Earlier this month, Pfizer (PFE +1.12%) announced a deal with Biohaven Pharmaceutical (BHVN +0.00%), paying it $500 million ($150 million in cash and $350 million for a 3% stake in Biohaven) in exchange for the rights to market and commercialize two of Biohaven's migraine drugs outside of the United States.
Those medications are rimegepant (approved as Nurtec orally disintegrating tablets, or ODT) and zavegepant (not yet approved). Pfizer will also pay double-digit royalties to Biohaven on Nurtec ODT as well as up to $740 million based on future milestones.
But was this a good move for the pharma stock Pfizer? Let's focus specifically on Nurtec ODT's efficacy in treating migraine patients and the sales potential outside the U.S. for Pfizer to address this question.
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Nurtec is a revolutionary treatment for a difficult condition
Having migraines is a neurological condition that typically results in moderate to severe, throbbing or pulsating headaches. The symptoms can also include nausea, vomiting, and sensitivity to light and sound. These symptoms can last for anywhere from several hours to several days and can be a significant detriment to a patient's quality of life.
Migraines are estimated to affect approximately 1 billion people worldwide, which makes this the third-most common illness in the world. Migraines have two categories, which are acute (or episodic) or chronic. Acute migraines are defined as 14 or fewer migraine days each month whereas chronic migraines are diagnosed as 15 or more migraine days each month. The vast majority (95%) of migraine patients experience acute migraines.
Nurtec ODT has demonstrated itself to be a highly effective treatment, which explains why it is the only drug in its class in the U.S. approved to treat and prevent acute migraines. So what data backs this claim up?
Acute migraine patients were enrolled in phase 3 clinical trials to test the efficacy of Nurtec ODT in preventing migraines. Patients taking 75 milligrams of Nurtec ODT every other day experienced a 4.3-day reduction from baseline in monthly migraine days. This was meaningfully higher than the 3.5-day reduction from baseline in patients receiving a placebo. In addition, 49.1% of the Nurtec ODT group had at least a 50% reduction in moderate-to-severe migraine days per month compared to just 41.5% for the placebo group.
The deal makes sense for both companies
Nurtec ODT is an effective treatment for acute migraine patients. But was the deal a prudent use of Pfizer's capital? The answer is arguably a resounding yes.
That's because as a diversified, megacap stock, Pfizer has more relationships with regulatory authorities and healthcare providers around the world than Biohaven. The partnership between Pfizer and Biohaven allows Pfizer to get in on a drug with legitimate blockbuster potential. And Biohaven can now more broadly commercialize its drug in global markets than would have otherwise been possible because of Pfizer's size and scale.
The market research company GlobalData anticipates that the global migraine drug market will grow 10.3% annually to $8.7 billion by 2026. With the U.S. market expected to remain at a 77% market share by that time, the addressable market for Pfizer will be about $2 billion by 2026.
Nurtec ODT's ability to effectively treat/prevent migraines and Pfizer's distribution might lead me to believe that the drug can seize nearly 20% of the $2 billion addressable global market -- or $400 million. After paying a double-digit royalty to Biohaven, this should still leave the company with an estimated $300 million in annual revenue.
So Pfizer will end up paying a reasonable price of around four times peak annual sales for its share of Nurtec ODT sales. And this doesn't even consider that drug candidate zavegepant could also be a solid contributor to Pfizer's sales.
This potential $300 million in annual revenue is just a 0.4% boost to the $81.5 billion midpoint of Pfizer's expected revenue base for 2021. However, Pfizer has been busy making other deals this month, including one with Acuitas Therapeutics. That deal is expected to be a boost to Pfizer's development of other mRNA vaccines in the future.
Pfizer is a cheaply priced blue chip stock
Even Pfizer hasn't been spared in the market correction that has taken place this month. The stock is down 13% year to date, which has pushed its dividend yield up to 3.1%. This has made an already cheap stock even cheaper, which is evidenced by Pfizer's forward price-to-earnings ratio of 8.1.
When considering that analysts are expecting Pfizer to generate 19% annual earnings growth over the next five years, this makes Pfizer a bargain buy for both income and growth investors.
