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In its Oncology segment, AstraZeneca (NYSE:AZN) recently initiated the late-stage clinical study of "Selumetinib", its MEK inhibitor, which has the potential to block proteins that are responsible for developing cancerous cells. It is investigating Selumetinib as a second-line therapy to treat patients with advanced or metastatic non-small-cell lung cancer, or NSCLC, with KRAS mutation-positive tumors, a sub-type of lung cancer associated with poor prognosis and limited treatment options.

In 2003, the company signed a deal with Array BioPharma (NASDAQ:ARRY), in which it received the worldwide license to develop and commercialize Selumetinib. In this deal, Array received a milestone payment of $5 million from AstraZeneca upon commencing the phase III trial of Selumetinib. It is also eligible for double digit royalties on global commercialization and will receive an additional milestone payment of $70 million when the drug achieves various endpoints at regulatory fronts.

Evaluating efficacy of Selumetinib in trial studies

In the phase II trial of Selumetinib in combination of Sanofi's (NYSE:SNY) chemotherapy medication "Taxotere," or "Docetaxel," the trial demonstrated superior efficacy of this combinational therapy than Docetaxel alone. It significantly improved the progression free survival, or PFS, to 5.3 months compared to 2.1 months with Docetaxel alone.

Based on the positive response in the phase II trial, AstraZeneca initiated a phase III trial for Selumetinib. In the SELECT-1 study, the largest prospective study ever conducted in patients suffering with NSCLC, it will evaluate the safety and efficacy of the combination therapy of Selumetinib and Docetaxel compared to placebo and other chemotherapy agents. The study is designed to evaluate PFS as the primary endpoint and overall survival as a secondary endpoint. It will include 220 centers globally and aimed to enroll 634 NSCLC patients, who will be either treated with two doses of 75 mg Selumetinib daily or the matching placebo in combination with Docetaxel.

With various clinical trials, the company is evaluating Selumetinib's efficacy in treating several types of MEK-dependent cancers. In August 2013, AstraZeneca started the pivotal phase II study of Selumetinib to assess its efficacy and tolerability in combination with radioactive iodine as an adjuvant therapy to treat patients infected with thyroid cancer.

Also, it has planned to initiate the phase II trial study of Selumetinib to treat a rare cancer, metastatic uveal melanoma, by the end of 2013. AstraZeneca believes this drug may have the potential to treat other indications such as neurofibromatosis and gastrointestinal cancers. AstraZeneca showed the superiority of Selumetinib in comparison to GlaxoSmithKline's (NYSE:GSK) MEK inhibitor, "Mekinist", also known as "Trametinib", in combination with standard chemotherapy agents.

NSCLC Prevalence and opportunity for AstraZeneca

The development of NSCLC drugs is becoming important, as these cancer cells have developed resistance to chemotherapy agents. Lung cancer is the leading cause of cancer-related death worldwide. Every year approximately 1.6 million people are diagnosed with lung cancer worldwide, of which 85% of the cases are diagnosed with NSCLC. It is responsible for the death of around 1.4 million people globally, and NSCLC accounts for 80% of lung cancers in the U.S.

I expect AstraZeneca, with its experience developing NSCLC drugs, will be able to meet both the safety and efficacy endpoints of Selumetinib in the trial study. It is currently marketing "Iressa," its previous NSCLC drug that is used to treat advanced or metastatic NSCLC with activating mutations of epidermal growth factor receptor, or EGFR, a protein. It has contributed revenue of $611 million in 2012 and $489 million year-to-date with the growth of 13% over same period last year. Iressa is giving strong competition to Roche's (OTCQX:RHHBY) NSCLC drugs "Tarceva" and "Avastin," and with both Iressa and Selumetinib, AstraZeneca is expecting to enhance its market share.

I think, if Selumetinib reports higher efficacy in treating other indications, then it will generate additional opportunities for the company to enhance its presence in the oncology drugs market. Looking at its superior efficacy in the trial phases, AstraZeneca is anticipating Selumetinib may generate sales of more than $1 billion at its peak sales period. I also expect that Selumetinib, with its superior treatment abilities in treating NSCLC and additional indications, may achieve the revenue targets set by the company comfortably.

On competition side

GlaxoSmithKline's Trametinib is the first approved targeted MEK inhibitor. In clinical trials, Trametinib was able to improve the PFS of 4.8 months compared to 1.5 months with standard chemotherapy treatment. The company has also initiated the combination therapy of Trametinib and "Tafinlar", another cancer drug. Both the FDA approved these drugs earlier this year, and GlaxoSmithKline received priority review status by the FDA for this combinational medication. It is expected that the FDA will review this combinational therapy in early January 2014. This will enable the company to treat metastatic melanoma patients more efficiently and expects both these drugs will have the combined peak sales of $2.5 billion by 2020.

On the other hand, on November 4, 2013, both Roche's Tarceva and AstraZeneca's Iressa were prescribed as the first-line treatment to 70% of top five European countries' NSCLC patients. Roche is the developer of the world's top three selling oncology drugs, which include Avastin for lungs and colon cancer, Herceptin for treating breast and stomach cancer and Rituxan for blood cancer. Together these drugs contribute 40% of Roche's revenue. I expect this will continue to increase its topline and revenue until the patent expiration. Further, it has also initiated the late-stage clinical trial for MPDL3280A, a cancer drug, and I expect Roche, as the world's largest cancer drug manufacturer, will be able to post positive trial phase results. This will help it receive faster regulatory approval for the commercialization of its drug, and it is expected to generate peak sales of $3.5 billion over its life.

Conclusion

I expect AstraZeneca, by reporting the superior safety and efficacy profile of Selumetinib in the trial phase, will enable it to receive the regulatory approval comfortably. This will generate opportunities for the company to deepen its footprint in the oncology drugs segment, and by successfully treating other indications, will help boost its earnings.

With strong dividend payout of 76%, the company is offering an opportunity to income investors. It is currently generating the dividend yield of 5.3%. I expect the company's effort in developing new drugs will help it build a stronger drug portfolio.

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.