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Yesterday, the European Medicine agency granted approval to Bristol-Myers (NYSE:BMY) and Pfizer's (NYSE:PFE) blood thinning drug - Eliquis for the prevention of stroke and systemic embolism in patients with non-valvular atrial fibrillation. Eliquis is still awaiting a US approval, the PDUFA data is set as March 17, 2013. Stroke prevention in atrial fibrillation (SPAF) is a large market and Eliquis is expected to take majority share by virtue of a superior profile compared to competing drugs.

Eliquis which belongs to a class of drugs called Factor Xa inhibitors is a new generation oral anticoagulant / blood thinning drug and is expected to replace warfarin the current gold standard treatment for stroke prevention in atrial fibrillation. Eliquis is to be taken twice daily. Besides Eliquis, two other new generation oral anticoagulants - Bayer's (OTCPK:BAYRY) / Johnson and Johnson's (NYSE:JNJ) Xarelto (approved in 2011) and Boehringer Ingelheim's Pradaxa (direct thrombin inhibitor, approved in 2010) are also on the market and are vying to replace warfarin.

The clinical data on Eliquis in atrial fibrillation is most impressive, when compared to Xarelto or Pradaxa and looks all set to grab majority market share. You can see a cross trial comparison of Pradaxa, Xarelto and Eliquis here

The Unmet Need in Stroke Prevention in Atrial Fibrillation

Warfarin - The current standard of care has several limitations and would be cannibalized by the new generation oral anti-coagulants which have demonstrated better efficacy and safety when compared to warfarin. A major limitation with warfarin is that patients taking warfarin need to be monitored frequently for their INR control. This is not the case with new generation oral anticoagulants - Pradaxa, Eliquis or Xarelto. The full form of INR is international normalized ratio. The higher the INR, the thinner the blood is. For warfarin to be effective and at the same time avoid bleeding risk, the INR should be between 2.0 and 3.0.

About 35% of the eligible AF patients are currently not treated with warfarin because the typical constraints - drug-drug /dietary interactions and difficulty in INR control. Thus warfarin is a safe and effective oral anticoagulant if a therapeutic international normalized ratio is properly maintained. In practice, however, it is difficult to manage because its therapeutic level is affected by many factors including diet, medications, illnesses, and genetics. Warfarin's narrow therapeutic range predisposes to many adverse effects from both under anticoagulation (resulting in thrombus formation) and over anticoagulation (leading to hemorrhage).

To ensure that a therapeutic INR is achieved, frequent monitoring is required that is inconvenient for patients and physicians and costly for the healthcare system. Specialized anticoagulation management clinics are needed to address the complexity in managing warfarin. Additional warfarin drawbacks include its slow onset and offset of action. It takes 72-96 hours to become effective and requires overlap with a rapidly acting parenteral anticoagulant or "bridging" until a therapeutic INR is achieved. Its slower offset, with an effective half-life of approximately 40 hours, makes it difficult to manage before any surgical procedures. Safety concerns and therapy complexity lead many physicians to
under use warfarin, prescribing it to only two thirds of appropriate candidate.

Why Eliquis is best poised among the New Generation Anticoagulants to grab a larger pie
Eliquis is the only anticoagulant to have demonstrated statistically significant superiority over warfarin in the reduction of the composite of stroke / Systemic Embolism / all-cause death and major bleeding. Xarelto which was approved last year for SPAF has shown non-inferiority compared to warfarin on both efficacy (stroke reduction) and safety(major bleeding). Pradaxa which was approved in 2010 is superior to warfarin as far as reduction in the risk of stroke is concerned, but does not reduce the risk of major bleeding. Unfortunately the larger concern of cardiologists with the use of warfarin is the higher risk of bleeding / Intra cranial hemorrhage, while they are more or less satisfied with the efficacy of warfarin (reduction in stroke). Hence as far as current unmet need is concerned, cardiologists prefer an oral anticoagulant that is atleast as efficacious as warfarin, but significantly reduces the risk of major bleeding. Eliquis seems to have exactly hit this sweet spot and is poised for a breakout once launched. In the pivotal Phase 3 study Eliquis was superior to warfarin in preventing stroke or systemic embolism (the primary end point) and was also associated with less bleeding and lower mortality than warfarin.

In nutshell although both Pradaxa and Xarelto have also shown benefits over warfarin in the pivotal Phase 3 trials, but Eliquis is the only one to have shown definite reductions in each of the major outcomes of stroke, bleeding, and mortality.

Market Potential and Eliquis Peak Sales

Stroke Prevention in Atrial Fibrillation represents a very large market, as besides a very large prevalence, there is a very clear unmet need. SPAF affects about 4.5m people in the EU, 2.2m in the US and about 1 million Japanese. Atrial fibrillation patients are at 3 to 5 fold increased risk of stroke and 75,000 strokes per year are attributable to atrial fibrillation.

If we are to expect a 50% market share shift from existing treatments warfarin and aspirin to new generation oral anticoagulants (Pradaxa, Xarelto and Eliquis), the annual market size works out to be $10b. Pradaxa and Xarelto which are already on the market have been priced at an annual cost of $2500. Assuming a similar price for Eliquis and a 25 percent market share, the peak sales of Eliquis will reach about $5 billion.

Impact of Eliquis on Pfizer and Bristol-Myers Earnings

With regard to Eliquis, Pfizer and Bristol-Myers have entered into an agreement under which the companies will jointly develop the clinical and marketing strategy of Eliquis, and will share commercialization expenses and profits/losses equally on a global basis.

At $5 billion peak sales, we expect Eliquis to generate peak post tax profitability of 75 percent, which would translate into $3.8b in annual profits. As per the agreement Pfizer and BMY will share the profits equally. For BMY, $1.9b in annual profits translates into an incremental EPS of $1.1 per share, which is about 56 percent of 2012 estimated EPS. For a company of the size of Pfizer as well, Eliquis is pretty significant as it would add about $0.25 per share in incremental EPS, which is about 12 percent of its 2012 estimated EPS. Both PFE and BMY have already shed significant sales and profits owing to loss of patent on their key drugs (Plavix and Lipitor) and there are no major patent expiries on the anvil except Abilify for BMY in 2014. Pfizer currently trades at 12x 2012 earnings, while BMY trades at 17x 2012 earnings. Looking at the significant impact of Eliquis on the bottom line of both these companies, one should consider a long position with a horizon of about 3 years.

On an NPV basis, it is worth about $20b assuming a cost of capital of 7 percent. Since Pfizer and Eliquis would be sharing the profits from the sales of Eliquis, we attribute $9billion of NPV each to Bristol Myers and Pfizer. From a per share perspective, Eliquis is worth $5.3 per share for BMY, and it is worth $1.2 per share for Pfizer.

Source: Eliquis (Apixaban) Approved In Europe - A Blockbuster Opportunity For Bristol-Myers, Pfizer