AbbVie (ABBV 0.89%) recently shared positive top-line results from its phase 3 clinical trial of Skyrizi that treated patients with moderately to severely active ulcerative colitis (UC).
With an approval from the U.S. Food and Drug Administration looking more like a matter of "when" than "if," it's worth asking the following question: What would such an event mean for the pharmaceutical company's revenue? Let's examine the data from the clinical trial and the U.S. UC market to resolve this question.
An impressive efficacy and safety profile
Ulcerative colitis is a form of inflammatory bowel disease (IBD) that causes damage to the gastrointestinal (GI) tract. Not to be confused with the other type of IBD that hurts the GI tract, Crohn's disease, UC is limited to the colon and rectum. This is opposed to Crohn's disease, which can affect any section of the GI tract from the mouth to the anus.
Both UC and Crohn's disease limit the GI tract's ability to fulfill its functions. This can result in symptoms such as diarrhea, fatigue, and abdominal pain. The severity of the two conditions can vary from mild in nature to severe. More severe cases can lead to blood loss, which can bring on anemia. Other complications of IBD include kidney stones, liver cirrhosis (severe scarring), and osteoporosis.
Thankfully, UC is becoming a more manageable disease because of advances in treatments. Skyrizi is one such treatment that could hit the market in the not-so-distant future.
AbbVie enrolled patients with moderately to severely active UC in a randomized and double-blind phase 3 clinical trial. This means that patients would receive either a dose of Skyrizi every four weeks or a dose of placebo every four weeks, and neither group knew what they were receiving throughout the study.
The treatment group attained clinical remission at a rate of 20.3% at week 12, which was more than triple the 6.2% clinical remission rate of the placebo group. Clinical remission, according to the Adapted Mayo Score clinical guideline, is a significant improvement in stool frequency, rectal bleeding, and endoscopic subscores.
Serious adverse events were observed in just 2.3% of patients in the treatment group, which was well below the 10.2% rate of the placebo group. This suggests that Skyrizi strikes a balance in being a safe and effective treatment for UC.
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The indication could be a growth catalyst
Skyrizi could be an effective treatment for UC. But how much of a boost could an indication in the U.S. provide to AbbVie's sales?
There are approximately 907,000 UC patients in the U.S. And since 21% to 22% of patients have moderate-to-severe disease activity in a particular year, this means there are around 195,000 patients with moderate-to-severe UC each year. AbbVie's Humira is the first-line treatment for moderate-to-severe UC. But only between 30% and 40% of patients experience improvement beyond at least the first year of treatment. This means that Skyrizi's addressable market is nearly 127,000 patients.
Because of Skyrizi's tremendous safety and efficacy results, I will assume the medicine can seize 20% of the U.S. patient share. That works out to 25,000 patients.
While Skyrizi doesn't yet have an annual list price for ulcerative colitis, its annual list price is $79,000 for psoriatic arthritis. But with patient financial assistance programs and deductibles from health insurers, most patients don't pay anywhere near that amount out-of-pocket. That's why I will assume an annual net price per patient of $40,000, with the costs to be split in some way between the patient and their health insurer. That is equivalent to $1 billion in annual revenue for AbbVie. Against the $52.7 billion in revenue that analysts expect from the company in 2023, this would be a 1.9% lift to the company's top line.
A blue chip stock at a discounted valuation
AbbVie is a fundamentally healthy business, and the stock appears to be a solid value at the current $158 share price.
AbbVie's trailing 12-month (TTM) price-to-free cash flow (P/FCF) ratio of 11.6 is slightly below the 10-year median TTM P/FCF ratio of 12.5. And given that the company's drug pipeline consists of more than 90 indications or compounds, AbbVie appears to be just as strong now as it has been in recent years. This is why the stock looks like a compelling pick for investors.
