3 Drugs Set to Become Blockbusters in 2014

Medivation (MDVN), Gilead (GILD) and Biogen (BIIB) all have new drugs likely to exceed the $1 billion annual sales mark this year.

May 11, 2014 at 11:30AM

Blockbuster status, an unofficial gold medal awarded to therapies racking up sales of $1 billion or more per year, is the holy grail for drug developers. Arguably, it's the chance to discover blockbusters that fuel industry R&D spending and offsets the loss of billions spent working on drugs that end up on the cutting room floor. However, knowing which drugs will become blockbusters isn't easy. Industry watchers often predict big bucks for compounds in development that fail to live up to expectations.

So, instead of guessing which drugs might end up big winners, let's instead consider three recently approved drugs already on the way to becoming blockbusters.

The three include a fast-growing anticoagulant from Johnson & Johnson (NYSE:JNJ) and Bayer (NASDAQOTH:BAYRY), a revolutionary new hepatitis C treatment from Gilead (NASDAQ:GILD), and a new oral drug from multiple sclerosis powerhouse Biogen (NASDAQ:BIIB).

JNJ Chart

JNJ data. Source: YCharts.

1. Johnson & Johnson and Bayer's Xarelto
Patients recovering from post-operative knee and hip surgery and heart disease patients have been prescribed warfarin, or Coumadin, to reduce the chance of stroke for decades. However, warfarin is facing off against a slate of new anticoagulants designed to reduce the risk of brain hemorrhages, eliminate interactions with common foods, and lower the need for inconvenient monitoring. These new drugs include Boehringer's blockbuster Pradaxa, and Pfizer and Bristol-Myers' fast-growing Eliquis. But the most impressive of the new anticoagulants so far has been Johnson and Bayer's Xarelto.

Johnson handles sales of Xarelto in the U.S., and the company recorded sales of $246 million from the drug in the third quarter, $270 million in the fourth quarter, and $319 million in the first quarter, which was double last year's sales. Bayer is responsible for Xarelto overseas and, thanks to EU regulators expanding Xarelto's label to include patients with acute coronary syndrome last summer, Xarelto sales soared from $213 million last year to $471 million in the first quarter.

That impressive growth puts global Xarelto sales on track to challenge $3 billion this year, but they could go even higher if a partnership with Portola pans out. Portola is working with the companies to develop an antidote for Xarelto that would reverse its effects. If they succeed, it could clear the way for Xarelto to be used in more patients, like those most at risk of bleeding events. 

2. Gilead's Sovaldi
Few drugs have been as widely anticipated as Gilead's sofosbuvir, which was named Sovaldi when it won Food and Drug Administration approval as a treatment for hepatitis C in December. Gilead spent more than $11 billion to capture the drug through its acquisition of Pharmasset in 2010 and industry watchers have long speculated on its blockbuster potential given the market for hepatitis C treatment is $20 billion.

Sovaldi expectations were so big that doctors chose to warehouse patients rather than treat them with Vertex's Incivek -- the go-to standard that became the fastest drug to reach blockbuster status when it won FDA approval in 2011. That is, until Sovaldi won approval in December, and went on to post a jaw-dropping $2.3 billion in sales during the first quarter. Sovaldi's success stems from impressive trial results that outperformed its closest competitior, Johnson & Johnson's Olysio, which won FDA approval last November.

During their respective phase 3 trials, Sovaldi cleared hepatitis C in 89% of patients with genotype 1 versus 84% treated with Olysio. That advantage, significant pent-up demand, and a staggering $84,000 price tag created a perfect storm for sales to rocket higher. Looking ahead, Sovaldi has a good shot at becoming the top-selling drug on the planet. Gilead has already filed for FDA approval of a next-generation Sovaldi therapy that combines the drug with Ledipasvir, potentially eliminating side effect-laden interferon and ribavirin from treatment regimens. 

That should help deflect a range of competing hepatitis C treatments making their way through the FDA, including a promising three-drug combination therapy from AbbVie and Bristol-Myers Squibb's daclatasvir, which has put up impressive results in trials, too, but works best when used alongside Sovaldi.

3. Biogen's Tecfidera
Drug distributor Express Scripts expects sales of specialty multiple sclerosis drugs will increase 12% per year through 2016, making it one of the fastest-growing specialty drug markets. That growth is due to a wave of new oral drugs designed to reduce MS relapses and replace prior-generation injectable therapies including Teva's $4-billion-a-year Copaxone.

The first oral competitor out of the gate was Novartis' (NYSE:NVS) Gilenya, a drug that outperformed Biogen's injectable Avonex in head-to-head trials. Gilenya's advantage over Avonex helped Novartis capture significant global market share as it launched overseas last year. As a result, Gilenya recorded first-quarter sales of $260 million in the U.S. and $292 million overseas.

However, Gilenya's pole position as the leading global oral MS therapy may be short-lived given Biogen's highly successful launch of Tecfidera. Since getting the FDA's go-ahead last spring, Tecfidera sales leaped to more than $300 million in the fourth quarter, bringing its 2013 sales to more than $875 million. That momentum carried over into the first quarter, with Tecfidera's sales totaling over $500 million. That gives it a $2 billion annualized run rate; however, its potential is likely to be far greater than that given it's only now beginning to ramp overseas.

So far, the vast majority of Tecfidera's sales have come from the U.S., but with the drug winning EU approval in January and price negotiations with EU member countries under way, overseas sales should steadily climb throughout this year.

Foolworthy final thoughts
A lot of the potential for these drugs may be priced into shares given their rapid rise in the past year. However, if these drugs end up outperforming as they roll out internationally and win label expansions, sales and profit growth may mean these companies could still head higher. That suggests investors should keep an eye out for opportuntiies to buy shares on sale, particularly if quarterly results continue to impress. 

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Todd Campbell owns shares of Gilead Sciences. He owns E.B. Capital Markets, LLC, whose clients may or may not have positions in the companies mentioned. He also owns Gundalow Advisors, LLC, whose clients do not have positions in the companies mentioned. The Motley Fool recommends Express Scripts, Gilead Sciences, Johnson & Johnson, and Vertex Pharmaceuticals. The Motley Fool owns shares of Express Scripts, Gilead Sciences, and Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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