Johnson & Johnson Scores a Solid Hit With Imbruvica

J&J knows how to make great deals come together, but will it pay off for investors?

Jun 16, 2014 at 9:30AM

The biggest cancer conference of the year is over, and star talent Imbruvica one out of the ballpark for its Big Pharma part-owner, Johnson & Johnson (NYSE:JNJ).

Shares of Johnson & Johnson outperformed the S&P 500 since the beginning of the year, with a gain of around 13%. Since the company has some major patent expirations coming that will take a bite out of revenue, and operating income has only grown 3.5% on an annual basis, the dividend stalwart looks like it may need some better cost management.

Back in 2010, the spotlight was on Johnson & Johnson, when they jockeyed their way past a scrum of Big Pharma competitors to acquire 50% rights to a mid-stage blood-cancer drug. The developer of the drug, Pharmacyclics (NASDAQ:PCYC) was then an obscure little biotech.

The co-licensed drug proved to be a superstar. Imbruvica snagged three FDA breakthrough designations on its way to score early FDA approval in mantle cell lymphoma. Overall, Imbruvica is slated to bring in about $1.3 billion a year at its peak, according to FierceBiotech.

Johnson & Johnson immediately slapped a nosebleed-level price on Imbruvica ($130,000 per year), making it one of the highest-priced cancer drugs in recent memory. Label expansion followed, triggering a February $60 million milestone payment to Pharmacyclics from J&J. 

Of course, things can rapidly cool off. But at ASCO 2014, Imbruvica proved that it's still providing plenty of value for both companies.

At ASCO, Imbruvica squared off against GlaxoSmithKline's (NYSE:GSK) drug Arzerra in relapsed chronic lymphocytic leukemia patients, or CLL. (CLL is the most common form of blood cancer among adults in Western countries.) The Phase III trial focused on patients who had proven refractory to other forms of treatment.

According to the New England Journal of Medicine, Imbruvica "significantly improves progression free survival, overall survival and overall response as compared to [GlaxoSmithKline's drug]." Gregory Master, who moderated the release of the results, predicted that Imbruvica might in fact "transform the treatment" of CLL. 

Unfortunately for GlaxoSmithKline, the bad news on Arzerra added to a string of recent strike-outs. Just last month, darapladib failed to meet the primary objective in a phase 3 study. Glaxo's top line is also being pressured as key products give way to generic competition. And then, there's the ongoing nightmare with China's Public Security Ministry. The company desperately needs continuing pipeline success in its COPD candidates in the coming year.

The strike zone
So what's ahead for J&J?

The consumer and medical devices business is flat, but Johnson & Johnson has a new plan, to increase its high margin oncology and immunology lines to pick up the slack. While Imbruvica's revenue gains are mostly still ahead, oncology in general is doing extremely well at Johnson & Johnson. According to the 10-Q, the company's two best selling cancer drugs, Velcade and Zytiga, grew by 15.6% and 48.8% year-over-year respectively last quarter.

Johnson & Johnson still looks a little pricey. Shares are trading at a premium relative to peers and even its own history of valuation. Against an industry average of 18.8 times trailing earnings, J&J is at 19.7 times, which is significantly higher than its own five-year average of 16.7 times.

But just recently, the company downsized its medical devices business, selling off a diagnostic unit (Ortho-Clinical Diagnostics) for $4 billion. Additional divestitures could occur in the near-term future, making the company more attractive. In short, focusing more on its growing pharmaceutical segment would give this company a new look, and a new lease on life.

Another big plus is that Johnson & Johnson knows how to make win-win deals come together, a costly weakness of other Big Pharmas. (Witness Pfizer's debacle with AstraZeneca.) Research director Peter Lebowitz personally engineered the Johnson & Johnson-Pharmacyclics agreement on Imbruvica, according to the Wall Street Journal. It was an outstanding move, and at the time Lebowitz had only been with Johnson & Johnson three weeks.

Meanwhile, what's up with Pharmacyclics? The company's earnings growth has been strong. But compared to where it was a year ago, the stock is also trading at a higher level, which could mean that the market has already priced in a lot of potential growth.

Pharmacyclics shares rose 3.8% a few days ago, when the FDA granted priority review to an application for approval of Imbruvica for treatment of patients with refractory CLL and SLL. The target PDUFA date is early October 7, so keep your eyes and ears open.

Leaked: A huge small-cap opportunity
This smart device –kept secret until now – could mark a new revolution in smart tech (with big implications for health care). It’s a gigantic market opportunity -- ABI Research predicts 485 million of its type will be sold per year. To learn about the small-cap stock making this device possible – the stock that could mint millionaires left and right when its full market potential is realized – click here.

Cheryl Swanson has no position in any stocks mentioned. The Motley Fool recommends Johnson & Johnson. The Motley Fool owns shares of 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information