FDA Approves Johnson & Johnson's Blockbuster Diabetes Drug Invokana

| About: Johnson & (JNJ)

Earlier today, the FDA approved Invokana, Johnson & Johnson's (NYSE:JNJ) new treatment for type 2 diabetes.

Per the FDA's report:

Type 2 diabetes is the most common form of the disease, affecting about 24 million people and accounting for more than 90 percent of diabetes cases diagnosed in the United States. Over time, high blood sugar levels can increase the risk for serious complications, including heart disease, blindness, and nerve and kidney damage.

"Invokana is the first diabetes treatment approved in a new class of drugs known as sodium-glucose co-transporter 2 (SGLT2) inhibitors," said Mary Parks, M.D., director of the Division of Metabolism and Endocrinology Products in the FDA's Center for Drug Evaluation and Research. "We continue to advance innovation with the approval of new drug classes that provide additional treatment options for chronic conditions that impact public health."

Invokana works by blocking the re-absorption of glucose by the kidney, increasing glucose excretion, and lowering blood glucose levels in diabetics who have elevated blood glucose levels. Its safety and effectiveness were evaluated in nine clinical trials involving over 10,285 patients with type 2 diabetes. The trials showed improvement in hemoglobin A1c levels (a measure of blood sugar control) and fasting plasma glucose (blood sugar) levels.

Per Bloomberg:

The pill may generate $800 million in peak sales.

Johnson & Johnson has a market cap of $228.04 billion, and currently trades near its 52-week high of $81.53 per share. Shares are up 17.24% YTD and up 29.62% over the past year. Analysts currently have a mean and median price target of $78.00 on the shares.

Positives for Johnson & Johnson:

  • D/E of 0.2 is below the industry average of 0.4.
  • Operating margin of 23.6 % and ROE of 17.8 are above the industry averages of 22.3% and 17.2, respectively.
  • JNJ currently has a 2.99% dividend.
  • From $67 billion of revenue in 2012, JNJ generated $10.88 billion in free cashflow (16%).
  • In addition to returning value to shareholders via dividends, JNJ repurchased $12.9 billion of common stock in 2012.

Bottom Line

The new drug Invokana is a potential blockbuster drug set to generate a lot of money for JNJ, which has a history of returning lots of value to its shareholders. With the market currently closed, look for this announcement to further the stock's recent rise on Monday.

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.