AstraZeneca enters another major market with this indication

At the end of last month, the Japanese Ministry of Health, Labor and Welfare (MHLW) approved AstraZeneca‘s (NASDAQ: AZN) diabetes and heart failure medicine, Forxiga (known as Farxiga in the United States), to treat patients with chronic kidney disease or CKD. This made Forxiga the first drug approved for the treatment of CKD in Japan. The news came just weeks after Forxiga was approved for the same indication in the EU.

Let’s review the results that prompted MHLW to become the last regulatory agency to approve Forxiga to treat CKD, as well as the revenue that this new indication could generate for AstraZeneca in Japan.

An effective drug to fight a deadly disease

Before describing the effectiveness of Forxiga in treating CRF, it would be helpful to start by discussing what CRF is and the stages of the disease.

CRF is a disease that affects the kidneys’ ability to filter waste products from the blood, which is a vital bodily function. The most widely used measure of kidney function is estimated glomerular filtration rate (eGFR), which is based on the levels of creatinine (a waste product) in a patient’s blood. The more creatinine there is in a person’s blood, the lower their eGFR, which indicates that a patient’s kidneys are inefficient and / or working overtime to do their job.

According to the American Kidney Fund, CRF stage 1 is when a patient has normal eGFR (90% or greater), but there are other signs of kidney damage such as physical damage or proteins in the kidney. urine. Stage 2 MRC is expressed as an eGFR of between 60% and 89%. Stage 3 CRF is indicated by an eGFR of 30% to 59%. Stage 4 CRF is the last stage before renal failure and involves moderate to severe kidney damage, which is expressed as an eGFR between 15% and 29%. Stage 5 is the final stage of CRF, when the kidneys have already failed or are about to fail, and is indicated by an eGFR of less than 15%.

The asymptomatic nature of the disease during most of its progression (up to 90% of patients are unaware they have CRF) contributes to making it a relatively fatal disease; in 2017, it was the 12th leading cause of death worldwide with around 1.23 million deaths. This prompted Dr Theo Vos of the Institute for Health Metrics and Evaluation to call IRC a “global killer hidden in plain sight”.

This is also what makes detecting and treating CKD early in disease progression particularly critical to improve health outcomes, and this is where Forxiga can potentially help.

The standard treatment for CRF is an angiotensin converting enzyme (ACE) inhibitor, which lowers blood pressure to reduce the risk of disease progression. Forxiga in combination with an ACE inhibitor was found to reduce the relative risk of worsening kidney function, development of stage 5 CRF and kidney death by 39% compared to a combination of an ACE inhibitor with a placebo. In addition, the relative risk of death from all causes in patients with CRF was shown to be 31% lower in those receiving an ACE inhibitor and Forxiga compared to the ACE inhibitor combination. and placebo.

Considering the utility of Forxiga in the treatment of CRF with a standard ACE inhibitor, it is not surprising that MHLW has approved the new indication.

Forxiga enters another game-changing market

It is estimated that 13 million people live with IRC in Japan. It is likely that over 90% of these people are unaware of their condition, which means that only 1.3 million patients have been diagnosed; At this point, there had been no drugs approved to specifically treat CKD in Japan.

Even assuming conservatively that only 20% of patients officially diagnosed with CKD in Japan start treatment with Forxiga (this number could be higher, given that it is the only drug approved for the disease in this country ), this would equal 260,000 patients.

Adjusting Farxiga’s annual list price of around $ 6,000 in the United States to reflect the fact that drugs in Japan were on average 43% cheaper in 2017, we will assume that the average annual net price per patient with the adjustments insurance is $ 2,000.

Among the market of 260,000 CKD patients that Forxiga is expected to be able to capture, this would represent an annual revenue potential of $ 520 million over the next two years as the drug becomes preferred by physicians and patients. with CKD in Japan.

Even against the backdrop of the $ 36 billion total revenue that analysts expect from AstraZeneca for this year, the new indication of Forxiga in Japan appears to be a significant contributor to revenue in the years to come.

AstraZeneca is a hybrid choice of growth and value

Forxiga’s momentum – its first-half revenue increased from around $ 850 million last year to $ 1.36 billion this year – is set to continue with recent regulatory approvals from the drug for CRI in the EU and Japan. And AstraZeneca’s acquisition of Alexion Pharmaceuticals has arguably forged a portfolio of premier orphan drugs. Overall, analysts expect the company to generate more than 20% annual growth in earnings per share over the next five years.

Especially given AstraZeneca’s price-to-earnings ratio of less than 17 for this year (analysts estimate EPS at $ 3.52), this pharmaceutical stock offers investors growth at a fair price.