When it comes to steady investments, there may be no rock more solid in the healthcare space than Johnson & Johnson (NYSE:JNJ).
Johnson & Johnson's stability arises from the diversity of its sales and the inelasticity of its products. J&J offers its products throughout the world, and its revenue is split pretty evenly between consumer health products, medical devices, and pharmaceuticals, leading to predictable cash flow and profitability. Furthermore, since consumers can't control when they get sick or what disease or disorder they contract, J&J's products are always in demand.
Johnson & Johnson's pharma segment comes into focus
But if we take a step back and look at the bigger picture, it's Johnson & Johnson's pharmaceutical operations that are its key growth-driver. Pharmaceutical sales have grown by 9% or more in each of the past three quarters, and the high margins associated with brand-name drugs are almost entirely responsible for J&J's juicy gross margin. Between 2009 and mid-2014, J&J brought 14 novel drugs to market, half of which are generating $1 billion or more in annual sales.
Given the importance of its pharmaceutical operations in driving growth, J&J announced its intent last year to file a new drug application for 10 new molecular entities (NMEs) by 2019 that have blockbuster potential (i.e., $1 billion-plus in annual sales). What are these 10 unique NMEs? Let's have a look.
As you can see, J&J has a nice mix of blockbusters in its pipeline, with a strong concentration on inflammation, virology, and oncology. Below are a handful of the most exciting pipeline products that J&J could have approved before the calendar turns to 2020.
As you can see from the presentation slide from J&J, one of its potential 10 blockbusters has already been approved by the Food and Drug Administration, though J&J has been a bit gun-shy about breaking out its sales figures thus far.
Darzalex is currently approved to treat third-line and higher multiple myeloma and was given the thumbs-up from the FDA after it elicited a 29% overall response in phase 3 studies in patients who'd had a median of five previous lines of therapy. This may not sound like an impressive figure on the surface, but remember that we're talking about disease progression in five previous lines of therapy. Though the two drugs did not go head-to-head, and thus any comparison is pure coincidence and not science, Amgen's (NASDAQ: AMGN) Kyprolis generated only a 23% overall response rate in a similar phase 3 study in patients with multiple myeloma who had been on a median of five prior lines of therapy.
With around 60% of the fourth-line multiple myeloma market share as of August 2016, Darzalex appears to have ample expansion opportunities lying ahead, and it could give Kyprolis a real run for its money.
Another exciting experimental drug is sirukumab, which is being geared to treat moderate-to-severe rheumatoid arthritis and is currently being reviewed by the FDA. Sirukumab is being co-developed by GlaxoSmithKline (NYSE:GSK) and J&J subsidiary Janssen Pharmaceuticals.
In December, GlaxoSmithKline and J&J reported that sirukumab had met its primary and secondary endpoints in the SIRROUND-D study, but the actual data wasn't released until June. That data release didn't disappoint.
The first co-primary endpoint, the inhibition of radiographic progression, or joint destruction, was significantly better in the sirukumab arm: Patients receiving 50 mg of sirukumab every four weeks had an average van der Heijde-Sharp score of 0.50, and patients receiving 100 mg every two weeks notched a 0.46. This compared to a score of 3.69 for the placebo. (A lower score represents reduced erosion and narrowing of the joints.)
The other co-primary endpoint analyzed whether patients had a 20% improvement in rheumatoid arthritis signs by week 16, known as ARC20. The aforementioned arms of 50 mg and 100 mg sirukumab dosing achieved 54.8% and 53.5% ARC20 success, respectively, compared to 26.4% for the placebo.
With rheumatoid arthritis expected to grow into a $19 billion industry by 2020, Glaxo's and J&J's sirukumab could be set up for success.
A separate success story in inflammation looks to be guselkumab following recently presented phase 3 data at the European Academy of Dermatology and Venerology.
J&J's phase 3 study involving guselkumab examined the interleukin-23-targeting experimental drug as a treatment for plaque psoriasis. What was particularly notable about its late-stage results is that it went head-to-head against the best-selling drug in the world, AbbVie's (NYSE:ABBV) Humira, and it trounced Humira. After 16 weeks, 85% of guselkumab's patients had clear or nearly clear skin compared to less than 7% of the placebo patients. On a longer-term basis, at the 48-week mark guselkumab led to 81% near-clearance in study patients compared to only 55% for Humira.
With a similar safety profile to the placebo and clear outperformance to both the placebo and Humira in a head-to-head, guselkumab looks primed for success -- as long as it gains FDA approval.
J&J's collaboration with Geron (NASDAQ:GERN) could provide another blockbuster drug: imetelstat, a treatment for myelofibrosis and myelodysplastic syndromes. A new drug filing is expected in 2018, with imetelstat potentially hitting pharmacy shelves by 2019.
What makes imetelstat so unique is that it's the only myelofibrosis (MF) drug to demonstrate an objective response in clinical studies (albeit early-stage studies). The only FDA-approved MF drug on the market is Incyte's (NASDAQ: INCY) Jakafi. However, Jakafi doesn't effectively slow the progression of MF, which causes bone marrow scarring. It's merely designed to minimize the symptoms of the disease, such as an enlarged spleen and anemia. Imetelstat's ability to generate an immune response against MF is huge, and it's a big reason why J&J dangled a $935 million carrot to secure the licensing right to Geron's lead drug.
Though there are never any guarantees of success when it comes to developing drugs, imetelstat's early-stage success is encouraging.
With as many as 40 label expansion opportunities by 2019 and more than 25 new molecular entities in the offing between 2020 and 2024, the future of J&J's pharmaceutical segment looks as bright and strong as ever.