On Dec. 14, the U.S. Food and Drug Administration (FDA) approved AbbVie's (ABBV -1.03%) Rinvoq as a treatment for adult patients with psoriatic arthritis who failed at least one other tumor necrosis factor (TNF) inhibitor. A new indication is always a positive sign for a drugmaker, especially one like AbbVie that is seeking new growth avenues.
What prompted the FDA's approval of Rinvoq for its second indication? And what is the sales potential for the indication? Let's dig into the phase 3 clinical trial results of Rinvoq in treating psoriatic arthritis to answer these questions and decide if AbbVie stock looks like a good buy today.
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Another effective treatment for a debilitating condition
Psoriatic arthritis is an inflammatory condition of the joints, according to the National Psoriasis Foundation. Approximately 30% of patients with the skin condition known as psoriasis eventually develop psoriatic arthritis which can cause symptoms including fatigue, joint pain/swelling/stiffness, and reduced range of joint motion.
Because psoriatic arthritis progressively gets worse without treatment and can cause permanent joint damage, it's important to seek medical treatment for the disease. Similar to other chronic conditions, the best outcomes for patients can be achieved through early diagnosis and the development of a treatment plan with a specialist.
Based on guidelines from the American College of Rheumatology, the first line of treatment for psoriatic arthritis patients is TNF inhibitors like Humira (which is also owned by AbbVie.) However, roughly 20% of psoriatic arthritis patients are not helped by TNF inhibitors.
Fortunately, rheumatologists and psoriatic arthritis patients have a new treatment option in Rinvoq thanks to its FDA approval for the indication. What's behind the agency's decision to give the go-ahead to Rinvoq?
Across the two phase 3 clinical trials, patients receiving 15 milligrams of Rinvoq once daily achieved meaningful improvement in their joint pain and fatigue at a much higher rate than the placebo. Up to 71% of patients taking Rinvoq attained a significant reduction in their joint pain and fatigue at week 12, whereas only up to 36% of patients receiving placebo were able to do so.
A second-line treatment in a massive market
So, Rinvoq has been demonstrated to be a powerful treatment for psoriatic arthritis. But will this create a blockbuster indication for the pharma stock AbbVie?
According to estimates, there are between 1 million to 2 million psoriatic arthritis patients in the U.S., so for the sake of an informal calculation, let's assume there are 1.5 million U.S. patients. And because 20% of psoriatic arthritis patients fail the first-line treatment, that means there are about 300,000 U.S. patients who need a second-line treatment.
There are numerous drugs on the market in the U.S. for psoriatic arthritis, like Amgen's (AMGN -0.19%) Otezla and Enbrel, so Rinvoq will face plenty of competition. Because Janus kinase (JAK) inhibitors like Rinvoq still face the potential of more restrictions from the FDA, I'll conservatively assume that Rinvoq will capture a 7% market share.
This equates to a pool of around 21,000 patients. Rinvoq's annual list price is $63,000, but this is before considering price adjustments negotiated by health insurers. So, let's assume that the net annual list price is $44,000. Using these assumptions, Rinvoq would eclipse $900 million in annual sales but falls a bit short of the $1 billion blockbuster mark.
While this is less than 2% of the $56.2 billion in revenue that analysts are expecting AbbVie will report this year, this scenario would still be huge for Rinvoq. That's because the drug is on pace to record $1.5 billion or so in revenue this year, so a $900 million addition to its annual sales would be a nearly 60% boost.
AbbVie remains an appealing income stock
Even though AbbVie's stock is up 25% in the fourth quarter, it still appears reasonably priced. To this point, AbbVie's forward price-to-earnings ratio of 9.6 is well below the drug manufacturer industry average of 11.4.
ABBV Total Return Level data by YCharts
While value investors wait for AbbVie to experience further capital appreciation, they can sit back and collect a sustainable 4.2% yield. AbbVie's $5.64 in dividends per share that will be paid next year should work out to a 40% dividend payout ratio, which leaves the dividend with plenty of room to grow going forward.
