Will a New Diabetes Treatment Fuel This Company's Top Line Growth?

In a previous article, I discussed Johnson & Johnson's (NYSE: JNJ  ) massive pharmaceuticals business, which accounted for 39.1% of its total revenue last quarter. It is the company's second largest business segment by revenue and the fastest growing one, reporting 11.7% year-over-year sales growth last quarter.

However, J&J's pharmaceuticals business has a glaring vulnerability -- its arthritis medication Remicade, which it co-markets with Merck (NYSE: MRK  ) , generated 23.9% of its quarterly revenue last quarter. Although sales of the treatment rose 9% year-over-year last quarter, it faces a major challenge -- Inflectra, a biosimilar produced by Hospira and Celltrion, which was recently approved in the EU. During clinical studies, Inflectra showed better efficacy rates than Remicade and is expected to be cheaper -- making it a major threat to J&J's top line growth in the region.

Looking past arthritis treatments
Investors concerned about Remicade should watch sales of Simponi, another arthritis medication marketed with Merck, which reported 40% sales growth last quarter. In addition, sirukumab, a new rheumatoid arthritis treatment that it is developing with GlaxoSmithKline, could treat a niche group of patients on which traditional treatments have failed.

However, for a clearer glimpse of J&J's future, investors should look past these arthritis treatments at a new source of revenue for J&J -- diabetes treatments.

Leading a new class of diabetes treatments
J&J's most important new product is Invokana, the only FDA approved SGLT-2 (sodium glucose cotransporter) inhibitor on the market today. SGLT-2 inhibitors are a new class of orally administered drugs that help type 2 diabetes patients excrete more glucose through their urine to stabilize blood sugar levels. As a result, Invokana can reduce the number of required daily insulin injections.

Invokana only launched in the U.S. in April, but analysts expect the drug to eventually reach peak sales of $2.5 billion. Invokana has not been approved in the EU, but recently received a favorable recommendation from the Committee for Medicinal Products for Human Use, which bodes well for an eventual approval.

Here come the new challengers
J&J's success hasn't gone unnoticed, however.

Bristol-Myers Squibb (NYSE: BMY  ) and AstraZeneca (NYSE: AZN  ) teamed up to produce Forxiga, a competing SGLT-2 inhibitor that was approved in the EU last November. In the United States, the FDA rejected Forxiga in February 2012 on grounds that additional safety data, including the possible risk of breast and bladder cancer, was required. The two companies have now resubmitted new data to the FDA, with a final decision set for next January. Forxiga could also complement Byetta/Bydureon, another diabetes treatment produced by Bristol-Myers Squibb and AstraZeneca.

The U.S. approval of Forxiga could help Bristol-Myers Squibb and AstraZeneca offset some losses from patent expirations and generic competition, which resulted in the two companies posting 9% and 4% year-over-year revenue declines, respectively, last quarter. Annual sales of Forxiga are expected to reach $700 million to $1.5 billion.

Pfizer and Merck forge an alliance
Meanwhile, Pfizer (NYSE: PFE  ) and Merck have also teamed up to produce ertugliflozin, a SGLT-2 inhibitor that is currently ready for phase 3 trials. The two companies are planning to market ertugliflozin as either a stand-alone drug or in conjunction with Merck's diabetes drug, Januvia.

If ertugliflozin is approved, Pfizer stands to gain an important new source of revenue that could offset some of its lost sales from Lipitor, which have weighed on the company over the past two years. Merck could also use the treatment to boost sales of its diabetes treatments Januvia and Janumet, which have taken center stage after its top-selling asthma medication Singulair lost patent protection in the U.S. last year.

The Foolish takeaway
Invokana is notably J&J's first step into the highly crowded market of diabetes treatments.

Companies like Novo Nordisk, Eli Lilly, Bristol-Myers Squibb, and AstraZeneca have already saturated the market with a wide variety of treatments. Another closely watched company, MannKind, could even turn the entire market upside down with its inhalable insulin, which is currently in late stage clinical trials.

However, J&J only needs one treatment to make a huge impact on the market. It has sent its competitors scrambling to produce competing SGLT-2 treatments, but so far none have been successful at penetrating the U.S. market where Invokana now has a major head start. While Invokana might never replace Remicade, which generated $6.1 billion in sales in 2012, it is a valuable new product which will expand its defensive moat against its competitors.

More stocks to get on your radar
One of the best parts of owning big pharma stocks is their attractive dividends, but smart investors know the importance of diversifying -- seeking high-yielding stocks from multiple industries. The Motley Fool's special free report "Secure Your Future With 9 Rock-Solid Dividend Stocks" outlines the Fool's favorite dependable dividend-paying stocks across all sectors. Grab your free copy by clicking here.


Read/Post Comments (4) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 30, 2013, at 9:14 PM, rusticguy wrote:

    Are there any trials on UTI with this new drug from J&J?

    Most of the Type 2 Diabetics need drugs because ADA forces 60% CARBS rule to everyone (so that drugs sell) irrespective of medical history.

    As a diabetic myself, I take no Rx pill/drug and still manage my A1C below 5.4. Low Carb High Fat diet is the key.

  • Report this Comment On October 01, 2013, at 3:16 PM, richb2232 wrote:

    Here is a crazy idea: Treat type 2 diabetes, which is a dietary disease, with diet. These drugs only mask the symptoms and really do nothing about the underlying pathology.

  • Report this Comment On October 02, 2013, at 12:33 AM, amalrichard wrote:

    Its a cool post. Do you want to know more about diabetes and solution to it. Just visit http://valuableinfo.blog.com/category/100-question-and-answe...

  • Report this Comment On November 08, 2013, at 7:43 PM, diabeticinventer wrote:

    i am a retired PA-C and at one time a reserche biologist and me and my wife came up with a new treatment for type 2 diabeties and it has droped both of our hemoglobin A-1C by 20% it is in the pipeline to patent and is simple in the extreme but logical and it works without any seen or expected side affects any one wantin more info leve me a message at kentibbs@hughes.net

    thanks

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2660776, ~/Articles/ArticleHandler.aspx, 12/20/2014 5:21:50 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement