Late last December, Amgen (AMGN 0.22%) announced that the U.S. Food and Drug Administration (FDA) had expanded Otezla's approval from moderate to severe plaque psoriasis to include mild to moderate cases.
What prompted the FDA to expand Otezla's plaque psoriasis indication? And what will this label expansion contribute to the pharma company's revenue? Let's dive into Otezla's phase 3 clinical trial results and its potential addressable market to answer these questions.
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The first and only oral therapy for all severities
Paraphrasing Healthline, plaque psoriasis is a chronic condition that results in red and itchy skin due to the body producing new skin cells too quickly. The severity of plaque psoriasis is determined by how much of the body's surface area is affected by the disease.
Mildly severe cases of the condition cover less than 3% of the body's surface area. Moderate occurrence of the disease is considered as affecting between 3% and 10% of the body's surface area. Finally, severe cases of the condition cover more than 10% of the body's surface area.
Plaque psoriasis can significantly interfere with a patient's quality of life. Since nearly 40% of plaque psoriasis patients with mild disease report dissatisfaction with their current treatment, there is a considerable need for more effective therapies.
One of those treatments that could soon make a difference for many patients is Otezla. But what played into the FDA's expanded indication for Otezla?
Amgen conducted a phase 3 clinical trial to determine the safety and efficacy of Otezla in patients with mild to moderate plaque psoriasis. The study randomized 595 enrolled patients to receive 30 milligrams twice daily of oral Otezla or a placebo.
Among the patients taking Otezla, 43.2% achieved Whole Body Itch NRS response at week 16 of treatment. This was significantly higher than the 18.6% of patients receiving a placebo that attained Whole Body Itch NRS response at week 16, which demonstrates the potency of Otezla in treating mild to moderate plaque psoriasis.
The Whole Body Itch NRS is a scale on which patients rate the severity of their whole body itching with an 11-point scale ranging from no itching (0) to the worst itch imaginable (10). Healthcare providers can use this as a clinical tool to help determine the extent of a treatment's effectiveness.
Otezla's efficacy as an all-around treatment for plaque psoriasis is what allowed it to become the first and only oral therapy approved in adult patients for all severities.
A potentially huge indication
Otezla is proving itself to be a game-changing plaque psoriasis treatment. How much will shareholders benefit from this label expansion?
It's estimated that 5 million patients in the U.S. have mild to moderate plaque psoriasis, with nearly 40% of these patients unhappy with their current treatment plan. That opens up Otezla to a potential market of nearly 2 million patients. I'll go with the 1.5 million figure that Amgen's executive vice president of global commercial operations Murdo Gordon cited in the company's recent earnings call.
Biologics are typically reserved for patients who haven't responded to cheaper treatment options such as home phototherapy, oral agents like methotrexate, and topicals. This is why I will assume that Otezla could capture 2% of mild to moderate plaque psoriasis patients who are unsatisfied with their current treatment, which works out to 30,000 patients.
Next are the cost considerations for the drug. Otezla's annual list price is $47,000, but most patients don't pay anywhere near that amount. Health insurers have negotiating power with big pharma companies, which lowers the costs paid by both health insurers and patients. Thus, I will use a net annual price of $24,000.
This equates to just over $700 million in annual sales potential for Otezla's expanded plaque psoriasis indication. This is less than 3% of the $26 billion in sales that analysts are forecasting for Amgen in 2022. However, this is a 30% boost compared to the $2.1 billion in sales that Otezla is on track to generate in 2022.
The stock is a buy for income investors
Amgen can provide yield-hungry investors with an appetizing 3.4% dividend yield, which is nearly triple the S&P 500's 1.2% yield. Investors can scoop up Amgen's enticing payout at a forward price-to-earnings ratio of 12.5. This is a relatively cheap valuation considering that Amgen's pipeline of dozens of potential indications in clinical trials is expected to lead to 6% annual earnings growth over the next five years. That's why income investors should strongly consider buying Amgen's stock at the current $225 share price.
