GSK's First Biologic Treatment For Asthma - Nucala Holds Multi-Billion Dollar Potential

| About: GlaxoSmithKline (GSK)

Summary

Nucala was recently approved by the USFDA and EMA for the treatment of patients with severe Asthma of eosinophilic phenotype.

In the base case, Nucala should reach peak sales of $2b.

If Nucala is approved in other indications (COPD, HES) too, it can garner worldwide peak sales of around $3b.

GlaxoSmithKline's (NYSE:GSK) Nucala was recently approved by the USFDA and European Medicine Agency for maintenance treatment of severe asthma patients aged 12 years or older and with an eosinophilic phenotype. Nucala is a biologic and belongs to a new class of drug called IL-5 inhibitors.

A large proportion of severe asthma patients with eosinophilic phenotype remain inadequately controlled by inhaler medication alone. They need additional systemic treatment. Oral corticosteroid is the mainstay treatment for such patients. Such patients are either chronically treated with oral steroid or they are given a short-term oral corticosteroid which is gradually tapered and withdrawn as symptoms subside.

Value Proposition of Nucala?

In clinical trials, Nucala has demonstrated a notable reduction in the risk of exacerbations/hospitalization events in severe asthma patients (eosinophilic phenotype) compared to the standard of care. Apart from reducing the risk of exacerbations, it could also allow patients to shift to a lower dose of oral steroid and even get off steroid medication (a potential long-term benefit).

1) Existing treatment options for severe asthma patients uncontrolled on inhaled corticosteroids are associated with long-term safety concerns

Unlike inhaled corticosteroids, oral corticosteroids have much greater side effects. It is not advisable to keep a patient too long on oral corticosteroids. Chronic use of oral steroids may lead to long-term complications osteoporosis, curtailed growth in children, diabetes, cataracts, Cushing's syndrome, adrenal insufficiency, muscle weakness, and an increased risk for infections.

However, in cases where asthma remains uncontrolled with inhaler medications at the highest dose, oral corticosteroids are prescribed.

2) Improves quality of life for patients

In the global phase 3 clinical trials, Nucala demonstrated a statistically and clinically significant reduction in the exacerbation rate and lowered hospitalization events. Nucala reduced exacerbation events by 53% compared to placebo. A similar reduction in asthma exacerbations that required emergency department visit/hospitalization was also observed.

Apart from a reduced risk of exacerbations, patients treated with Nucala were also able to cut down on their oral corticosteroid dose. Although this does not translate into an immediate benefit for the patients, it does reduce the risk of potential long-term complications associated with the use of oral steroids. About 14% of the patients on the Nucala arm could completely stop steroids. On average, patients on Nucala were able to reduce their overall steroid dose by 50%.

Severe Asthma (eosinophilic phenotype) represents a large market

Nucala clearly addresses an unmet need in the asthma market. The addressable market in the US is about 300 to 400 thousand patients. GSK has put a hefty price tag for the drug. The annual cost of treatment comes to $32,500. At this price, the annual market opportunity (assuming 100% penetration) in the US comes to $10b.

Competition for Nucala is around the corner

There are two potential competitors for GSK's Nucala:

1) Reslizumab by Teva.

2) Benralizumab by AstraZeneca.

Both reslizumab and benralizumab have same mechanism of action as Nucala (IL-5 inhibitor).

Teva (NASDAQ:TEVA) is a step ahead of AstraZeneca (NYSE:AZN) as it has already filed an application for approval. USFDA approval is around the corner as the pulmonary drug advisory committee has voted in favor of approval for reslizumab.

AstraZeneca is yet to file an application for approval for benralizumab. It expects to file the drug in 2H-2016. AZN drives a major advantage over Nucala and reslizumab in terms of convenience. While Nucala and reslizumab are to be administered in clinical setting, benralizumab can be administered at home. This would be a significant advantage and help AZN garner a larger pie of the potential market.

Pricing Concerns together with competition - A potential hurdle

ICER - An independent pricing watchdog in the US has indicated that Nucala pricing is very aggressive. For the drug to deliver economic benefit, it should be priced at a 63-75% discount to the current price ($32,500 - annual cost).

It is likely that when competitors reach the markets, payers would get more aggressive in getting prices down. It has happened with Gilead and it may happen with GSK too.

Stricter reimbursement guidelines would limit market penetration and a slow ramp up is expected.

There is significant burden for physician and patients to prescribe Nucala to patients. For Nucala to be reimbursed, payers would need a prior authorization. To cite an example Unity Health has set the following conditions as prerequisite for covering Nucala for its patients.

1) The patient should be categorically diagnosed with eosinophilic asthma. He should have shown a blood eosinophil count of:

a. ≥150 cells/mm3 at therapy initiation

b. ≥300 cells/mm3 in the previous 12 months

2) Only a Pulmonologist/Allergist/Immunologist can prescribe Nucala

3) Patient should have demonstrated either of the following:

a) Symptoms that remain out of control despite high dose ICS co-administered with LABA and leukotriene modifier.

b) Has experienced at least 2 exacerbations over the last 12 months that require medical intervention (oral corticosteroid/emergency department visit/hospitalization) despite a ≥3 month adherent to therapy involving high dose ICS + LABA + Leukotriene modifier. Patients will have to prove adherence to therapy by showing appropriate prescription records.

If the physician desires to continue therapy for the patients, he will need to provide clinical documentation that demonstrates effectiveness/benefit of Nucala therapy.

a. Decreased frequency of use of oral corticosteroids to treat/prevent exacerbations.

b. Decreased frequency of use of unscheduled emergency department/urgent care visits for exacerbations.

c. Reduction in reported symptoms such as chest tightness, coughing, shortness of breath, or nocturnal awakenings.

d. Sustained (at least six months) improvement in Asthma Control Test (ACT) scores.

Estimating Peak Sales potential of Nucala.

Looking at the payer imposed hurdles, the penetration of the IL-5 inhibitors among the eligible population should be around 35 percent. Assuming a 30% market share for Nucala, the peak sales for Nucala in the US would reach up to $1b. Assuming the rest of world sales for Nucala to be at the same levels as US sales (in line with GSK's existing respiratory sales split between US and Rest of World) Nucala could fetch about $2b in worldwide peak sales. I estimate Nucala sales by 2020 to be around $1.5b.

Nucala could add another $1b from approvals in other indication

Nucala is currently in Phase 3 studies in COPD patients who have elevated eosinophil count. About 40 percent of patients with COPD have elevated eosinophils and Nucala could be a useful addition to the treatment armamentarium if it is able to demonstrate clinical benefit in ongoing trials.

Apart from COPD, Nucala is also being studied for hypereosinophilic syndrome and nasal polyposis. It is currently in Phase 2 studies in these indications.

Conclusion

GSK has shared with investors that its respiratory sales in 2020 would be at the same levels as in 2015 after accounting for Advair generic competition. My analysis suggests generic competition for Advair and other drugs in GSK's respiratory portfolio should lead to 50 percent erosion in its respiratory sales base recorded in 2015 ($8.2b). With Nucala, it seems there is a good chance that GSK may be able to more or less meet the shared forecast.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.