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Johnson & Johnson's 4 Biggest Catalysts in 2017

By Sean Williams - Dec 29, 2016 at 9:42AM

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Hint: You'll want to pay close attention to J&J's drug portfolio and pipeline.

Image source: Getty Images.

Though it was a very difficult year for drugmakers, with the SPDR S&P Pharmaceuticals ETF losing just shy of a quarter of its value, the same can't be said of healthcare conglomerate Johnson & Johnson (JNJ -0.40%), a company that leans heavily on its pharmaceutical segment for its growth and gross margin. Through Dec. 28, J&J is up a healthy 12% year to date.

While it's always nice to celebrate a good year, it's also important to keep your eyes on the horizon, because Wall Street places far, far more emphasis on what lies ahead instead of what's in the rearview mirror. As we ready to dive headlong into 2017, here are the four biggest catalysts that investors and shareholders should be eyeing.

1. Invokana's long-awaited CV study results

You could arguably take your pick for biggest catalyst in 2017, but my personal choice is the expected cardiovascular (CV) outcomes study data for SGLT-2 inhibitor Invokana, a treatment for type 2 diabetes that was approved in 2013.

Image source: Johnson & Johnson.

Known as CANVAS, J&J's roughly 4,300-patient study was kicked off more than seven years ago and is designed to see if Invokana reduces the risk for major adverse cardiac events, including CV death, nonfatal myocardial infarction (i.e., a heart attack), and nonfatal stroke. These results will be compared to a placebo to determine if Invokana provides superiority in reduced risk of CV death compared with the previous standard of care.

The results of CANVAS, which will probably be out in the first half of 2017, are intriguing for a handful of reasons. To begin with, Eli Lilly's (LLY -1.46%) and Boehringer Ingelheim's SGLT-2 inhibitor Jardiance demonstrated statistical superiority in the EMPA-REG OUTCOME CV trial that was released in 2015. Over a median of 3.1 years, Jardiance reduced the risk of CV death by 38%, and all-cause death by 32%. CANVAS should help Wall Street and researchers decipher whether Jardiance is a superior SGLT-2 inhibitor, or if this benefit is classwide.

The other key point here is that the SGLT-2 class of drugs has also lowered patients' systolic blood pressure and induced weight-loss. Most current standards of care are weight-neutral drugs, and since a majority of type 2 diabetics tend to be overweight and/or have high blood pressure, demonstrating superiority over the current standard of care could bolster SGLT-2 inhibitors to the front of the treatment pack. With Invokana's growth rate beginning to slow a bit, a positive result in CANVAS could reignite sales for this blockbuster drug in 2017.

2. Remicade's resilience versus biosimilar competition

Secondly, it's going to be really interesting to see how well Johnson & Johnson copes with the recent launch of Inflectra, a biosimilar of anti-inflammatory blockbuster Remicade. Pfizer (PFE -1.18%), which is licensing Inflecta from Celltrion, launched the biosimilar drug in November at a 15% discount to the list price of Remicade. Since this is the first real biosimilar threat to hit pharmacy shelves, the big question is what'll happen next for J&J and Remicade.

Image source: Johnson & Johnson.

Johnson & Johnson certainly has options available. It could consider cutting its list price to be more competitive with Inflectra, or it may choose to stick to its pricing of Remicade and hope that physicians and consumers stick with a product that's served them well for years. Without biosimilar competition, J&J was likely on track to generate $7 billion in sales from Remicade in 2016. However, we're probably going to see a notable impact from the November launch, when it releases its fourth-quarter and full-year results in a matter of weeks. J&J's Q4 report will be very telling, and it could set the stage for other blockbuster drugs facing possible biosimilar competition.

If sales of Remicade are significantly weaker than expected, don't be shocked if J&J ramps up its efforts on the acquisition front to offset its lost revenue.

3. Guselkumab's date with destiny

A third catalyst, and one that's likely to be a strong positive for J&J, is the recent new drug application filing with the Food and Drug Administration for guselkumab, which is designed to treat moderate-to-severe plaque psoriasis.

Image source: Getty Images.

Two factors make guselkumab a drug you'll want to watch in 2017. Firstly, because it ran circles around the placebo during its pivotal phase 3 trial. Guselkumab, which targets interleukein-23, a protein that has known specificity when it comes to immune response disorders of the skin, led to 85% of patients having clear or nearly clear skin after 16 weeks compared to just 6.9% of the patients in the placebo group. In terms of near-complete skin clearance, it was a 73% to 2.9% advantage for guselkumab over the placebo.

The other exciting aspect of guselkumab is that it also ran away from AbbVie's (ABBV -0.63%) Humira, the best-selling drug in the world. At the 16-week mark, Humira led to near-complete skin clearance for almost 50% of patients, and at the 48-week mark this improved to 55%. However, guselkumab's 16-week effective rate was 73%, and it also improved to 81% by week 48. Humira has 10 approved indications, so it's not as if guselkumab is going push Humira into obsolescence, but when it comes to moderate-to-severe plaque psoriasis, guselkumab could be the next sheriff in town. 

Expect an FDA ruling in the latter half of 2017.

4. Does Trump tackle drug pricing?

Finally, investors will want to keep their eyes on what Donald Trump does once in the Oval Office.

Image source: Disney-ABC Television Group, Flickr.

Trump has a number of big issues on the docket, including individual and corporate tax reform, as well as his campaign promise to repeal and replace of the Affordable Care Act. However, Trump has also intimated that he's going to tackle drug pricing, which both he and opponent Hillary Clinton viewed as too high. The real question to be answered is whether Trump was merely trying to gain the favor with an American public that's fed up with rising prescription drug costs, or whether he really plans to tackle drug-pricing reform.

Reforming drug pricing would be bad news for all drugmakers since their pricing power usually accounts for a substantial amount of their long-term growth. It would be an especially huge hit for specialty drugmakers since specialty drugs have been commanding the biggest price increases in recent years. For J&J, pricing reform could directly impact its cancer drug portfolio and slow growth for blood cancer blockbuster Imbruvica, which is also partly owned by AbbVie via its acquisition of Pharmacyclics in 2015.

If Trump is simply too busy to tackle drug reform in 2017, it would be viewed as a positive for J&J.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool recommends Johnson and 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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Stocks Mentioned

Johnson & Johnson Stock Quote
Johnson & Johnson
$171.11 (-0.40%) $0.68
Pfizer Inc. Stock Quote
Pfizer Inc.
$49.27 (-1.18%) $0.59
Eli Lilly and Company Stock Quote
Eli Lilly and Company
$301.32 (-1.46%) $-4.47
AbbVie Inc. Stock Quote
AbbVie Inc.
$138.04 (-0.63%) $0.88

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