In early February, the U.S. Food and Drug Administration (FDA) gave the nod to Viatris' (VTRS 0.18%) Restasis, a generic version of AbbVie's (ABBV 0.25%) dry eye disease eyedrop treatment.
Since Viatris launched the drug in the U.S. immediately after the FDA approval, let's dig into what it could mean for patients and how much a boost the news could be for the pharma stock.
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A cheaper treatment option with equal efficacy
Dry eye disease is a condition characterized by either a lack of tear production or tears not working correctly that can lead to eye redness, a stinging or burning sensation in the eyes, watery eyes, and sensitivity to light. The condition has the potential to cause permanent damage to the eyes if left untreated.
Between 16 million and 49 million Americans are estimated to have dry eye disease, which is 5% to 15% of the overall population.
Fortunately, there are plenty of eyedrop treatments available to treat the condition. For example, AbbVie's Restasis was approved by the FDA in 2003, which made it the first treatment option available to patients with the disease. Restasis has been a very effective treatment option for countless dry eye patients, which helps explain how AbbVie's drug generated $1.3 billion in sales in 2021 globally, with $1.23 billion coming from the U.S. alone.
But the downside to branded Restasis comes down to the cost. Until the FDA approved Viatris' generic version of Restasis, AbbVie's branded Restasis came with an annual list price of $7,000. Admittedly, approximately 80% of patients pay less than $35 a month out of pocket for their Restasis prescription due to insurance coverage and savings cards.
While there isn't any information available on the cost of generic Restasis yet, generics are much cheaper than branded drugs. Studies have found that when a generic drug is on the market, it's an average of 39% cheaper than the branded drug. The savings also increase as more generic drugs make their way to the market to compete against the branded drug and each other. This could have significant appeal to the 20% of patients paying more than $35 a month out of pocket for branded Restasis.
And because generic drugs go through the same scrutiny at the FDA as branded drugs, patients can be assured that the former are as safe and effective as the latter-- at a lesser cost too.
Viatris will see a slight revenue boost
The FDA's approval of Viatris' generic Restasis looks like it could offer meaningful savings for some patients. But what will it mean for Viatris?
My best guess is that Viatris' generic drug will be able to siphon off 25% of Restasis' $1.23 billion U.S. sales volumes, which comes out to about $300 million net annual sales reduction for AbbVie's Restasis. Since Viatris' generic drug will likely be about 40% cheaper, this would be a $180 million yearly sales boost for Viatris at AbbVie's expense. And generic Restasis could also be prescribed to new patients, which could bring that sales figure even higher.
Why a 25% reduction in branded Restasis U.S. sales? I'm assuming that while only 20% of the Restasis patient pool pays more than $35 a month, they account for a higher dollar volume of Restasis' U.S sales since they pay more than other patients. And since Viatris' generic option would be cheaper for those patients and offer the same benefits, switching from branded Restasis would probably make sense for the vast majority of them.
Given that Street analysts are forecasting $17.9 billion in revenue for Viatris this year, $180 million in additional annual sales would be a 1% sales boost for the company.
The underappreciated stock has a deep pipeline
The approval of Viatris' generic Restasis will only provide a minor increase in sales. But the company has several biosimilar drug candidates for blockbuster drugs that were recently submitted to the FDA for review. These include Sanofi (SNY -1.56%) and Regeneron's (REGN -0.80%) blockbuster retinal disease drug Eylea, Novartis' (NVS -0.55%) rapid-acting insulin NovoLog, and Roche's (RHHBY -0.10%) cancer drug Avastin.
Despite Viatris' strong pipeline, which should allow for modest revenue and earnings growth in the years ahead, the value stock still looks relatively cheap. For instance, Viatris trades at a forward price-to-earnings (P/E) ratio of just 2.9. This is a fraction of the S&P 500's 12-month forward P/E ratio of 19.8, which supports the case that Viatris is an underpriced stock.
And while investors wait for Viatris to be recognized by the market with an increased valuation multiple, they can collect a market-beating 4.36% dividend yield.
