Recently, AstraZeneca (AZN +0.00%) announced what could be very positive regulatory news for one of its rare disease drugs. The pharma stock informed shareholders that the U.S. Food and Drug Administration (FDA) accepted the regulatory submission under priority review for Ultomiris to treat adults diagnosed with the rare condition called generalized myasthenia gravis (gMG).
With the FDA targeting a decision on the drug during the second quarter of this year, let's dig into the efficacy of Ultomiris and its sales potential.
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Another breakthrough treatment for a devastating condition
According to AstraZeneca, gMG is an autoimmune disease, which damages the connection point between the nerve cells and the muscles that they control. In later stages of the disease, this often results in symptoms such as severe muscle weakness, extreme fatigue, and episodes of respiratory failure. Earlier stage symptoms include slurred speech, droopy eyelids, and lack of balance.
Because gMG is a progressive condition, it is of utmost importance that patients are diagnosed as soon as possible to prevent further deterioration in their prognosis. Alexion Pharmaceuticals, which AstraZeneca acquired last July, developed Soliris, the first treatment for gMG in 60 years. It is also conducting the clinical research for Ultomiris.
According to Alexion's CEO Marc Dunoyer, Ultomiris has especially demonstrated efficacy in treating gMG patients with "milder symptoms or those who are earlier in their treatment journey." This makes it a complementary drug that builds on Soliris' progress in helping the community of gMG patients to live a higher quality of life.
Alexion enrolled 175 patients in its Phase 3 clinical trial with a confirmed diagnosis of myasthenia gravis at least six months before their screening and a Myasthenia Gravis-Activities of Daily Living Profile (MG-ADL) of at least six at study entry. Patients in the clinical trial were evenly randomized to receive either placebo or the loading dose of Ultomiris and maintenance doses every eight weeks thereafter beginning on Day 15.
The MG-ADL is an eight-item scale reported by the patient to determine the impact of their condition on daily activities. A meaningful reduction reported in the MG-ADL from pre-treatment baseline to treatment would indicate that the treatment was effective. Patients receiving Ultomiris reported an average 3.1 point reduction on the MG-ADL compared to a 1.6 point decrease among those taking placebo through Week 26, which is a testament to the potency of Ultomiris as a treatment for gMG.
The addressable market is large
Ultomiris has proven itself to be an effective drug for gMG patients. But how much of an impact will it have on AstraZeneca's financial results if approved?
There are an estimated 64,000 gMG patients in the U.S. Since there are few drugs on the market for gMG, I believe that the drug can add roughly 10% of that patient share on top of the existing base for Soliris. This is because Ultomiris will be targeted more toward mild cases of the disease. This works out to an additional 6,400 patients.
The annual list price for Ultomiris is around $460,000. Because patient assistance programs and health insurers significantly reduce these prices, let's assume an annual net price at about one-third of the list price -- $160,000. This would equate to just over $1 billion in annual revenue potential for a gMG Ultomiris indication.
For context, Ultomiris generated nearly $300 million in revenue for AstraZeneca in Q3 2021, the first quarter that AstraZeneca owned Alexion. This revenue was derived from two rare disease indications for Paroxysmal Nocturnal Hemoglobinuria (PNH) and atypical Hemolytic Uremic Syndrome (aHUS). Thus, an approval for gMG in the U.S. could effectively double the revenue base for the drug. Even for a company like AstraZeneca that will report about $36.3 billion in revenue in 2021, this is a potentially huge indication.
An enticing growth stock to buy
The 175 projects in AstraZeneca's pipeline have analysts confident that the company can deliver 20% annual earnings growth in the next five years. Against the P/E ratio of 18 based on the $3.22 earnings per share (EPS) estimate for 2021, this is an attractive price to pay for the stock's growth prospects. If that weren't enough, AstraZeneca also offers investors a market-beating 2.4% dividend yield. Overall, the stock looks like a tempting buy for investors looking for both income and growth at a more than reasonable valuation.
