China has an immense cancer problem, but it's about to get a lot better. The country's National Health Insurance Administration recently added 17 well-known cancer drugs to the list of treatments it's willing to pay for.
In the quarters ahead, a handful of products from Pfizer Inc. (PFE 0.11%), AstraZeneca PLC (AZN 2.81%), and Johnson & Johnson (JNJ 0.98%) will become available for new populations that are larger than the ones they serve in the U.S. Here's what it could mean for these three big pharma stocks down the line.
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AstraZeneca: Tagrisso
Tagrisso is an easy-to-swallow tablet for the treatment of lung cancer patients with tumors that harbor certain genetic mutations. Despite having a highly targeted audience, Tagrisso sales in the U.S. hit an annualized $1.4 billion run rate in the second quarter and could climb much higher following a recent approval to treat certain newly diagnosed patients.
It's hard to say just how many Chinese patients have tumors with certain EGFR mutations that make them eligible for Tagrisso, but there's going to be a lot. An estimated 781,000 people will receive their first lung cancer diagnosis in China this year, around three and a half times more than in the U.S. Moreover, we know that EGFR mutations occur in around 30% to 40% of people in the Asia-Pacific region, compared with just 10% to 15% in Western markets.
In the first half of 2018, AstraZeneca's sales to China rose 33% to $1.9 billion, or 18% of total revenue during the period. Now that just about everyone can get the government to pay for Tagrisso, it could help lift the entire boat in 2019.
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Johnson & Johnson: Imbruvica
Since earning FDA approval to treat newly diagnosed patients with the most common form of leukemia, Imbruvica has become one of Johnson & Johnson's lead growth drivers. J&J markets Imbruvica outside of the U.S. while AbbVie (ABBV 0.02%) handles commercialization in the U.S. and the pair generally split the profits down the middle.
Leukemia isn't nearly as common as lung cancer in either country, but in 2008, there were 60% more people of all ages diagnosed with leukemia in China than in the U.S. In the U.S., sales of Imbruvica are on pace to hit $2.8 billion this year, and a much larger addressable patient population with access to the treatment could help Imbruvica's impressive run continue.
Johnson & Johnson's share of global Imbruvica sales surged 62% in the first half of 2018 to $1.8 billion. While that would be enough to send most companies' entire top lines to the moon and back, Johnson & Johnson expects total sales to reach $81 billion this year. Chinese Imbruvica sales aren't going to send J&J soaring, but they could sure help the healthcare giant continue moving in the right direction.
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Pfizer Inc.: Adding three
With an enormous lineup of branded drugs, Pfizer has already benefited a great deal from increasing access in the Chinese market. Lipitor lost patent protection in the U.S. years ago, but it's more popular in China than you might think. Pfizer reported emerging market sales growth of 32% to $781 million in the first half of the year.
Going forward, Pfizer can look forward to increased access to three different oral therapies. Sutent is an oral treatment approved in the U.S. to treat the most common form of kidney cancer, and some less common forms of pancreatic and stomach cancer. Chinese oncologists treating relapsed kidney cancer patients can also add Inlyta to their arsenals.
Pfizer's Xalkori treats a limited cross-section of lung cancer patients with tumors that test positive for two mutations that are more common in the Asian-Pacific region. Xalkori may be intended for just a small percentage of all Chinese lung cancer patients, but the overall population is huge. Don't be surprised if Xalkori generates enough new sales in the region to make a significant contribution to total revenue, which is expected to reach $53 billion this year.
High-volume strategy
Before you run out and buy up these stocks because of their exposure to the Chinese market, there's something you'll want to bear in mind first. These drugs launched in the U.S. with six-figure list prices, but the Chinese government won't be paying nearly as much. All three of these companies can look forward to growth from the region, but just how much is still too hard to tell.
