On March 16, the Food and Drug Administration (FDA) gave AbbVie's (ABBV 0.98%) Rinvoq the nod to treat adult patients with moderate-to-severe ulcerative colitis who didn't respond to at least one tumor necrosis factor (TNF) blocker.
Why did the FDA approve Rinvoq for its fourth indication? And what could it mean for the pharma stock AbbVie? To answer these questions, let's examine numbers from both Rinvoq's ulcerative colitis clinical trials and the U.S. ulcerative colitis market.
Another potent treatment
Ulcerative colitis is a type of inflammatory bowel disease that harms the gastrointestinal (GI) tract. Unlike Crohn's disease, which can impact any part of the GI tract, ulcerative colitis is restricted to the rectum and large intestine.
Ulcerative colitis interferes with the capacity of the GI tract to perform its responsibilities. The symptoms often include fatigue, abdominal pain, and weight loss. If the condition is not appropriately managed by a medical specialist, blood loss can also result in anemia that requires frequent blood transfusions.
The good news for patients diagnosed with moderate-to-severe ulcerative colitis is that more treatments are researched, developed, and launched every year. Rinvoq is one treatment that has demonstrated its potential to help patients manage their condition.
Patients assigned to the group taking either 15 milligrams or 30 mg of Rinvoq once daily achieved clinical remission (meaning few or no symptoms of ulcerative colitis) at rates of 42% and 52% at week 52. This was significantly higher than the 12% of patients randomized to the placebo group who experienced clinical remission at week 52.
Image source: Getty Images.
A needle-moving indication
Rinvoq appears to be an effective treatment for moderate-to-severe ulcerative colitis patients. But what is the annual sales potential of the indication?
It's estimated that there are 907,000 ulcerative colitis patients in the U.S. And in any given year, 21% to 22% of patients experience moderate to severe activity in their condition. Taking it one step further, 60% to 70% of these patients either don't experience improvement in their condition, or relapse during the first year of therapy on TNF blockers like AbbVie's Humira. This translates into a market of approximately 127,000 patients.
AbbVie's Rinvoq faces competition from the likes of its own Humira and Johnson & Johnson's (JNJ 0.29%) Stelara, making the ulcerative colitis market a crowded one. It's also worth considering that Rinvoq is a Janus kinase (JAK) inhibitor. Since JAK inhibitors have been linked to an increased risk of adverse events like heart attacks, strokes, blood clots, and cancer, Rinvoq is unlikely to become more than a secondary treatment for patients with ulcerative colitis.
This is why I assume that the drug will seize a modest 7% share of its addressable market, which is equivalent to approximately 9,000 patients. Rinvoq has an annual list price of $68,000 per patient. But adjusting for patient assistance programs and insurance negotiations, I'll use an annual net price of $44,000 per patient.
This would work out to $400 million in annual sales potential for Rinvoq's ulcerative colitis indication in the U.S. Given the $60.4 billion in annual sales that analysts are forecasting for AbbVie in 2022, this would be a 0.7% boost to the company's total sales. But considering that Rinvoq generated $1.65 billion in sales in 2021, it would be a significant boost for the drug's overall sales.
Rinvoq could also soon be approved for this indication in other major markets like the European Union, which could be another boost for the drug.
A fairly valued Dividend King
AbbVie looks to be reasonably priced for a stock with its track record as a Dividend King: It was recently trading at a forward price-to-earnings (P/E) ratio of 11.5. For context, this is significantly lower than the 16.7 forward P/E of the S&P 500 healthcare sector. That's why AbbVie is a great pick to buy at this time.
