Remicade, one of the most potent drugs available on the market for treating arthritis, is currently Johnson & Johnson's (NYSE:JNJ) most important product with regards to sales but it is in danger of recording a drop in sales anytime soon. Remicade has been found to be effective in reducing inflammation drastically in at least 70% of patients living with rheumatoid arthritis. According to JNJ's Q3 2013 results released recently, sales of Remicade rose by 6.2% to $1.7 billion from $1.6 billion it reported during the corresponding quarter in 2012. Sales of Remicade accounted for 9.6% of JNJ's entire revenue for the quarter and it also accounted for 24% of the top line of the company's pharmaceutical segment.
Sales of Remicade in the U.S., remains valid and patent protected till 2018 but Remicade's patent has already expired in some parts of the Eurozone nations and will expire in almost all the EU countries in 2015 meaning that Remicade's sales growth may flatten out or start to decline in 2014 especially as Inflectra, a newly EU-approved biosimilar type of Remicade and developed by Hospira (NYSE:HSP), begin to gain market share from Remicade in 2014. Though JNJ markets Remicade in partnership with Merck (NYSE:MRK) but JNJ currently receives about 75% of the total sales. Now, if we factor in the fact that JNJ recorded $2 billion from the sales of Remicade in the EU countries in 2012 and looking at Remicade's current sales growth that is already in the single digits, then it is obvious that Remicade's imminent patent expiration in Europe could affect the revenues of JNJ in 2014. However, the following 3 key areas should improve the sales growth of JNJ's pharmaceutical segment in 2014 even if the sales of Remicade plummet:
JNJ's Newly Approved Hep C Drug, Olysio, Could be a Cash Cow in a Market Worth $20 billion A Year
Johnson & Johnson's new hepatitis C drug, Olysio, which was approved for sale in the U.S. market by the FDA (Food and Drug Administration) on 23 November, could be a cash cow for the company going forward considering the uniqueness of the drug and the size of the market for hepatitis C drugs. The market for Hep C drugs is big with about 400 million chronic sufferers worldwide out of which 4.4 million are Americans already infected with the dreaded liver damaging hepatitis C virus (HCV) but many of the infected people are yet to be diagnosed and placed on treatment because according to the U.S. Centers for Disease Control and Prevention (NASDAQ:CDC), most of the infected people do not know that they have been infected with HCV.
About 75% of the people infected with HCV are genotype 1 HCV sufferers while the remaining 25% are people infected with genotypes 2 & 3 forms of hepatitis C. JNJ's Olysio is only suitable for treating people infected with genotype 1 HCV while Gilead Sciences' (NASDAQ:GILD) Sofosbuvir which is expected to be approved by the FDA on December 8 is most suitable for treating genotypes 2&3 forms of HCV infection. Since JNJ's Olysio was the first drug to be approved by the FDA to bring new standard of treatment to sufferers of HCV, it is hoped that Johnson & Johnson would hit the U.S. market with the new Hep C drug in the first quarter of 2014 and possibly gain market share advantage over other genotype 1 HCV drugs that may be waiting in line for approval. In dollar terms, an analyst says that the market for hepatitis C drugs is worth $20 billion per annum. Though Olysio has competitors like Incivek by Vertex (NASDAQ:VRTX) and Victrelis by Merk that are also protease inhibitors yet Olysio seems more effective at dislodging the HCV quickly.
Perhaps to ensure it takes root firmly in the Hep C market that offers huge sales potential, Johnson & Johnson recently bought GlaxoSmithKline's experimental Hep C drug GSK2336805 which is currently undergoing phase 2 trials to establish how it could be combined with Olysio or other drugs for the treatment of chronic HCV infections. In addition to Incivo which was previously approved for Hep C treatment, Johnson & Johnson is now having two approved Hep C drugs in its portfolio which should improve the company's revenues going forward.
Invokana: JNJ's Recently Approved Type 2 Diabetes Drug Offers Growth Prospect
Invokana is an innovative SGLT2 inhibitor approved in March for the European and the U.S. markets. JNJ's Invokana is one of the two SGLT2 inhibitors available on the global market currently. The other SGLT2 inhibitor is Forxiga but it is only approved for the EU market. Invokana help adult patients suffering from type 2 diabetes reduce the number of the required daily insulin doses by excreting more glucose through the urine. JNJ projects to generate $2.5 billion sales per year from Invokana.
Imbruvica: A Newly Approved Mantle Cell Lymphoma (MCL) Blood Cancer Treatment Promises Good Sales
Imbruvica (ibrutinib), a potential blockbuster treatment for MCL, is the joint initiative of JNJ and Pharmacyclics (NASDAQ:PCYC). The treatment was proposed by the two companies for the treatment of both MCL and lymphocytic lymphoma (CLL) but the drug has only been approved, at this time, for the treatment of MCL. The approval for MCL treatment was granted by the FDA on November 13. Both companies have an equal stake in Imbruvica and it is estimated that the sales of Imbruvica will attain $9.2 billion per annum if approved for the treatment of both MCL and CLL. Both companies are hopefully looking up to the upcoming approval of Imbruvica for the treatment of CLL.
Johnson & Johnson's Outlook
Johnson & Johnson is a global leader among the world's largest pharmaceutical companies. Its line of business includes medical devices and diagnostics, pharmaceuticals, and a variety of consumer products. If not for the growing concerns for the company's reputational damage that has recently put off some investors, including Warren Buffet, from being shareholders of Johnson & Johnson, this stock should be one of the permanent fixtures in the portfolio of every investor.
Really, Johnson & Johnson has a long history of providing value to shareholders through consistent dividend increases. This medical giant has rewarded its shareholders with an average dividend increase of 7.5% in the last three years (actual dividend increases: 9.33%, 6.64%, and 6.67% for 2010, 2011, and 2012 fiscal years respectively) and an average dividend increase of 12.14% since 2000. Also, Johnson & Johnson has consistently increased dividend payouts to its shareholders in the last 51 years. The shares of Johnson & Johnson have yielded 34% returns to shareholders over the past year and the company is able to keep up with paying increased dividends to its shareholders into the foreseeable quarters. In fact, JNJ has increased its earnings guidance for 2013 full fiscal year to a range between $5.44 and $5.49 per share from $5.35-$5.45 per share.
JNJ's forward annual dividend yield of 2.8% and its solid financial position of $25 billion in cash and equivalents should appeal to value investors. I'm convinced that Johnson & Johnson remains a solid play in healthcare especially as it is now obvious that the company's investments in life-saving Hep C drugs, diabetes and blood cancer treatments should start to yield great returns for the company and its shareholders in the coming quarters. Johnson & Johnson is a buy.