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What AbbVie's Recent Drug News Means for Shareholders

By Kody Kester – Dec 28, 2021 at 6:27AM

Key Points

  • Skyrizi was demonstrated to be quite effective in treating Crohn's disease patients in phase 3 clinical trials.
  • If approved, Skyrizi would gain access to hundreds of thousands of patients in the EU.
  • AbbVie's valuation and yield are attractive for value and income investors alike.

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AbbVie's immunology drug Skyrizi could soon be approved in the European Union to treat patients with Crohn's disease.

At the end of last month, AbbVie (ABBV -0.36%) informed shareholders that it had submitted its application for Skyrizi to the European Medicines Agency (EMA) to treat patients aged 16 and older diagnosed with moderate to severe Crohn's disease.

But if Crohn's is approved as a third indication for the drug in the European Union, what is Skyrizi's sales potential in that market? To answer that question, let's go over the phase 3 clinical trial results and assess the addressable market.

A patient attends an appointment with a doctor.

Image source: Getty Images.

Skyrizi could be an impactful treatment

According to Healthline, Crohn's disease is an inflammatory bowel disease that results in inflammation within the digestive tract. Although the disease can affect any part of the digestive tract, inflammation most often occurs in the small intestine and colon. The symptoms of Crohn's disease can include fatigue, weight loss, and abdominal cramps.

As is the case with other medical conditions, early detection and diagnosis can help patients minimize their chances of adverse complications and live fulfilling lives. Treatments can range from anti-inflammatory drugs for mild disease to biologics for patients with more severe disease.

Skyrizi is one biologic that could effectively treat patients with moderate to severe Crohn's disease, as shown by the data from its phase 3 clinical trials. Patients receiving two starter doses of 600 milligrams or 1200 mg of Skyrizi via injection achieved clinical remission of their Crohn's disease at a much higher rate than patients receiving placebo. 

At week 12 after initial dosing, the Skyrizi groups achieved clinical remission at rates of 41% to 45% across the two clinical trials and two different dosing groups of 600 mg and 1200 mg. This was significantly higher than the 19% and 25% clinical remission rates among the placebo groups at the 12-week mark across the two clinical trials.

A significant market opportunity

With a decision on Skyrizi's Crohn's disease application in the EU likely just months away, the question becomes: If the indication is approved based on clinical trial results, what financial impact would this have on AbbVie as a pharma stock?

First, let's determine the overall patient population in the EU with Crohn's disease. Based on its estimated 0.32% prevalence and the EU population of 447.7 million, there are approximately 1.4 million Crohn's patients living in the EU.

But how many of those patients have moderate to severe disease activity? If 10% to 30% of patients have moderate to severe disease, then splitting those estimates down the middle at 20%, there are roughly 280,000 patients in this category.

In a fragmented market with other drugs like Johnson & Johnson's Stelara and Remicade also approved to treat Crohn's disease, I believe a reasonable estimate for Skyrizi's patient share would be 10%. If approved, this works out to around 28,000 patients for Skyrizi's Crohn's indication.

What's a reasonable estimate of how much the drug would generate per patient? Well, Skyrizi's annual list price in the U.S. is $68,000. But given that most patients have health insurance of some kind, this amount is often negotiated lower by insurance companies. This means that it's very rare for patients and insurers to pay the full list price, so let's assume that the actual net price between patients and insurers after insurance adjustments is $40,000. And since the cost of drugs in the EU averages half of what it is in the U.S., let's use an annual net price of $20,000 per patient.

Using these figures, we can estimate annual peak sales of $560 million for this indication alone. This is only 1% of the $56.2 billion in revenue expected this year for AbbVie, although it would be a notable boost to Skyrizi -- which is on track to generate $2.8 billion in revenue this year. And with dozens of other indications at various phases of clinical development within its pipeline, AbbVie appears positioned to quickly bounce back from Humira's U.S. patent expiration in 2023.

AbbVie is still attractively valued for income investors

Since AbbVie's stock is up 21% year to date, you may be wondering whether it is still a buy. Let's take a look at AbbVie's valuation relative to its industry and the stock's dividend payout ratio to find out.

At its current $132 share price, AbbVie is trading at a forward price-to-earnings (P/E) ratio of 9.3. This is well below the general drugmaker industry average of 11.1.

And as AbbVie continues to build a post-Humira future, income investors can collect a well-covered dividend, with a yield now at 4.3%. Based on AbbVie's $5.20 in dividends per share that it paid in 2021, the stock's payout ratio will be a sustainable 41.1% for this year.

AbbVie's undervaluation, safe dividend, and solid yield all make the stock a great pick for both value- and yield-oriented investors.

Kody Kester owns AbbVie and Johnson & Johnson. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.

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