Late last month, Japan's Ministry of Health, Labour and Welfare (MHLW) approved Amgen's (AMGN 0.03%) Lumakras to treat advanced non-small cell lung cancer (NSCLC) adult patients with the KRAS G12C mutation that worsened after prior therapy.
The MHLW gave Lumakras the nod just days after the European Commission approved it for the same indication. Let's dive into the clinical results for Lumakras to understand why regulatory bodies are approving the drug, as well as the lung cancer market in Japan to estimate the sales potential of the indication.
A pioneering targeted therapy
Before going over the clinical results for Lumakras in treating NSCLC patients with the KRAS G12C mutation, let's dig into the terminology.
According to Amgen, NSCLC is a type of lung cancer that makes up 85% to 90% of lung cancer cases. NSCLC is then further classified as either non-squamous (approximately 70% of cases) or squamous (30% of cases).
The five-year survival rate for patients with stage 4 NSCLC in Japan is only 10.8%. For context, stage 4 NSCLC means that the cancer has spread from the initial site in the lungs to other organs like the bones, brain, or liver.
Approximately 4.5% of non-squamous NSCLC patients in Japan have the KRAS G12C mutation. This has a particularly poor prognosis because there were no effective targeted therapies to treat the disease prior to the approval of Lumakras.
The good news is that adults with the KRAS G12C mutation now have a solid treatment option if other therapies don't stop disease progression or improve the condition.
Amgen entered 124 patients into its phase 2 clinical trials of Lumakras whose disease didn't improve with immunotherapy and/or chemotherapy. These patients took a 960-milligram dose of Lumakras orally once daily.
The objective response rate of Lumakras was 37.1%, which is quite high considering these patients had no other viable therapies. For context, the objective response rate is the percentage of patients whose cancer disappears (goes into remission) or shrinks after treatment.
An incremental revenue increase for Amgen
Lumakras looks like it will be a potent treatment for KRAS G12C mutation patients. But what level of sales will this indication in Japan translate into for pharma stock Amgen?
It's estimated that there are 169,000 patients with lung cancer in Japan. Factoring in that 85% of these cases are NSCLC, that equates to 144,000 patients. Next, 70%, or 101,000 patients, have non-squamous NSCLC. Third, 4.5% of patients with non-squamous NSCLC have the KRAS G12C mutation. This works out to nearly 5,000 patients.
Because Lumakras is the first and only approved targeted therapy for this condition, I believe it's reasonable to expect it to seize 50% of the market in Japan. This comes out to roughly 2,300 patients.
The annual list price of Lumakras in the U.S. is $215,000. But because drugs are almost 50% less expensive in Japan compared to the U.S., I'll use an annual list price of $110,000. Due to negotiations with health insurers and patient assistance programs, I'll revise Lumakras' annual list price of $110,000 down further to a net annual price of $75,000 per patient.
This comes out to just short of $200 million in annual sales potential for the indication in Japan. This would be a 0.7% boost to the $26.1 billion in revenue that analysts are expecting Amgen to record this year. But the approval is made more impressive by the fact that this sales potential is for just one of the major markets in the world. Putting all of the approvals in recent months together, Lumakras is well on its way to becoming a blockbuster for Amgen.
A quality dividend growth stock
While the approvals for Lumakras are encouraging, the company has even more going for it. That's because Amgen has 40 compounds in various phases of clinical trials. These include biosimilars for blockbuster drugs like Johnson & Johnson's (JNJ 0.32%) Stelara and AstraZeneca's (AZN 0.35%) rare disease drug Soliris in phase 3 clinical trials.
If approved, each biosimilar could siphon hundreds of millions of dollars in annual sales from J&J and AstraZeneca. And Amgen's biosimilar for AbbVie's (ABBV 0.52%) Humira, known as Amjevita, will launch in the U.S. next January, which could generate significant revenue for the company.
That's why analysts anticipate that Amgen will produce 7% annual earnings growth through the next five years. Amgen's dividend payout ratio was only 41.2% last year, which explains why the company was confident enough to announce a 10.2% increase in its payout for this year last December.
Investors can buy Amgen's market-beating 3.3% dividend yield at a current price-to-earnings ratio of 13.1, which is a sensible valuation for the company's growth potential.