its safety profile. Unlike Janus kinase (JAK) inhibitors like Pfizer‘s (NYSE: PFE) Xeljanz and Eli Lilly‘s (NYSE: LLY) Olumiant, which come with increased risk of heart attack, cancer, and blood clots, Skyrizi hasn’t been found to elevate the risks of these events. That should allow Skyrizi to be prescribed ahead of JAK inhibitors, which will lead to greater market share.
Sykrizi looks like it will be a game-changer for many psoriatic arthritis patients. But how much of a growth catalyst could the indication be for AbbVie?
The Johns Hopkins Arthritis Center estimates that psoriatic arthritis impacts around 1.5 million Americans. If you consider that 19% of psoriatic arthritis patients don’t benefit from TNF inhibitors, that would put approximately 285,000 patients in a group that need alternative treatments.
Due to Skyrizi’s exceptional safety profile and efficacy, my guess is that the drug can seize 10% of the market or about 28,500 psoriatic arthritis patients in a base-case scenario. Skyrizi has an annual list price of $73,000. Negotiations with health insurance companies and drug assistance programs for eligible patients mean that the net price will be significantly cheaper than the list price. I estimate the annual net price could be $40,000 per patient. Below is a range of market shares using that $40,000 that demonstrates the blockbuster potential of the drug.
My estimate of 10% market share at $40,000 annual cost would lead to over $1.1 billion in annual sales potential for Skyrizi. Against the $60.3 billion in sales analysts expect for AbbVie this year, this would be a 1.9% bump in total revenue. For Skyrizi, $1.1 billion in additional sales would be a nearly 40% boost over the $2.9 billion in revenue that the drug generated last year.
Skyrizi’s psoriatic arthritis indication could be a slight growth catalyst for AbbVie as a whole. But it will be a huge boost for the the drug since it is Skyrizi’s second approved indication.
Aside from Skyrizi, AbbVie has dozens of drug indications that are in different stages of development. AbbVie’s next-generation immunology drugs Skyrizi and Rinvoq each have indications for Crohn’s Disease and ulcerative colitis that are either in phase 3 clinical trials or that have already been submitted to regulatory authorities.
Approval could add up to billions of dollars in annual sales and could be approved this year or next year. Thanks to recent regulatory approvals and more that are expected to come, AbbVie believes that Skyrizi and Rinvoq will generate more than $15 billion in combined sales by 2025. This would be more than triple the $4.59 billion in combined sales that the two drugs produced last year. Factoring in a 50%, or nearly $9 billion, decline in Humira’s U.S. sales by 2025 from biosimilar drug competition starting next year, Skyrizi and Rinvoq should be enough to replace the revenue loss from Humira. Analysts are expecting 4% annual earnings growth over last year in the next five years.
AbbVie’s 41% dividend payout ratio last year and decent growth prospects should lead to strong dividend growth in the future and investors can get AbbVie’s 4% dividend yield at a current price-to-earnings ratio of 10. This makes AbbVie a stock to consider buying right now.
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