How Big Is the Threat to This Johnson & Johnson Blockbuster?

Johnson & Johnson (NYSE: JNJ  ) has been one of the most successful big drug companies over the past three years. Despite an industry-wide sales drag caused by patent expiration on top-selling drugs, Johnson has skirted the headwind thanks to a wave of fast-growing therapies, including Zytiga, its blockbuster prostate cancer drug.

Sales of Zytiga have marched steadily higher since launching in April 2011 as a treatment for metastatic castration resistant prostate cancer, or mCRPC. But sales really took off once the FDA approved Zytiga as a prechemotherapy treatment for mCRPC patients in December 2012.

But Zytiga's sequential growth has been stalling as Medivation (NASDAQ: MDVN  ) and Astellas'  (NASDAQOTH: ALPMY  ) competing drug, Xtandi, has been winning market share. That suggests investors will be paying close attention when Medivation and Astellas report earnings in May.

JNJ Chart

JNJ data by YCharts

Battling for dominance
The market for prostate cancer drugs is big and growing. There are 192,00 new cases of prostate cancer diagnosed annually in the United States and the cost to treat prostate cancer patients is expected to climb from $12 billion a year in 2010 to as much as $19 billion by 2020.

The sheer size of that market has already lifted Zytiga well into billion dollar blockbuster territory. Last year, Johnson sold $1.7 billion of Zytiga, up 77% from 2012.

That momentum carried over into the first quarter, with Johnson reporting sales of Zytiga grew to more than $500 million.

While that $2 billion run rate is nothing to sneeze at, Johnson's investors are going to be watching closely when Medivation and Astellas report results next month.

That's because their competing drug, Xtandi, has been growing even more quickly than Zytiga, and has recently been launching overseas in markets that Zytiga has previously had all to itself.

So far, Xtandi's sequential growth has been far higher than Zytiga's even without the benefit of overseas sales. Last year, Xtandi's sales advanced 17% between the third and fourth quarter, while Zytiga's sales only grew 3.4%. In the first quarter, Zytiga's sales grew another 3.4% sequentially to $512 million worldwide.

Source: Johnson & Johnson and Medivation Quarterly Earnings Releases

Fool-worth final thoughts
Zytiga's position in the market has matured, and it's facing increased competition from Xtandi. That means investors should pay attention to two important pieces of information when Medivation and Astellas report first-quarter sales.

First, investors should see how sharply Xtandi's sequential sales growth falls. Last quarter, Medivation forecast that Xtandi's sequential growth will slow from the teens into the single digits in the first half of this year because the drug has fully penetrated the market as a third-line treatment.

Second, investors should pay attention to how quickly Xtandi's sales are growing overseas. If sales in those new markets are surging, Xtandi could pose a bigger threat to Zytiga's unit volume given Zytiga has been growing most quickly in those markets.

Further out, investors will want to keep an eye on the FDA given Medivation and Astellas filed Xtandi for approval in the coveted prechemotherapy indication during the first quarter. If the FDA expands Xtandi's label, the battle for market share will truly ignite.

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