Earlier this month, AbbVie (ABBV 0.54%) completed its application to the U.S. Food and Drug Administration (FDA) for Rinvoq to treat adults with a back arthritis (known as non-radiographic axial spondyloarthritis) who previously tried nonsteroidal anti-inflammatory drugs (NSAIDs) but did not benefit.
If eventually approved by the FDA, this would be the fourth approved indication in the U.S. for Rinvoq. Let's take a look at Rinvoq's efficacy in treating patients with this form of back arthritis and the sales potential of the indication for pharma stock AbbVie.
Image source: Getty Images.
A potentially life-changing treatment option
Non-radiographic axial spondyloarthritis is a type of arthritis in the spine that leads to inflammation. The condition often leads to symptoms such as weakness and fatigue, as well as joint stiffness and swelling. While patients experience joint pain, X-rays don't display any damage to the joints.
However, the body's joints can be harmed if the disease progresses and some patients develop the more debilitating condition known as ankylosing spondylitis. It's estimated that approximately 30% of patients eventually get ankylosing spondylitis. This is what makes it especially important for the back arthritis to be promptly diagnosed and treated.
Unfortunately, 20% to 30% of patients who receive the first-line treatment of NSAIDs don't experience meaningful improvement. That's when other treatments like biologics are typically prescribed, which is where Rinvoq could make a huge difference in the lives of patients. What data backs this up?
Patients with the disease were randomized to receive either 15 milligrams of Rinvoq once daily or a placebo over 14 weeks. In phase 3 clinical trials, a far greater proportion of patients taking Rinvoq achieved significant improvement in their condition compared to patients receiving a placebo. In fact, 45% of patients taking Rinvoq experienced meaningful improvement in their condition at week 14, which was nearly double the 23% rate of patients receiving a placebo at week 14.
A slight revenue bump for AbbVie
Rinvoq looks to be an effective treatment for this type of back arthritis. So, what will that mean for AbbVie's sales if the indication is approved by the FDA?
First of all, it's estimated that 0.35% of people in the U.S. have this specific condition. Since there are 258.3 million adults living in the U.S., we could assume there's a patient population in the ballpark of 900,000. Accounting for the fact that around 20% of patients do not see benefit from NSAIDs, this is equivalent to a Rinvoq eligible patient population of 180,000.
There are a variety of drugs on the market to treat the condition like Eli Lilly's (LLY -0.54%) Taltz and Novartis' (NVS -1.28%) Cosentyx. These two drugs work by blocking immune system proteins called interleukin 17 (IL-17) that are thought to potentially lead to inflammation.
No single drug class is always successful in treating the condition, and Rinvoq has the advantage of being a pill rather than an injectable. This makes up for the fact that Rinvoq was recently required by the FDA to put a warning label on its product. The rationale for the label warning requirement stems from Rinvoq being part of the Janus kinase (JAK) inhibitor drug class, which are thought to come with increased risk for serious heart-related events, cancer, and blood clots. Even so, I believe the drug can carve out its own 8% share of the overall U.S. market -- roughly 14,400 patients.
Rinvoq's annual list price in the U.S. is $63,000. But because of patient assistance programs and price negotiations with health insurance companies, I'll assume a net annual price of $35,000 per patient. My assumptions imply that a non-radiographic axial spondyloarthritis indication in the U.S. would generate $500 million in annual revenue for AbbVie.
Stacked up against the $56 billion in revenue that analysts are expecting from AbbVie in 2021, this works out to 0.9% of total sales. But given that Rinvoq will produce around $1.5 billion in 2021 revenue, a $500 million boost would be huge for the drug.
AbbVie is still fairly priced
AbbVie's stock is up 20% over the past year. But even with that being the case, the argument can still be made that the stock is rationally priced for income investors to add to their portfolio. That's because AbbVie's forward price-to-earnings (P/E) ratio is just 9.7, which is an appealing valuation for a stock that analysts believe will generate 5% annual earnings growth over the next five years. This is even considering the temporary sales drop-off that will occur next year when AbbVie's top-selling drug Humira begins to face biosimilar competition in the U.S.
AbbVie offers investors a safe and market-beating 4.2% dividend yield at a reasonable valuation, which makes it a solid dividend growth stock to buy right now.
