Bavencio’s EU Nod A Positive For Pfizer’s Oncology Business
Pfizer (NYSE:PFE) has co-developed an anti-PD L1 cancer drug Bavencio (avelumab) with Merck, which has now been granted approval to treat a rare and aggressive type of skin cancer called Merkel cell carcinoma (MCC) from European regulators. Earlier in March 2017, the drug was approved by the US FDA for the treatment of metastatic Merkel cell carcinoma. The number of cases diagnosed each year in the U.S. for MCC stands at around 1,600 while in Europe the number is 2,500, making it a relatively small market. However, the price for the drug is high considering the rare nature of the disease. A 3-months treatment could cost around $27,000, according to a report.
Metastatic MCC is an advanced and rare form of skin cancer, in which cancer cells form in the top layer of the skin, close to nerve endings, with patients having a survival rate of less than 50% over a year and less than 20% surviving beyond 5 years.
Bavencio appears to be a milestone drug for Pfizer, and the expected peak sales have been touted to be in the range of $4-6 billion, translating into sales of $2-3 billion for Pfizer. However, we believe it is possible if it gets approval for additional indications for which it is being tested, including gastric cancer, ovarian cancer and non-small cell lung cancer.
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Pfizer is focused on strengthening its oncology business, which currently contributes less than 20% of the company’s valuation, according to our estimates. Pfizer hasn’t seen any significant growth in its oncology segment until recent years with Ibrance. The company expects more anti-PD L1 drug launches in the coming years. This, combined with Ibrance and Bavencio sales, will likely drive the segment’s growth in the coming years. In fact, we estimate the average annual revenue growth for the oncology segment to be north of 12%, which is substantially above what we expect for Pfizer as a whole.
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