What remains in the pipeline of the eighth largest pharmaceuticals company after the recent approval of its last jackpot?
You will find a comprehensive dividend stock analysis of Johnson & Johnson (NYSE:JNJ) in this article. JNJ is a strong company with a well-diversified business. The company was able to pay cash dividends to shareholders every year since 1944 which increased consecutively for 51 consecutive years. This might partially explain its high P/E of 23,10. This reflects the elevated price of the stock which is 47.4% higher than the fair value calculated in the article cited just above. A second point that can lead to this overvaluation is the approval of recent game changers such as Invokana that lead investors to think that the efforts of the company are fruitful and are able to generate massive revenues (e.g. Invokana is expected to bring $667 million by 2016) and overcome the patent cliff. I think that investors are right to be optimistic about JNJ's future and that several new sources of considerable income are about to be approved in the nearby future. While some fear a correction of the stock price, it usually requires a negative triggering event. Such an event might come from safety issues with Invokana that I mention in one of my previous articles. But fortunately for investors, I see few events of this kind in JNJ's future. My feeling when looking at the short-term pipeline of JNJ is that the stock will keep going up in the near future. There are three serious candidates that are in the very late stages of the pipeline. Among them, you should keep an eye on Simeprevir in particular because that drug is likely to hit the huge market of hepatitis C in the coming months. If I had to buy some JNJ stock, I would wait longer. Indeed, I think that this year will be really bright for the company (with Invokana alone expected to generate more than $100 million this year), and the (likely) approval of Simeprevir will further increase the stock price in the really near future.
The three serious candidates presented here should fill between 2013 and 2015.
Ibrutinib: golden future
First, you should note that Ibrutinib has been developed in collaboration with Pharmacyclics (NASDAQ:PCYC).
Ibrutinib selectively and irreversibly targets a protein named Btk, which is required for B cell receptor signaling. B cell receptor signaling is a constituent of a subtype of white blood cells called B cells. B cell receptor detects foreign bodies (e.g. virus, bacteria, toxins) and activates the cell by avoiding its death and instructs it to divide and create sister cells in order to eliminate foreign bodies. Ibrutinib acts by blocking the B cell receptor signaling through inhibition of Btk, which in turn blocks pro-survival signals and avoid the creation of additional reactive B cells.
B cell deregulation is found in several diseases including cancer and autoimmune diseases (in this case, the B cells starts recognizing normal constituent of the bodies as foreign bodies). Some of them result from an inappropriate B cell receptor signaling. Given its inhibition on B cell receptor signaling, Ibrutinib is very promising for treating such kind of diseases. Moreover, it has already received numerous breakthrough therapy designations - for treating chronic lymphocytic leukemia, small lymphocytic lymphoma, and more recently, for Waldenström's macroglobulinemia, and mantle cell lymphoma. According to the FDA: "Breakthrough therapy designation is intended to expedite the development and review of drugs for serious or life-threatening conditions. The criteria for breakthrough therapy designation requires preliminary clinical evidence that demonstrates the drug may have substantial improvement on at least one clinically significant endpoint over available therapy. A breakthrough therapy designation conveys all of the fast track program features."
The fact that Ibrutinib has obtained breakthrough therapy designation in four different diseases clearly shows the Ibrutinib potential is serious. There is no doubt that this achievement will speed up its approval.
In addition to that, Ibrutinib has been investigated in chronic lymphocytic leukemia, small lymphocytic leukemia, multiple myeloma, follicular lymphoma, diffuse large B-cell lymphoma, Waldenström's macroglobulinemia and mantle cell lymphoma. Finally, studies in mice suggest that it might be effective in treating rheumatoid arthritis, which affects between 0.5 and 1% of adults in the developed world as well as for treating systemic lupus erythromatosus.
In conclusion, Ibrutinib is a strong candidate and has a substantial potential market.
Siltuximab: moderate potential?
Siltuximab acts by impeding the action of interleukin 6 (IL6), a protein that plays a critical role in multiple diseases including diabetes, arteriosclerosis and different cancers. It stabilized 50% metastatic renal cell cancer while inducing very few side effects. It has shown no adverse effects in a "phase I" study which focused on its utility in treating prostate cancer. Nonetheless no improvements in outcome were observed in a phase II study. Moreover, Siltuximab seems to be efficient at treating Castelman's disease, as well as ovarian cancer.
Siltuximab increased the median progression-free survival time of multiple myeloma patients. However, the overall survival was shorter than the patients who have received the reference treatment. Last but not least, Siltuximab has also increased severe or life-threatening side effects in this specific case.
To conclude, the potential of Siltuximab is less clear than Ibrutinib, but it has to be emphasized that it has demonstrated low adverse effects in most of the trials (and this is a serious point in the approval process) and positive effects in some of them.
Simeprevir: huge market
Note that Simeprevir is being developed in collaboration with Medivir. With its 200 million patients around the world, hepatitis C is a massive market for pharmaceutical companies. Simeprevir is efficient against two subtypes of hepatitis virus, "genotype I" which accounts for 50-70% of all the cases and "genotype IV." Johnson & Johnson has just announced that its submitted marketing authorization application to the European Medicines Agency seeking approval for Simeprevir. Note that the market presents several competitors being developed by Gilead (NASDAQ:GILD), Bristol-Myers Squibb (NYSE:BMY), Roche (OTCQX:RHHBY), Merck (NYSE:MRK) Abbott (NYSE:ABT), Achillion (NASDAQ:ACHN), Vertex (NASDAQ:VRTX) and Idenix (NASDAQ:IDIX). For a comprehensive analysis of the race for HCV drug, please read this article.
While the market presents several competitors, many of them are in earlier phases. Although it remains difficult to evaluate the market shares that will be occupied by Simeprevir, it will undoubtedly generate massive income due to the huge size of the market.
Johnson & Johnson's short term pipeline is pretty impressive and comprises drugs that received FDA distinction for their effectiveness and drugs that will be sold on one of the largest markets. Together with the recent approval of Invokana and the well diversified activities of J&J, I strongly believe that JNJ is a healthy investment which will be further reinforced by its soon to come drugs.
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.