The pharmaceutical industry is fraught with risk and also filled with opportunity. On one hand, the average new drug took many years of clinical research and cost approximately $1 billion to bring to market between 2009 and 2018.
However, a portion of drugs that are able to receive FDA approval go on to become blockbusters, grossing more than $1 billion in annual revenue. This arguably makes the risks of the industry well worth it. For example, AstraZeneca's (AZN +0.00%) rare disease drug for patients with paroxysmal nocturnal hemoglobinuria (PNH) known as Soliris is on pace to record over $4 billion in sales in 2022.
This time of massive, uncontested sales will soon be coming to an end, however, because Amgen's (AMGN 1.29%) biosimilar to Soliris, ABP 959, will be able to launch in the U.S. in March 2025. So how effective is ABP 959? And how much could it generate in annual revenue for Amgen? Let's dive into ABP 959's recent clinical trial results and the potential market to answer these questions.
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NASDAQ: AMGN
Key Data Points
Positive phase 3 clinical trial results
Biosimilar drugs must prove in clinical trials that there is almost no difference in efficacy and safety against the branded drug. ABP 959 did just that in its phase 3 clinical trial in treating the bone marrow disorder, which can lead to bone marrow failure and visceral organ damage if left untreated.
The study met all of its primary end points, which demonstrated that ABP 959 was about as effective as Soliris. The safety profile was also comparable to Soliris, which means that ABP 959 is a safe option for treating PNH when weighing the benefits of treatment.
Incremental annual sales potential
With Amgen's Soliris biosimilar set to hit the market in two and a half years, it's worth figuring out how much of an impact the launch will have on the pharma company's revenue.
I will assume that ABP 959 will be able to siphon off 15% of Soliris' U.S. and European Union volumes at its peak. Factoring in that Soliris' U.S. and European Union sales will be $3.2 billion in 2022, this equates to nearly $500 million in annual sales volume. But since ABP 959 will be approximately 30% cheaper than Soliris as a biosimilar, this would equate to just over $300 million in annual sales potential.
So this would be just over a 1% bump in the $26.2 billion in total revenue that analysts are expecting in 2022; however, Amgen has a strong pipeline of 37 other molecules. This is why analysts believe Amgen will deliver 8% annual non-GAAP (adjusted) diluted earnings per share (EPS) growth for the next five years.
A wonderful income stock at a fair valuation
Amgen offers income investors a 3.2% dividend yield, twice as high as the S&P 500 index's 1.6% yield. And with the dividend payout ratio positioned to come in below 45% in 2022, yield-oriented investors can be confident that Amgen's dividend is safe. This modest payout ratio should also allow the stock's dividend to grow at a high-single-digit annual rate for the foreseeable future.
And trading at a forward price-to-earnings (P/E) ratio of 13.9, Amgen is only priced at a slight premium to the pharmaceutical industry average multiple of 13.1. This is a rational valuation for investors to pay for an above-average pharmaceutical stock such as Amgen.
