Earlier this month, Novartis' (NVS +0.85%) smash-hit immunology medicine Cosentyx became the first drug within its class to be approved in the European Union to treat adult patients with moderate to severe hidradenitis suppurativa (HS).
What was the reasoning for the European Commission's approval of Cosentyx's sixth indication? And how much of a boost could it provide to Novartis' sales? Let's explore Cosentyx's phase 3 clinical trial results and the European HS market to try to arrive at some answers.
NYSE: NVS
Key Data Points
A much-needed treatment for a common disease
HS is a lifelong, progressive, inflammatory skin condition that can cause great discomfort to patients. The disease results in repeated abscesses that can burst, which creates open wounds, most often around the armpits and groin. This can lead to symptoms such as burning, itching, or sweating sensations around the skin, scarring, and slowly healing skin.
Like all diseases, the severity of HS exists on a spectrum, ranging from mild to severe. Moderate to severe cases of the condition are defined as five or more inflammatory regions affecting at least two distinct areas of the body. Due to the impact HS can have on daily life, moderate to severe HS patients are at risk of developing other conditions, such as anxiety and depression.
Until recently, AbbVie's (ABBV +0.79%) Humira was the only treatment specifically approved for patients with moderate to severe HS. While the drug was a major advancement in the treatment of the disease, 50% of patients on Humira can lose response to the medicine over time.
Fortunately, the approval of Cosentyx in the European Union (and possibly the U.S. later this year) could bring newfound hope to countless patients. In a phase 3 clinical trial, patients receiving Cosentyx every two weeks fared much better than patients in the placebo group. The treatment group achieved hidradenitis suppurativa clinical response (HiSCR) at a rate of 42% at week 16, which was superior to the placebo group rate of 31% at week 16. For context, HiSCR is defined as a 50% or more decrease in a patient's abscess and inflammatory nodule count.
Image source: Getty Images.
The sales potential is meaningful
Cosentyx could be an impactful treatment option for the arsenals of dermatologists and patients. But what could this mean for Novartis' sales?
It is estimated that HS affects up to one in 100 people around the world. Drilling down further, roughly 200,000 patients in Europe have moderate to severe cases of the disease. Since Humira is the only other drug on the market and it has a first-mover advantage over Cosentyx, I believe a 40% patient share rate is a realistic assumption -- or 80,000 patients.
The annual list price of Cosentyx in its 300-milligram dose strength package is $83,000 (over $6,900 monthly). Adjusting for the fact that drugs are about 50% cheaper in the European Union, this equates to an annual list price of $40,000. And further factoring in patient financial assistance programs and negotiations with health insurers, I will conservatively use a $15,000 annual net price per patient.
This brings the sales potential of Cosentyx's HS indication to $1.2 billion in the European Union alone. Stacked up against the $53.3 billion in total revenue that analysts expect from the Swiss pharmaceutical in 2023, this is enough to move the growth needle by itself.
Novartis stock is a buy
With more than 130 other indications in its pipeline, Novartis' growth prospects are strong. That is why analysts believe the company's non-GAAP (adjusted) diluted earnings per share (EPS) will grow by 8.2% annually over the next five years. For context, that is better than the drug manufacturers' industry average annual earnings growth outlook of 6.7%.
Yet, shares of Novartis are trading at a forward price-to-earnings ratio of 13.6. This is pretty close to the industry average of 13.3, which is what arguably makes the stock a great value for income investors.
