At the end of January, Amgen (AMGN 2.35%) celebrated the U.S. launch of its biosimilar Amjevita to AbbVie's (ABBV 1.06%) star immunology drug called Humira.
Amgen's Amjevita received approval from the U.S. Food and Drug Administration (FDA) as a biosimilar in 2016. But the company had to wait seven years before becoming the first of at least eight Humira biosimilar medicines that will be released in 2023. This long-awaited launch raises the following questions: How much could the U.S. healthcare system save from this development? And what could it mean for Amgen's financial prospects? Let's dig in to get answers to these questions.
Humira biosimilars could save billions
Humira is a medicine that is used by more than a million patients around the world for a variety of serious inflammatory conditions. These include moderate-to-severe rheumatoid arthritis, moderate-to-severe plaque psoriasis, and Crohn's disease.
There are essentially two hurdles for a biosimilar drug to clear to ultimately be approved by the FDA. First, the biosimilar must be approximately as effective as the branded or reference drug. Second, the biosimilar needs to be as safe as the branded drug. Clinical trials of Amjevita demonstrated the drug met both conditions. That is why the FDA gave the drug the go-ahead to treat seven inflammatory diseases.
Alongside the approval of multiple other Humira biosimilars, this could translate into huge cost savings for the U.S. healthcare system. That's because biosimilars are typically 20% to 30% cheaper than branded drugs.
Humira posted $18.6 billion in revenue for AbbVie within the U.S. in 2022. If just 50% of this drug volume is replaced by biosimilars at a 50% cost reduction (Amjevita is priced 55% below Humira), this would save patients/health insurers a staggering $4.7 billion annually.
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Amjevita is a decent growth catalyst
Amjevita and other biosimilars could be a much-welcomed alternative to Humira for numerous patients. But what kind of a boost could that provide to Amgen's topline?
As the first Humira biosimilar to market in the U.S., Amgen will have at least a five-month head start over its competitors. Among the eight biosimilars slated to launch in 2023, I believe that Amjevita will capture a leading 11% share of Humira's volume.
That is equivalent to $2 billion in annual sales volume. Adjusting for a 55% discount relative to Humira would equate to $900 million in annual revenue for Amgen. Stacked against the $26.7 billion in revenue that analysts are expecting in 2023, Amjevita's U.S. launch could lift the topline by around 3.4%. By itself, that's enough revenue to move the needle for the company. Along with dozens of other compounds currently in different stages of clinical development, Amgen is a fundamentally promising business. This is why I would argue that the analyst consensus of 4.1% annual non-GAAP (adjusted) diluted earnings per share (EPS) growth for the next five years could end up being on the low side.
A favorable valuation for a quality dividend growth stock
During the market downturn, Amgen's stock has managed to gain 2% in the last year. And the stock still looks to be a bargain for dividend growth-oriented investors.
Amgen's forward price-to-earnings (P/E) ratio of 12.5 is just below the drug manufacturers' industry average forward P/E ratio of 12.9. And the cherry on top for investors is that the company's 3.6% dividend yield is more than double the S&P 500 index's 1.7% yield. With the low dividend payout ratio, there should also be plenty of room for future dividend growth.
