Could this drug candidate be a blockbuster for Sanofi?

In March, Sanofi (SNY 2.21% ) and its partner based in Sweden Sobi ( SWTUY ) announced positive Phase 3 clinical trial results for efanesoctocog alfa, their co-developed drug candidate for severe hemophilia A.

The two companies plan to begin submitting applications for the drug’s approval to regulatory bodies around the world this year. But what kind of potential does this drug have to move the needle for Sanofi?

An impactful treatment

Hemophilia A is a genetic disease that causes patients to lack enough of the blood-clotting protein known as factor VIII or to produce a faulty version of it. When they cut themselves, patients with hemophilia A bleed much longer than others. These bleeds can occur inside the joints and muscles or outside as a result of cuts, dental procedures or injuries.

Cases range from mild to severe. Mild hemophilia A is diagnosed when a patient has factor VIII activity in the blood that is between 6% and 49% of what is considered normal. Mild hemophiliacs often show symptoms after serious injuries or during surgery. Moderate hemophilia A is diagnosed when factor VIII activity is between 1% and 5% of normal. These patients also tend to have bleeding episodes after minor injuries. Severe hemophilia A is indicated by factor VIII activity less than 1% of normal. Symptoms include prolonged bleeding after any injury and frequent spontaneous bleeding episodes. About 60% of hemophilia A cases are classified as severe.

The good news for the hundreds of thousands of patients with severe haemophilia A worldwide is that advances in treatment are helping to reduce the frequency of bleeding episodes. This, in turn, improves the quality of life of people with the disease.

Sanofi and Sobi enrolled 159 patients with severe hemophilia A who had previously been treated with factor VIII replacement therapy in their phase 3 study. Patients receiving once-weekly treatments with efanesoctocog alfa reached the primary efficacy endpoint, which was to significantly reduce annualized bleeding rate (ABR) compared to its pre-treatment baseline.

Patients taking efanesoctocog alfa had a median ABR of 0, meaning they had no bleeding episodes in the 52 weeks they received the drug. Sanofi and Sobi have not yet shared the pre-treatment ABR baseline for clinical trial participants. But in a comparable study of factor VIII replacement therapies, the median ABR was 2.0. This suggests that efanesoctocog alfa offers clinically significant improvement.

Image source: Getty Images.

A decent increase in income

Efanesoctocog alfa appears to be a breakthrough treatment for patients with severe hemophilia A. But what could this mean for Sanofi’s revenue growth? According to a forecast by market research firm Fortune Business Insights, the global hemophilia market will grow at an annualized rate of 6%, from $9.9 billion in 2018 to $15.8 billion in by 2026. Hemophilia A is estimated to represent 85% of the global hemophilia market.

Under Sanofi’s agreement with Sobi, the latter company retains the right to market efanesoctocog alfa in Europe, North Africa, Russia and most Middle Eastern markets. Sanofi can sell it in North America and all remaining markets that Sobi has not pursued. North America, of course, includes the US market, which accounted for 46% of total global pharmaceutical revenue in 2020.

A conservative assumption is therefore that Sanofi’s total addressable market for the drug will represent approximately half of the global hemophilia market – or approximately $8 billion in 2026. Given the impressive efficacy results so far for the ‘efanesoctocog alfa, I estimate the drug could capture 15% of that market. This would translate to annual revenue of $1.2 billion for Sanofi.

Analysts predict that Sanofi will generate $44.9 billion in revenue in 2022, so a $1.2 billion increase would equate to a 2.7% increase in revenue. That in itself would move the needle somewhat for the company. And since Sanofi has 86 projects underway in various phases of clinical trials, it should continue to add new drugs to its catalog, generating more revenue and profit growth.

This is precisely why analysts expect Sanofi to deliver 10% annualized earnings growth over the next five years, which is impressive for a large-cap pharmaceutical company.

The stock is a great buy in every way

Sanofi seems like an underrated stock. It trades at a forward price-to-earnings ratio of 11.9. That’s just below the industry average of 12 for drugmakers.

Yet its outlook for annualized earnings growth of 10% is also significantly above the industry average of 7%. Simply put, Sanofi is an above-average pharmaceutical stock that trades at a near-average valuation. And the icing on the cake is that at the current share price, the stock dividend also offers a yield of 3.6%, which beats the market. This makes Sanofi an excellent healthcare stock to buy for investors.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

About Clara Barnard

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