In the middle of December, Sanofi's (SNY 1.15%) and Regeneron Pharmaceuticals' (REGN 0.80%) immunology drug Dupixent received more positive regulatory news. The European Medicines Agency's Committee for Medicinal Products for Human Use (CHMP) recommended the drug's approval to treat eosinophilic esophagitis (EoE) patients who are 12 years old and up.
Dupixent is considered a mega-blockbuster drug (i.e., $5 billion-plus in annual sales). With approval of the indication likely just months away, the following two questions come to mind: What are the clinical trial results behind the CHMP's recommendation of Dupixent? And how much of an impact would approval have on Sanofi's sales?
To answer these questions, let's look at the results of Dupixent's phase 3 clinical trial and the EoE market in the European Union.
A powerful treatment for a progressive condition
EoE is a lifelong inflammatory disease that damages the esophagus, inhibiting it from functioning properly. The esophagus is the tube that sends food from the mouth to the stomach.
EoE patients have a reaction of the immune system that causes a buildup of a kind of white blood cell called eosinophils. This results in inflammation of the esophagus that then causes symptoms such as difficulty swallowing and decreased appetite. Severe cases of the disease can even result in the eventual use of a feeding tube to make sure that caloric intake and nutrition are sufficient.
The most common first-line treatments for EoE are acid blockers called proton pump inhibitors and corticosteroids. These treatments help adequately control symptoms for approximately 70% of EoE patients. But for the remaining 30% of patients, little else was able to be done for them. That is, until the recent approval of Dupixent in the United States for patients 12 and older.
The same clinical data that led to the approval of the indication in the U.S. will also likely lead to an approval in the European Union in due time. EoE patients were enrolled in a phase 3 clinical trial. These patients were randomly selected to take either 300 milligrams (mg) of Dupixent each week or 300 mg of placebo each week.
Roughly 60% of patients receiving a weekly 300 mg Dupixent dose achieved remission of their disease based on their eosinophil count at week 24. This was 10 times the 6% remission rate of the placebo group, a testament to the potency of Dupixent.
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Meaningful commercial prospects
Dupixent has proven itself to be a game-changing treatment for EoE patients. And I fully expect that this will translate into strong sales potential for the indication in the European Union.
It is estimated that there are 50,000 patients with severe, uncontrolled EoE in the European Union. Given that Dupixent would be the first treatment approved specifically for EoE in that market, I would argue that a patient share of around 80% is attainable. This works out to 40,000 patients.
The vast majority of patients end up not paying the full list price for the drug; Dupixent's annual list price is just shy of $41,000 in the U.S.
Given that medicines typically only cost about half as much in the European Union, I will use an annual list price of $20,000. And I'll also adjust for bargaining between pharmaceuticals and health insurers to come out to a net annual list price of $15,000 per patient.
This is a $300 million boost in revenue for Sanofi after its split with Regeneron. Measured against the $46.5 billion in revenue that analysts expect from Sanofi in 2022, this is equivalent to a 0.6% lift to revenue. By itself, this isn't a huge growth catalyst. But along with the 81 projects that are in the company's pipeline, every little bit adds up.
This is precisely why analysts anticipate that Sanofi will deliver 12.3% annual earnings growth over the next five years. Putting this into perspective, that growth rate is nearly double the drug manufacturers' industry average of 6.7%.
Providing everything an investor would want
Amid a 19% decline in the S&P 500 last year, Sanofi's share price was flat. Investors typically expect to pay a premium for a business with encouraging growth prospects such as Sanofi's. Surprisingly, the stock's forward price-to-earnings ratio of 10.8 is moderately lower than the drug industry's average of 12.6.
And if you're looking for income, the 3.6% dividend yield is double the S&P 500's 1.8% yield. Topping it all off, this dividend is quite safe given that the payout ratio is expected to come in below 36% over the next 12 months. These factors combine to make Sanofi a great pick for just about every type of investor.
