These are exciting times for Johnson & Johnson (JNJ) with FDA product approvals setting the stage for higher growth. Recently the FDA approved Johnson & Johnson's drugs Zytiga for prostrate cancer, Invokana for type 2 diabetes and Invega for schizophrenia. Growth in the company's pharma segment had taken a hit due to litigation expenses and the US Healthcare Reform fee last year, but looks like revenues will get a strong boost with these approvals.
New drug approvals
Zytiga is an oral once-daily medication for metastatic castration-resistant prostate cancer. The company seems to have hit a bull's eye with this drug which has already achieved a 70% operational growth and captured 20% of the market. Zytiga is the most successful oral oncology drug launch thus far. The drug has been approved for use in patients who had no prior chemotherapy. Prostate cancer is the second most common cause of cancer death among men in the US, and about 29,000 men die every year from this disease in the country. This drug overcomes the problem faced while using some other drugs that induce chemical castration - resistance to castration therapy. This makes the drug quite potent in treating cancer.
Invokana is Johnson & Johnson's first drug to be approved for type 2 diabetes treatment and is a first-in-class medication. In phase III clinical trials this drug demonstrated great efficacy in lowering blood glucose levels and also contributed to weight loss. So the drug helps kill two birds with one stone - increased blood sugar level and increased weight. This should help ramp-up the revenues in the pharmaceuticals segment. Diabetes is not just a huge market, but a hugely growing market as well. About 347 million people all over the world have diabetes. 90% of the people suffering from diabetes worldwide have type 2 diabetes. This market is expanding not just in the developed countries but also in the developing world. This drug presents great opportunities for Johnson & Johnson in the emerging markets where diabetes is increasing its hold due to lifestyle changes and the aging population.
Another winner for Johnson & Johnson's pharmaceuticals segment is the recently approved schizophrenia drug, Invega, which could spell success for a relatively slower growing neurosciences division at the company. This antipsychotic drug also has great potential to do well in the market. Schizophrenia, a chronic and disabling mental disorder, is known to affect about 1.1% of the US adult population annually. This disease negatively impacts thought processes, perceptions as well as the emotional responsiveness of the affected person.
Other than these two major approvals, the company also had other approvals which were related to dosage of previous drugs or approvals for other indications.
The newly approved drugs have started creating a stir in the market and Johnson & Johnson is giving its investors a larger share in the pie with an increased dividend (from $0.61 to $0.66 per share) as announced by the Board of Directors recently. The company has also increased the revenue and EPS guidance for the full year 2013.
Invokana, as an weight-loss -cum diabetes drug, could have been a greater success had it not had some of the side effects described by the FDA:
The most common side effects of Invokana are vaginal yeast infection (vulvovaginal candidiasis) and urinary tract infection. Because Invokana is associated with a diuretic effect, it can cause a reduction in intravascular volume leading to orthostatic or postural hypotension (a sudden fall in blood pressure when standing up). This may result in symptoms such as dizziness or fainting, and is most common in the first three months of therapy.
The FDA also requires JNJ to perform five postmarketing studies for Invokana (this is quoted from the above source):
- a cardiovascular outcomes trial;
- an enhanced pharmacovigilance program to monitor for malignancies,
- serious cases of pancreatitis, severe hypersensitivity reactions, photosensitivity reactions, liver abnormalities, and adverse pregnancy outcomes;
- a bone safety study;
- and two pediatric studies under the Pediatric Research Equity Act (PREA), including a pharmacokinetic and pharmacodynamic study and a safety and efficacy study.
The results of all these studies will give us better guidance on the potential market for the drug.
Pharmaceutical segment financials
The worldwide pharmaceutical sales for the first quarter of 2013 was 10.4% higher than that for the same period in 2012. The operational growth was 11.4% and sales in the US increased by 14.7%. International sales increased by 6.1%. Among the newly approved drugs, Invega and Zytiga played a strong role in contributing to the sales growth. The pharma segment's operating profit had gone down by 9.6% last year, but sales of the new products picking up increases the likelihood of a stronger performance by the segment this year. This will help the company combat the losses it is facing due to patent expirations of late. Johnson & Johnson's worldwide 5-year CAGR is 4%, while its US 5-year CAGR is 0.6%. The corresponding figures for a 10-year calculation are 7.2% and 3.8%, respectively.
CEO Alex Gorsky has all the reason to smile with the ways things are shaping up. The company's pharmaceuticals segment, which is the 8th largest in the world, is going to reap the benefits of new launches and an interesting late-stage pipeline, while the medical devices and diagnostics segment is also likely to make news as the DePuy-Synthes integration is completed over the course of the year. Johnson & Johnson is a safe stock with a good dividend, but that's not it - watch out for a stronger upward trend. This one's definitely a buy.