AbbVie (ABBV 1.77%) recently announced that its immunology drug Rinvoq had received approval from the European Commission (EC) to treat adolescent and adult patients with moderate-to-severe atopic dermatitis -- commonly known as eczema -- in the European Union (EU).

The decision comes just two months after a recommendation by the European Medicines Agency and it marks Rinvoq's fourth approval in the EU. It was previously approved to treat rheumatoid arthritis, psoriatic arthritis, and ankylosing spondylitis (an arthritis of the spine and joints).

This could be positive news on multiple fronts for both patients and AbbVie shareholders. Let's look at the data that prompted the EC's approval of Rinvoq, what it could mean for the upcoming regulatory decision by the U.S. Food and Drug Administration (FDA), and the drug's revenue potential ahead.

A patient meets with their doctor for an appointment.

Image source: Getty Images.

An effective treatment for an uncomfortable condition

Eczema is an immune disease that causes skin inflammation and itching. This uncomfortable condition is estimated to affect 4.4% to 7.1% of Europeans. That's tens of millions of people. And nearly half (46%) report a moderate-to-severe level of this condition, which carries the burden of increased itch, sleep disturbances, depression, anxiety, and impaired productivity.

Add in that many patients with moderate-to-severe cases aren't able to adequately control it with existing treatments, and it becomes clear that additional treatments are needed.

This is where Rinvoq could come in and provide relief. Known as a Janus kinase (JAK) inhibitor, Rinvoq works by slowing the activity and response of Janus kinase proteins. Too many signals from them are what is thought to lead to the persistent inflammation observed in autoimmune diseases such as eczema.

To assess the severity of a patient's condition, medical professionals use the Eczema Area and Severity Index (EASI). This system looks at the size and severity of the disease in a patient (based on redness and other factors) before and during treatment. The higher the reduction in the EASI, the better a drug is doing in treating a person's eczema.

Rinvoq beat Sanofi (SNY 1.53%) and Regeneron's (REGN 0.50%) top-selling eczema drug Dupixent in a head-to-head Phase 3b study. At week 16, 71% of patients receiving 30 milligrams daily of Rinvoq achieved at least 75% skin clearance compared to 61% of patients receiving the recommended initial dose of 600 milligrams of Dupixent followed by 300 milligrams every other week.  

A boost to a growing drug could be just the beginning

So what could this label expansion in the EU mean for AbbVie? Well, even prior to the EC's approval of Rinvoq for the treatment of eczema, Rinvoq was growing like a weed with sales in the first half of this year nearly tripling to $681 million from the same period in 2020. This was driven by EC approvals for psoriatic arthritis and ankylosing spondylitis earlier this year as well as an increased share in key rheumatoid arthritis markets.

And now with its latest approval, Rinvoq becomes the first JAK inhibitor available in the EU for moderate-to-severe eczema. That could help cause other major regulators to follow suit. AbbVie expects the FDA to decide on Rinvoq's pending psoriatic arthritis and eczema applications in "the next few months following completion of the agency's review of the tofacitinib oral surveillance data," said Vice Chairman Mike Severino in the company's Q2 2021 earnings call.

The FDA is reviewing Pfizer's (PFE 1.63%) tofacitinib -- a JAK inhibitor known as Xeljanz -- after results from a study earlier this year found an increased risk of major adverse cardiac events and cancer. The FDA is also now requiring a warning box for such JAK inhibitors as Rinvoq, Xeljanz, and Eli Lilly's (LLY -2.10%) Olumiant due to these increased risks. Since that news, AbbVie's stock is down about 10%.

While the financial markets have expressed concern over this requirement, it doesn't necessarily mean that Rinvoq's great potential is doomed. Even though patients will have to fail one other therapy before using Rinvoq, there's reason to believe the efficacy of the drug (especially in treating eczema) can continue to overcome this obstacle.

Prior to the FDA's warning requirement, FiercePharma notes that doctors were already reserving JAK inhibitors for patients who had failed therapy with at least one other TNF inhibitor (the drug class used to stop inflammation in patients with conditions such as rheumatoid arthritis and psoriatic arthritis).

With the market for eczema in Europe forecast to grow 13.6% annually to $6.8 billion in 2026, I believe Rinvoq's latest label expansion will bring it close to blockbuster status. Based on Rinvoq's efficacy profile compared to the industry-leading Dupixent, I think it's fair to assume that the drug could capture 10% of the total eczema market share in Europe by 2026.

This would lead to an additional $680 million in annual revenue for Rinvoq by 2026, which would amount to just over 1% of analysts' average forecast of $56.4 billion in revenue for AbbVie this year.

A steady high yielder

So even with recent news that the FDA will require updated warnings from JAK inhibitors, the EC's approval of Rinvoq for several additional indications this year bodes well for pharma stock AbbVie.

With a price-to-sales ratio of 3.69, below its historical median of 4.09, and a 4.7% dividend yield, AbbVie looks to be a good buy for income- and value-oriented investors.