Biopharma companies are continously investing in new development projects to offset the risks of competition and patent expirations, but sometimes, the nature of business' landscape can keep investors from seeing opportunities that may be lurking in research-and-development pipelines. For instance, while challenges facing Gilead Sciences (NASDAQ:GILD), Johnson & Johnson (NYSE:JNJ), and AbbVie (NYSE:ABBV) shouldn't be ignored, each has compelling products under development that could send shares soaring someday.
Safer, better, and bigger
A year fraught with disappointment, including decelerating sales on its hepatitis C drugs, and high-profile trial failures, probably has Gilead Sciences' wishing it could take a mulligan on 2016.
However, better times could be ahead for this company, because it's plowing billions of dollars into R&D, and that spending could result in wins for some pretty large indications.
For example, the company's co-developing the autoimmune disease candidate drug filgotinib with Galapagos NV, and mid-stage study results suggest it could be best in class because of its safety profile. Gilead Sciences recently launched phase 3 trials evaluating filgotinib in rheumatoid arthritis, Crohn's disease, and ulcerative colitis, and since all three of those indications are billion-dollar markets, filgotinib's opportunity is big.
Gilead Sciences may also be able to deliver a victory in non-alcoholic steteohepatitis, or NASH, an increasingly common cause of cirrhosis which, left untreated, leads many patients to require liver transplants. An estimated 3 million Americans with NASH have liver fibrosis. That suggests that if the company can develop an effective treatment, it could be worth billions of dollars in annual sales.
The company's not giving up on its attempts to expand into oncology, either. While the once-promising leukemia drug Zydelig has become a niche therapy rather than a blockbuster, other candidates could still add meaningful sales to the top line. Overall, Gilead Sciences has six oncology programs in mid- or late-stage studies, including GS-5745 for gastric cancer. Earlier this month, the company demonstrated its commitment to oncology by hiring Novartis' former oncology head, Alessandro Riva. That brings experience and a proven leader in cancer drug development into the fold, and could signal that Gilead Sciences plans to double down on its efforts to develop cancer drugs.
New biologics and label expansion plans
Johnson & Johnson is one of the most successful drug developers in history, but it has lost a little luster lately following the launch of Pfizer's biosimilar to its top-selling biologic Remicade, which accounts for about 20% of its drug sales.
While the risk to Remicade is real, Remicade is far from the only story that could move the needle for this company.
J&J's been knee deep in developing new drugs to offset the lost sales caused by Pfizer's biosimilar -- and one of them is Darzalex. Last year, within months of its launch, Darzalex became the most widely prescribed fourth-line multiple myeloma drug, and in February, the FDA is scheduled to decide whether or not Darzalex can be prescribed alongside Revlimid in second-line treatment. If approved, this label expansion could help catapult Darzalex's sales into 10-figure annual territory.
The FDA is also reviewing applications for approval of two new autoimmune disease drugs that were developed by Johnson & Johnson, and that could have billion-dollar potential. Sirukumab was co-developed with GlaxoSmithKline, and it's under consideration for use in rheumatoid arthritis. A decision on guselkumab, which outperformed the top-selling Humira in head-to-head psoriasis trials, is also forthcoming.
Additionally, Johnson & Johnson has a bevvy of R&D ongoing that could expand the addressable market for some of its best selling medicines. Among the expansion trials under way for cancer drug Imbruvica, which it co-markets with AbbVie, are four that could each add $500 million in annual sales. Expansion studies on the anticoagulant Xarelto and diabetes drug Invokana could add an incremental $3 billion to $5 billion in sales too.
Altogether, management claims it has 10 expansion studies in the works that each have $500 million plus in additional sales potential.
Patent battle overshadows pipeline potential
Most of the attention given to AbbVie lately is focused on the pending patent expiration of its top-selling Humira, which provides about 62% of its revenue. However, focusing too much attention on Humira could make you miss out on the chance to benefit from a rapidly expanding R&D pipeline.
AbbVie's acquisition of Pharmacyclics means it shares in Imbruvica's sales with J&J, and a separate $5.8 billion deal last year also landed AbbVie Rova-T, an intriguing drug in development to treat small-cell lung cancer. If Rova-T is successful in studies, management thinks it could win approval as early as 2018, and that its peak sales could be as high as $5 billion a year. Phase 2 study results of Rova-T in SCLC should be released in 2017.
AbbVie's management remains confident its method-of-use patents can keep Humira biosimilars at bay through 2020. If they're right, then the company could launch Humira successors risankizumab and ABT-494 in 2019, before Humira has to battle biosimilar competition.
And if that's not reason enough to give AbbVie's pipeline more credit than you are currently, consider that the company may file for FDA approval of Venclexta as a treatment of chronic lymphocytic leukemia and Elagolix for endometriosis later this year, and that its already awaiting a FDA decision on its next-generation hepatitis C drugs. Overall, those drugs could contribute significantly to the top- and bottom-line soon.
Todd Campbell owns shares of Gilead Sciences. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. Like this article? Follow him on Twitter where he goes by the handle @ebcapital to see more articles like this.
The Motley Fool owns shares of and recommends Gilead Sciences. The Motley Fool recommends Johnson and Johnson. The Motley Fool has a disclosure policy.