Earlier this month, the Switzerland-based pharmaceutical Novartis (NVS -0.16%) shared encouraging news from two phase 3 clinical trials of its drug candidate remibrutinib for a skin condition known as chronic spontaneous urticaria (CSU). What could this latest development mean for the drugmaker?
Let's dig into the CSU market to get a better idea.
Another potential treatment option for a common malady
CSU is a skin problem that is characterized by abrupt hives and skin swelling that comes and goes for no apparent reason. This swelling (dubbed angioedema) often presents on the hands, feet, and face, or in the throat. It is estimated that 1.4% of the U.S. population has CSU.
Diagnosing the disease can be tricky, but the diagnostic criteria include symptoms occurring at least twice a week for over six weeks straight. The favored initial treatment for CSU is a drug class named histamine-1 (H-1) antihistamines. In the 60% of cases where patients don't meaningfully improve on this initial treatment, there aren't as many alternative treatments to turn to as one might expect for a condition like CSU that affects so much of the populace.
Remibrutinib is one drug candidate that could soon make its way to the market. Novartis hasn't shared results from its phase 3 clinical trials yet -- the company noted that the data from these clinical trials will be presented at an upcoming medical meeting. But the results are almost certainly very good, based on two observations.
First, Novartis indicated that the drug met its primary endpoint in both clinical trials. This means that remibrutinib helped CSU patients achieve clinically meaningful improvements in disease activity at week 12. And second, the company plans on submitting applications to global health authorities beginning in 2024. Simply put, Novartis wouldn't spend the time and resources on trying to obtain approval for a drug if it was a flop in clinical trials.
Image source: Getty Images.
A massive addressable market could mean blockbuster potential
Based on the timeline, Novartis' remibrutinib could be approved in major markets within the next two years. But how much of an impact could the experimental drug have on the company's top line?
Analytics Market Research projects the seven major markets (including the U.S.) wanting CSU treatments will grow by 15% annually from 2023 and top $7.6 billion by 2032. Sanofi and Regeneron's Dupixent is likely to gain approval from the U.S. Food and Drug Administration by October of this year for a CSU indication. This advantage may not be easy for remibrutinib to overcome. But not all patients will improve on Dupixent either. That is why I think a 15% market share is a realistic forecast for remibrutinib in CSU, which would be a $1.1 billion peak annual sales figure.
Even considering the $54.1 billion in revenue that analysts anticipate from Novartis in 2023, this could move the growth needle. Remibrutinib itself is also in clinical trials for multiple sclerosis, hidradenitis suppurativa, and food allergies. Along with 100-plus ongoing clinical trials for other compounds, this is why analysts think Novartis' non-GAAP (core) earnings per share (EPS) will compound by 8.7% annually for the next five years.
Novartis stock is a blue-chip buy
Share prices of Novartis have rallied 21% in the last 12 months. Yet the stock's forward price-to-earnings (P/E) ratio of 13.6 remains below the drug manufacturer industry average forward P/E ratio of 13.8. For a world-class company with a dividend payout ratio set to come in at approximately 46% in the next 12 months, this is an intriguing valuation. That is what makes Novartis and its 3.4% dividend yield (versus the S&P 500 index's 1.6% yield) a strong buy for yield-oriented investors.
