Novartis (NVS 2.51%) announced earlier this month that the U.S. Food and Drug Administration (FDA) accepted its filing for tislelizumab to treat patients with unresectable recurrent locally advanced or metastatic esophageal squamous cell carcinoma (ESCC), which means that a potential FDA approval could come sometime next year.
The news comes eight months after pharma stock Novartis announced a collaboration deal to pay the Chinese biotech Beigene (BGNE 2.11%) $650 million for commercialization rights of the cancer drug tislelizumab in countries outside of China, including the U.S., EU, and Mexico. The deal also included royalties for tislelizumab sales outside of China, as well as milestone payments to Beigene.
Hearing pharma and FDA filings in the news triggers investors to consider their portfolio holdings. Let's take a look at why an eventual FDA approval could be in the near future for Novartis, and how this could translate into a winning deal for the company and its investors.
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Another effective drug for a terminal disease
The encouraging news for esophageal cancer patients is that there have been a number of advances in treatment in the last few years, which could help to raise survival rates. One of those is Novartis and Beigene's drug tislelizumab.
The phase 3 results from tislelizumab's clinical trial that were announced in June indicate that the drug is quite effective as a monotherapy in treating patients with unresectable recurrent locally advanced or metastatic ESCC. An unresectable and recurrent esophageal cancer is one that isn't able to be surgically removed, which has returned after a period of remission.
Patients receiving tislelizumab as a sole treatment experienced significant improvement in overall survival to a median of 8.6 months compared to just 6.3 months in those receiving chemotherapy. The risk of death in patients receiving tislelizumab was also 30% lower compared to those patients who received chemotherapy treatment.
And not only did tislelizumab prove itself to be effective in extending the lives of patients with unresectable recurrent locally advanced or metastatic ESCC, but it was also better tolerated by patients than chemotherapy.
This was evidenced by the fact that the discontinuation rate of treatment with tislelizumab due to treatment-related adverse events was only 6.7%. That was less than half of the 13.8% discontinuation rate of treatment for chemotherapy, which means more patients can start and stay on tislelizumab to benefit from the efficacy of the treatment.
Simply put, tislelizumab is another option for oncologists to help patients remain on an effective treatment to combat their esophageal cancer.
Potential access to a multi-billion dollar market
Tislelizumab is an excellent treatment option, but what is its true potential in the U.S. esophageal cancer market?
The American Cancer Society estimates that there will be 19,260 new cases of esophageal cancer in the U.S. diagnosed this year. Coupled with the 20% overall five-year survival rate for esophageal cancer, the market of patients with recurrent esophageal cancer is likely at least 20,000.
While it's unclear what the drug will net Novartis per patient if ultimately approved in the U.S., I believe a net annual price of $100,000 per patient should appropriately factor in insurance adjustments and Novartis' royalty payments to Beigene. Considering other cancer treatments like Keytruda for example, yield annual payments ranging from $100,000 to nearly $200,000 per patient, my expectations for tislelizumab are fairly conservative.
Assuming that Novartis can fetch 15% of the esophageal cancer market or 3,000 patients (which seems doable given the efficacy and tolerability of the drug), this would work out to $300 million in potential annual revenue in the U.S. alone from this indication.
While this amount of revenue is a fraction of a percent of analysts' average $51.9 billion 2021 sales estimate for Novartis, the U.S. market for esophageal cancer could be just the beginning for tislelizumab. Overall, I believe the drug has the potential to bring in billions in annual revenue for Novartis.
A pharma giant with a diverse portfolio
Aside from tislelizumab, Novartis has plenty of drugs that are gaining acceptance in the market and are positioned to continue growing in the years ahead.
The company's three top-selling drugs that posted sales growth in the first half of this year accounted for 19.7% of its $25.37 billion in total first-half revenue, which demonstrates that Novartis is a balanced pharma company.
Novartis' top-selling drug, Cosentyx (used to treat plaque psoriasis and psoriatic arthritis), saw its first-half sales climb 18.9% year over year from $1.87 billion last year to $2.23 billion this year.
The second-highest-grossing drug that grew in the first half is Entresto (used to treat adults with chronic heart failure). Entresto generated 45.8% year-over-year growth from $1.15 billion in first-half revenue last year to $1.68 billion this year.
Finally, Novartis' third best-selling growing drug is Lucentis (used to treat wet age-related macular degeneration -- a chronic eye disorder-- and diabetic retinopathy). Lucentis produced 23.4% year-over-year growth in its first-half revenue from $888 million last year to $1.10 billion this year.
This robust portfolio of drugs is why analysts are forecasting that Novartis will grow its earnings per share by nearly 8% annually over the next five years.
Considering this growth profile, and that at $83 a share Novartis is trading at only 13 times this year's earnings, Novartis is a reasonably priced large-cap pharma stock.
