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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers