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3 Top Selling Drugs Investors Ought to Know About

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More than 270 drugs were approved for sale by the FDA between 2006 and late 2013, but just 13 have eclipsed $1 billion in annual U.S. sales, according to ZS Associates. That works out to less than 5% of approved compounds, far fewer than the 13% rate in the preceding five years. The lack of top sellers comes at a particularly tough time for big drugmakers because patents will expire on $66 billion worth of branded drugs in 2015.

That suggests shares in companies like Biogen (NASDAQ: BIIB  ) , Johnson & Johnson (NYSE: JNJ  ) , and Amgen (NASDAQ: AMGN  ) may be worth a premium given all three have treatments set to become blockbusters this year. Here's what investors need to know about these fast-growing therapies.

1. Tecfidera jumps to the front of the line
Biogen is the long-standing leader in multiple sclerosis treatment. Over the past two years, the company's Avonex and Tysabri have been among the best selling MS drugs, generating over $8 billion in sales for the company.

However, the market for MS treatment has gotten increasingly crowded as new oral therapies Gilenya, marketed by Novartis, and Aubagio, sold by Sanofi, have won away some of Avonex's market share. As a result, sales of Avonex slipped from $753 million a year ago to $751 million in the fourth quarter.

Biogen responded to these competitors with the launch of Tecfidera, its own oral MS drug, last March. Despite winning FDA approval less than a year ago, Tecfidera has already become the most widely prescribed oral MS drug in the United States. Biogen sold $286 million worth of Tecfidera during the third quarter, and another $398 million worth of the drug during the fourth quarter. That suggests Tecfidera will easily achieve blockbuster levels this year. 

2. Label expansion lifts Xarelto and Stelara
Johnson's research department has been rolling out a steady stream of top sellers over the past few years, including Xarelto, which got the FDA green-light in July 2011, and Stelara, which won FDA approval in 2009.

Xarelto competes against Boehringer's Pradaxa and Pfizer and Bristol's Eliquis for market share in post-operative orthopedic surgery and cardiovascular indications. Warfarin has long dominated that market, and while Warfarin has a proven track record, it also comes with a spotty safety profile.

Johnson's plaque psoriasis drug Stelara is also growing quickly after the FDA expanded the drug's label last September to include psoriatic arthritis. U.S. sales of Stelara grew 68% year-over-year to $265 million in the fourth quarter, bringing full year U.S. sales to $957 million, up 53% from 2012. In November 2012, the FDA expanded Xarelto's label to include treating and reducing recurring blood clots. That's an important indication that helped Sanofi's Lovenox generate $2.7 billion in annual sales prior to going off-patent in 2010.  While it remains to be seen if Xarelto will eventually become that successful, its sales jumped from $239 million in 2012 to $864 million in 2013.

That approval increases Stelara's addressable patient population by 2 million people. Stelara is also posting impressive growth overseas, with revenue in those markets climbing 37% to $547 million in 2013. Overall, Stelara's global revenue grew nearly 50% to $1.5 billion last year. 

The expansion of those both Xarelto and Stelara's label offers momentum likely to carry-over this year, suggesting both may eclipse $1 billion in sales this year.

3. Sensipar dodges bundling, sees sales grow
Medicare used to pay for dialysis and dialysis related drugs separately, but it switched to a less costly bundled payment in 2011. Since Medicare accounts for roughly 50% of dialysis center revenue, providers have been cutting costs by reducing the use of Amgen's kidney disease drug Epogen.

However, thanks to a regulatory exemption from bundling, sales of Amgen's Sensipar have swelled, even as Epogen's sales have stalled. Sensipar's original two year exemption would have expired this year, but legislators extended the reprieve through 2016 over fears that current bundled payments were too low to cover its cost. If so, legislators argued patients could be adversely affected. 

The exemption helped Sensipar sales grow 15% to $1.1 billion in 2013. Sensipar sales grew even more quickly last quarter, suggesting providers use is accelerating. Revenue climbed 18.5% from the third quarter, and 20% year-over-year, to $307 million. That fourth quarter sales run rate suggests Sensipar sales may cross above the $1 billion threshold in 2014.

Fool-worthy final thoughts
Biogen will begin challenging Novartis and Sanofi's oral MS drugs overseas this year. The EU approved Tecfidera in February, and pricing negotiations are likely under way in key markets like the United Kingdom. That suggests Tecfidera's sales should accelerate as it slowly rolls out in these countries.

Johnson's Xarelto may face stiff competition from Pradaxa and Eliquis, but momentum is likely to continue as doctors become increasingly comfortable with this new class of drugs. Xarelto should also benefit from EU approval of the drug's use in acute coronary syndrome patients last May. Similarly, Stelara's strength should carryover this year given the EU also approved its use in active psoriasis last fall.

Finally, since Amgen's Sensipar enjoys an exemption from bundling through 2016, dialysis centers are likely to continue advocating its use.  That suggests sales of the drug will remain strong at least through next year. 

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Todd Campbell

Todd has been helping buy side portfolio managers as an independent researcher for over a decade. In 2003, Todd founded E.B. Capital Markets, LLC, a research firm providing action oriented ideas to professional investors. Todd has provided insight to a variety of publications, including SmartMoney, Barron's, and CNN/fn.

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