Novartis - Make Money From COPD Opportunity

| About: Novartis AG (NVS)
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Chronic Obstructive Pulmonary Disease, or COPD, is a serious respiratory disease that can cause lung cancer. Currently, there are nearly 210 million people globally affected by this disease, and it is expected to be the third major cause of death by 2020. It is estimated that the COPD and asthma prescription drug market is expected to grow at a CAGR of 4.1% from 2012-2017 to reach $21.3 billion by 2017.

Looking at these opportunities in the COPD market, Novartis (NVS) is focusing on deepening its footprint in this market. The company's COPD drugs have reported superior efficacy and safety in treatment of severe asthma and COPD patients. It is directing its efforts towards receiving FDA approval by improving its drug's effectiveness in order to serve a larger number of patients. How does Novartis plan to grab these market opportunities and grow in the future?

COPD the next growth opportunities for the company

Recently, Novartis demonstrated the efficacy and safety of its once-a-day bronchodilator inhaler, "Ultibro Breezhaler", under the phase III IGNITE clinical trial. IGNITE is one of the largest international COPD clinical trial programs that is comprised of 11 trial studies. In these studies, Ultibro showed superior, rapid, and sustained improvements in the lungs functionality with the significant reduction in shortness of breath compared to Pfizer's (PFE) "Spiriva", which was approved by the FDA in 2007. This performance grants the leverage to Novartis; it recently received two consecutive approvals, one from the European Medicine Agency, or EMA, and the second from the Japanese Ministry of Health, Labor, and Welfare for Ultibro Breezhaler.

Ultibro Breezhaler is the first once-a-day dual bronchodilator to receive EMA approval for treating adult patients suffering with COPD, whereas in Japan it is approved for providing relief to COPD patients with airway obstructions. Further, COPD is progressive disease, which is affecting nearly 10% of adults in Europe, and 5.3 million patients in Japan are currently living with COPD.

After the approval of Ultibro Breezhaler in Europe and Japan, the company filed the drug for approval with other countries' regulatory bodies. Moreover, Novartis is planning to file Ultibro for FDA approval by 2014, and it would be available soon after its approval. We are optimistic on this drug; according to WHO, there are around 65 million people globally suffering with moderate-to-severe COPD. Additionally, the current rate of smokers in emerging markets like China indicates that COPD patients are expected to grow to 75 million globally. Citigroup's analyst estimated this market will grow to $14 billion by 2018 from $10 billion currently. In order to capture COPD market globally, we expect Ultibro Breezhaler has to demonstrate higher efficacy and safety compared to its competitors like Pfizer and GlaxoSmithKline (GSK), which are also focusing on building stronger COPD drugs. Additionally, Novartis has the competitive advantage in terms of receiving approval in Europe and Japan. Therefore, we also expect it will be able to fulfill FDA regulations and easily receive U.S. approval.

Competition in COPD

In May 2013, GlaxoSmithKline, in partnership with Theravance (THRX), received FDA approval for COPD drug, "Breo Ellipta", which helps in reducing inflammation when inhaled. This agreement obligates Theravance to make a milestone payment of $30 million to GlaxoSmithKline upon FDA approval. GlaxoSmithKline is also looking to file this drug with the Japanese authority, and on approval, it will receive another milestone payment of $10 million from Theravance. Analyst predicted the revenue of around $1.6 billion by 2017, making it a potential blockbuster for the company.

Simultaneously, both GlaxoSmithKline and Theravance have also developed another COPD drug, "Anoro Ellipta". Looking at the safety and efficacy of Anoro in treating COPD patients, the expert panel of Pulmonary-Allergy Drugs Advisory Committee, or PADAC, voted in favor of it. In September 2013, they suggested this drug for approval to the FDA, and the final decision is expected by December 18, 2013. This is the company's second success in developing COPD and asthma drugs in this year.

If the FDA approves this drug, that it would be the first once-daily dual bronchodilator available in the U.S., and it will contribute around $2 billion to the company's revenue as per the poll of six Thomas Reuter's analysts.

On the other hand, Relvar Ellipta recently received approval from the Japanese Ministry of Health, Labor, and Welfare for the treatment of asthma, and it also received the positive recommendation from the European Medicines Agency for the marketing of Relvar Ellipta in Europe. The final decision on this is expected in the fourth quarter of this year. We expect back-to-back approvals from the regulatory bodies will boost both these companies' future prospects and help each build a strong footprint in the COPD and asthma market. We also expect the approval for these two drugs will be able to offset GlaxoSmithKline's revenue, as one of its blockbuster COPD and asthma drugs, "Advair," will be expiring in 2016. Further, its strong drug pipeline continues to tap the investors' interest and enables the company to grow in future.


The strong potential in the COPD market is expected to act as a significant growth opportunity for Novartis. Its Ultibro Breezhaler demonstrated strong results in the trial phase. Further, with the acceptance of this drug in Europe and Japan, we expect it will provide extra leverage to the company in fulfilling all the FDA guidelines.

Moreover the company is trailing at Price-to earning, or PE multiple of 19.67 and the forward PE of 14.31, representing signs of growth in its future earnings. The company will enhance its presence globally, as this drug is filed for review in other countries also. The acceptance of its drug worldwide will drive its future earnings. Depicting the signs of higher growth potentials, the company will be able to maintain investors' confidence in its stock.

Disclosure: I 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.

Additional disclosure: Fusion Research is a team of equity analysts. This article was written by Satya Prakash, one of our research analysts. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.