In late November, the U.S. Food and Drug Administration (FDA) announced that it accepted Bristol Myers Squibb's (BMY 1.30%) New Drug Application for deucravacitinib as a treatment for patients with moderate-to-severe psoriasis.
With the FDA targeting a decision on deucravacitinib in September 2022, let's dive into the drug's efficacy and sales potential if approved.
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Clinical results that beat out Otezla
Paraphrasing the Mayo Clinic, psoriasis is a skin disease that results in red and itchy patches, especially on the knees, elbows, and scalp. The symptoms of psoriasis can include swollen and stiff joints, dry and cracked skin, and itching and burning skin.
Psoriasis can range from mild to severe in nature. Using the Psoriasis Area and Severity Index (PASI), the extent of the disease is measured by the surface area and severity for six regions of the body. PASI scores range from 0 to 72, according to WebMD. A PASI score greater than 10 is generally a moderate-to-severe case of psoriasis.
The first-line treatment for psoriasis is usually topical treatments. However, patients don't often comply for various reasons, which is evidenced by 50% to 70% compliance rates for topical treatments. If patients don't adequately respond to topical treatments, those medications are often discontinued or another treatment is added.
Deucravacitinib is one investigational drug that could soon become a part of many treatment regimens for patients struggling to manage their psoriasis. Bristol Myers Squibb enrolled nearly 1,700 moderate-to-severe psoriasis patients into two phase 3 clinical trials to examine the efficacy of deucravacitinib against placebo and Amgen's (AMGN 2.35%) blockbuster psoriasis and psoriatic arthritis drug Otezla. Half of the patients enrolled in the studies were randomized to receive 6 milligrams of deucravacitinib once daily, whereas the other half received either a placebo or 30 milligrams of Otezla twice daily.
Up to 59% of patients taking deucravacitinib achieved PASI 75 at week 16. This was significantly higher than the 40% rate for those receiving Otezla and nearly 13% of those taking a placebo. For context, PASI 75 means that a psoriasis patient's PASI score was reduced by at least 75%. The PASI score is calculated by accounting for a patient's PASI score both before and during treatment.
Significant sales potential
Deucravacitinib demonstrated itself to be a highly effective treatment for moderate-to-severe psoriasis patients. But how much would a potential moderate-to-severe psoriasis indication mean for pharma stock Bristol Myers Squibb in terms of annual revenue if approved?
First, there are roughly 7.4 million adults in the U.S. with psoriasis. What's more, it's estimated that about 20% of those patients have moderate-to-severe disease, which works out to nearly 1.5 million patients. Next, I'll assume that 30% of patients with moderate to severe disease aren't adequately controlling their condition. So, Bristol Myers Squibb's potential patient population is realistically around 450,000.
Because the market is flush with psoriasis treatments like Johnson & Johnson's (JNJ 1.49%) Tremfya, AbbVie's (ABBV 1.06%) Humira, and Amgen's Otezla, I expect that deucravacitinib will achieve a 6% patient share. This equates to 27,000 patients.
While pricing information for deucravacitinib won't be available until after it is likely approved by the FDA, I'll use Otezla's $47,000 annual list price as a guide. Because health insurers negotiate this amount significantly lower, I'll assume an annual net price of $25,000 per patient.
This works out to almost $700 million in additional annual sales for Bristol Myers Squibb. By itself, this is less than 2% of the company's projected $46.5 billion in sales. But with deucravacitinib in clinical trials for inflammatory bowel disease and psoriatic arthritis, Bristol Myers Squibb anticipates that the drug will reach peak annual sales of $4 billion.
A top-notch income stock at an attractive valuation
Bristol Myers Squibb is up 14% in the past month, which raises the following question: Should income investors buy the stock?
The stock trades at a forward P/E ratio of only 7.9, which appears to be an appealing price considering that analysts are forecasting 6% annual non-GAAP earnings per share (EPS) growth over the next five years.
And the stock offers investors a well-covered, market-topping 3.5% dividend yield. Bristol Myers Squibb's high yield, decent growth prospects, and cheap valuation make it a stock that income investors should consider buying for their portfolios.
