Johnson & Johnson: Approval Of TREMFYA Is Huge Win For Shareholders

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Summary

TREMFYA wins FDA approval for plaque psoriasis.

Phase 3 data is very indicative of a good future with the product.

Competition in the space is fierce but TREMFYA has some advantages.

Safety risks from other psoriasis drugs makes TREMFYA a better choice.

Recently, the FDA approved Johnson & Johnson's (JNJ) treatment TREMFYA for patients with plaque psoriasis. That means Novartis (NVS), Eli Lilly (LLY), and Valeant Pharmaceuticals (VRX) could see some competition in this space. This is a good opportunity for investors to go long J&J stock.

Phase 3 Data

The approval of Tremfya comes about because J&J posted positive phase 3 results in three different trials using TREMFYA or guselkumab . These trials were known as VOYAGE 1, VOYAGE 2, and NAVIGATE. Between all three of these trials, there was a recruitment total of 2,000 patients. The first two studies VOYAGE 1 and VOYAGE 2 showed statistically significant efficacy in patients treated with TREMFYA. That is because patients in this trial, at week 16, experienced at least 90% clearer skin. That is an important finding because that means that these patients nearly achieved fully clear skin. At least 9 out of 10 patients that achieved a PASI score of 90 or higher at week 28, were able to keep that response rate intact until week 48. The most impressive part about the findings of these clinical trials was when TREMFYA was pitted against AbbVie's (ABBV) Humira. That is because it was reported that 7 out of 10 patients were able to achieve 90% clearer skin taking TREMFYA. On the other hand, those taking Humira reported that 4 out of 10 patients achieved 90% clearer skin. This reported data was a huge win for Johnson & Johnson shareholders. In my opinion these results solidify TREMFYA as a major player in the plaque psoriasis space.

Competitors

With the FDA approving TREMFYA for plaque psoriasis that means that it will have to go up against many competitors in the same space. Such competitors are: Novartis with Cosentyx, Eli Lilly with Taltz, and Valeant Pharmaceuticals with Siliq. So what's sets the stage apart from TREMFYA compared to these other drugs? Well, TREMFYA blocks interleukin 23. On the other hand, the other three drugs target and block interleukin 17. What I believe this does is it gives doctors the option of providing patients with a treatment that has a different mode of action. That is because some patients that are treated with other plaque psoriasis drugs with interleukin 17 don't respond to treatment. With TREMFYA targeting a different protein it might help activate the cells in the patients body that they otherwise would not achieve. That means that patients that don't experience an effect with IL-17 from the other three drugs, might achieve a good response with IL-23.

The next path to fend off competitors would be for J&J to price its drug with a lower cost. Well the company is moving towards having a lower cost so that it would be more accessible to patients. Treatment with TREMFYA would cost around $9,684. Novartis' treatment Cosentyx costs up to $17,600 for the same treatment. Eli Lilly Taltz ranges up to $14,600 for treatment. That makes J&J drug competitive against these two companies.

What about Siliq from Valeant though? Well, Valeant was on the right track on the price it set. The downside is that it was forced to set a lower price. That is because Siliq is the only one of these types of drugs that carries a black-box warning. The warning for Siliq is established due to the risk of suicide when taking the drug. It's not really surprising, that's because Siliq was tossed aside by a few pharmaceutical companies over the years. The original developers of Siliq were Amgen (AMGN) and AstraZeneca (AZN). When Amgen learned about the suicide risks it dumped the rights over to AstraZeneca immediately. As soon as AstraZeneca got the rights for Siliq, it wanted nothing to do with it. Therefore, it dumped the drug over to Valeant Pharmaceuticals to take it over. Even though Siliq has a low price tag it will have a hard time to compete against the other treatments because of the black-box label warning. An analyst from Wells Fargo by the name of David Maris reiterated an Underperform rating on Valeant stating that the news was another negative "... for the company, which is about to launch its own psoriasis treatment..."

That is because Valeant is expected to launch Siliq in the second half of 2017. With the FDA approval of J&J TREMFYA this adds additional pressure that Valeant doesn't need.

The main way that one company will take the lead in the plaque psoriasis space would be the negotiation of price discounts. The other pharmaceutical companies will offer discounts, but J&J has set itself a path for its own discounts according to this statement from the company, it will:

... work closely with payers, providers and pharmacy benefit managers to ensure Tremfya is broadly accessible and affordable for patients...

What that indicates is that the company will offer a copay card to eligible patients that will lower their out of pocket costs to $5 or less per dose. This competitive nature will bode well for the launch of TREMFYA. Abbvie shareholders will be fine as HUMIRA is still a blockbuster with generated sales of $16.078 billion in in 2016. Although, HUMIRA is indicated for many other indications anyway such as: Rheumatoid arthritis, chronic plaque psoriasis, ankylosing spondylitis, psoriatic arthritis and polyarticular juvenile idiopathic arthritis, and Crohn's disease. Novartis' Cosentyx came in strong in 2016 with sales of $1.1 billion. Taltz was approved by the FDA in May of 2016. It hasn't been doing well with sales of only $113.1 million closing out 2016. In the first quarter of 2017 it produced a measly $96.61 million in sales. Analysts have estimated that TREMFYA could reach sales up to $3.2 billion. That would make it a pretty good blockbuster status drug. It all depends on how well the other competitors perform as well, and what discounts they may offer.

Plaque Psoriasis

Plaque psoriasis is a chronic inflammatory condition whereby the body produces an overabundance of skin. In other words, the skin cells are overproduced causing raised red lesions called plaques that can itch and cause pain. TREMFYA was able to both reduce lesions and help with the symptoms. There are an estimated $7.5 million Americans that have psoriasis. The psoriasis market is expected to reach to $12.1 billion by 2024. Which makes this target segment a perfect choice for J&J to go after despite how crowded the space is.

Risks

The biggest risk involved with TREMFYA would be the crowded space of the psoriasis market. Analysts are estimating that sales could reach up to $3.2 billion but that is an estimate. There are inherent risks such as if other companies engage in a price war. That is, for example, competitors reduce the prices for their psoriasis drugs so they can gain larger market share. In addition, they could offer better coupon options to patients compared to J&J and that will make for a more competitive environment.

Conclusion

The approval of TREMFYA is a huge win for J&J shareholders, because it gives the company a chance to potentially reach blockbuster status with the drug. The positive results along with the better safety profile compared to some other drugs will give it significant advantages. The fact that TREMFYA will be priced lower compared to others means it should sell pretty well in the market. By performing better than Humira in a head to head trial, it gives TREMFYA a good fighting chance in the market. All these positive points, in my opinion, makes J&J a good stock to buy.

Disclosure: I/we 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.

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