Pfizer's (PFE 1.00%) Marketing Authorization Application for the drug candidate called etrasimod was recently accepted for review by the European Medicines Agency. The drug will likely be approved by the first half of 2024 to treat patients for moderately to severely active ulcerative colitis.
That's why now is a good time to look at the phase 3 clinical trial results for the drug and the European Union ulcerative colitis market to assess the indication's potential.
A potent treatment for patients and doctors
Ulcerative colitis is a form of inflammatory bowel disease (IBD) that causes persistent inflammation and damage to the gastrointestinal (GI) tract. As opposed to the other kind of IBD known as Crohn's disease, the effect of this condition is specifically limited to the colon and the rectum. Crohn's disease can affect any part of the GI tract, ranging from the mouth to the anus.
Ulcerative colitis and Crohn's disease both negatively influence the GI tract's capacity to carry out its various roles, such as absorbing water and handling food and waste. As a result, IBD patients can experience symptoms of fever, weight loss, loss of appetite, and abdominal pain. And if ulcerative colitis isn't treated properly, complications like toxic megacolon (severe inflammation and quick enlargement of the colon), osteoporosis, and liver cirrhosis can occur.
The good news is that regulatory agencies are approving increasingly effective treatments with every passing year. Pfizer's etrasimod could soon be one of those therapies.
The medicine proved itself to be far superior to placebo at assisting patients in achieving clinical remission. Clinical remission is classified as having few or no symptoms of disease. Patients were randomized in a phase 3 clinical trial to either take 2 milligrams (mg) of etrasimod once every day or 2 mg of placebo each day. The treatment group attained clinical remission at a rate of 32.1% at week 52, which was over four times the placebo group remission rate of 6.7% at week 52.
Image source: Getty Images.
The revenue lift could be decent
Etrasimod is a quality treatment that has the potential to help many people.
It's estimated that there are 3 million IBD patients living in the European Union. Supposing that the split between ulcerative colitis and Crohn's disease is comparable to the U.S., this would equate to 1.4 million ulcerative colitis patients. In any given year, 21% to 22% of ulcerative colitis patients have moderate to severe disease activity. This works out to a potential market of approximately 300,000 patients.
As effective as etrasimod is, the therapy certainly has its fair share of competition among ulcerative colitis drugs. These include Johnson & Johnson's monoclonal antibody Stelara, and its tumor necrosis inhibitors Remicade and Simponi.
But since these drugs don't work on all patients, I believe etrasimod will capture 10% patient share. This is equivalent to 30,000 patients.
Etrasimod doesn't yet have a list price. But I'm assuming the annual list price will be $50,000 on the low end. Because drugs cost about half as much in the European Union as they do in the U.S., I will use an annual list price of $25,000 in that market. And allowing for price adjustments stemming from financial assistance programs and negotiations with health insurers, I will use an annual net price of $17,000 per patient. This means that etrasimod could generate over $500 million in annual revenue in the European Union from an ulcerative colitis indication.
Stacked against the $77.9 billion in 2023 revenue that analysts are projecting, this would be a 0.7% lift to Pfizer's annual revenue. In addition to more than 110 projects that are currently in clinical development, all these slight bumps in revenue will add up over time for the pharmaceutical company.
A quality income and value stock
Pfizer is a tremendous business that has led the world through a global pandemic. Yet the stock's valuation seems to be undervalued.
Pfizer's forward price-to-earnings (P/E) ratio of 10.4 is much less than the S&P 500 index's pharmaceutical industry average forward P/E ratio of 14.8. Topping off the case to make the stock a buy for income and value investors, Pfizer's 3.2% dividend yield is significantly higher than the S&P 500 index's 1.7% yield.
