In late May, pharmaceutical giant Pfizer (PFE -2.81%) released positive phase-three clinical trial results for etrasimod in treating patients with moderate-to-severe ulcerative colitis.
What data from the clinical trial has me convinced that etrasimod will be the pharma stock's next blockbuster? Let's dive into the clinical results and the U.S. ulcerative colitis market to elaborate further.
A powerful option for providers and patients
Ulcerative colitis is a type of inflammatory bowel disease (IBD) that leads to chronic inflammation and harm to the gastrointestinal (GI) tract. The condition is characterized by inflammation of the rectum and large intestine. The other form of IBD called Crohn's disease can inflame any part of the GI tract.
Ulcerative colitis interferes with the GI tract's capabilities to perform its functions, like processing waste/food and absorbing water. The symptoms that can result from the disease include abdominal pain, loss of appetite, and fatigue.
If left untreated or not adequately treated for long enough, ulcerative colitis can cause complications like osteoporosis and anemia. Fortunately, more treatments are developed and approved each year to properly manage the condition for as many patients as possible to prevent such complications.
Pfizer's etrasimod looks like it could help ulcerative colitis patients to enhance their quality of life and prevent complications from occurring. That's because the drug was demonstrated to be significantly more effective than a placebo at helping patients achieve clinical remission. Clinical remission is defined as few or no symptoms of ulcerative colitis.
The group, randomized to receive 2 milligrams of etrasimod once daily, achieved clinical remission at a 32.1% rate at week 52. This was more than quadruple the placebo group remission rate of 6.7% at week 52.
Image source: Getty Images.
The sales boost could be meaningful
Etrasimod could be a great treatment for many patients with moderate-to-severe ulcerative colitis. But how much of a lift could it provide to Pfizer's sales in the United States?
First, there are approximately 907,000 ulcerative colitis patients in the U.S. And of this number, 21% to 22% of patients have moderate-to-severe disease activity in a given year. This equates to a patient pool of about 195,000.
There is quite a bit of competition among drugs to treat ulcerative colitis, like Pfizer's own Xeljanz and Johnson & Johnson's Stelara. But not everyone improves on those treatments, and etrasimod stands out as among the best treatments for the disease.
This is why I believe that the drug could capture an 11% patient share, which works out to roughly 21,500 patients. Etrasimod doesn't have an annual list price yet. But I will assume it will be similar to Xeljanz's $60,000 annual list price. Adjusting for patient assistance programs and negotiations with health insurers, I will assume a net annual list price of $45,000 to be split between patients and their health insurers.
This comes out to just shy of $1 billion in annual sales potential for etrasimod in the U.S. alone. For context, this would be a 1% increase over the $100 billion in sales that Pfizer expects in 2022.
A valuation that builds in a margin of safety
With nearly 100 projects in different stages of clinical development, Pfizer is one of the most diversified pharma companies. Even as its COVID-19 vaccine Comirnaty and anti-viral pill Paxlovid eventually lose momentum, this should lead to a bright future for the company.
Yet Pfizer is trading at a forward price-to-earnings (P/E) ratio of just 9.4. This is well below the drug manufacturer industry average of 11.6, which could make it a great pick for value investors.
