FDA Issues New Warnings on JAK Drug Class

The FDA's new warnings for the JAK inhibitor class puts moderate pressure on key drugs for AbbVie (Rinvoq, 6% of 2023 sales), Pfizer (Xeljanz, 5% of 2023 sales), and Eli Lilly (Olumiant, 4% of 2023 sales), but we are not forecasting any major changes to our fair value estimates based on the news. Additionally, with strong product portfolios for all three companies, we don't see the updated JAK warnings as impacting the firms' moat ratings. Following a large study with Xeljanz in arthritis and ulcerative colitis, the FDA found a higher rates of blood disorders, cancer, and death versus an older class of drugs called TNF drugs. As a result, the FDA is requiring updated warning labels for all JAK inhibitors (due to their similar mechanism of action) and limiting approval to following TNF failure. However, we believe most sales of JAK inhibitors already come from patients not responding to TNF drugs (in most indications) given how familiar the prescribing community is with the TNF class. Additionally, the increased risks seem relatively small with Xeljanz in previous studies (albeit still severe side effects), so we expect continued utilization of JAK inhibitors given the high failure rate of TNF drugs (as high as 50% in some studies). Also, next generation JAK Rinvoq looks safer than Xeljanz potentially due to a more selective mechanism, which should help the drug become the JAK of choice within the class. We had viewed the biggest new potential indication of JAK inhibitors in atopic dermatitis, which now looks less promising. With Rinvoq, Olimiant, and Pfizer's pipeline drug abrocitinib seeking approval in atopic dermatitis, we continue to expect U.S. approval for the JAK drugs in atopic dermatitis following delays at the FDA. However, we now view the drugs as gaining less market share against Sanofi's Dupixent, which has an excellent side effect profile and appears almost as effective as the JAK drugs.

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