Replacing the 50 year old Warfin blood thinner with new next generation solutions is setting 2014 up as an important year for Bayer (BAYR.Y -1.78%) and Johnson & Johnson (JNJ 0.35%). Those two companies co-market fast-growing warfarin alternative Xarelto, which competes against Boehringer's billion-dollar drug Pradaxa, and Pfizer (PFE 0.56%) and Bristol-Myers Squibb (BMY 0.81%) Eliquis.

The path to a blockbuster
Boehringer won the race to commercialization, getting EU marketing approval in 2008 and FDA approval in 2010. That first-to-market edge has been valuable, allowing Pradaxa to win over doctors and build global drug sales that are expected to eclipse $1 billion next year.

Meanwhile, despite winning support from a key FDA advisory panel, Bayer and Johnson stumbled in their attempt to win FDA approval in 2009 for use in preventing blood clots following knee and hip surgery.

It took nearly a year and half, but the two companies submitted their response to the FDA for that denial in January 2011. At the same time, Bayer and J&J also filed to win the agency's support to expand the drugs label to include stroke prevention in atrial fibrillation patients, which affects more than 2.3 million people in the U.S.

The FDA approved Xarelto for deep vein thrombosis in knee and hip patients in July 2011, and approval for the stroke prevention indication followed shortly thereafter in November.

The FDA also expanded Xarelto's label to include use in preventing recurring blood clots in knee and hip replacement patients in November, 2012. Between 2% and 3% of patients treated with Xarelto or other drugs such as Lovenox end up with recurrent DVT, so Johnson and Bayer conducted a study showing Xarelto lowered the risk of recurrence to 1.3% of patients from 7.1% on placebo.

However, Bayer and J&J's FDA winning streak ended this past summer when the agency opted against expanding the label for use in acute coronary syndrome patients, a condition that results in 1.2 million hospitalizations a year. However, that approval may still come given the EU approved Xarelto for the indication in May.

Competition is heating up
U.S. sales of Boehringer's Pradaxa peaked in the first quarter at $215 million, prior to sliding for two consecutive quarters to $201 million in the third quarter. Sales of Pfizer and Bristol's Eliquis have been far more disappointing, totaling just $12 million in the second quarter. That disappointment prompted a big marketing push which drove Eliquis sales up to $44 million in the third quarter. While the two companies are likely happy to see sales rebound, Eliquis small market share has got to be frustrating given Eliquis is the only one of the new generation of anti-coagulants to show improved mortality in trials.

Pfizer and Bristol's third quarter sales pop has gotten J&J and Bayer's attention. The two companies are responding with their own direct-to-consumer ad campaign in a bid to offset Eliquis threat and win Pradaxa share. U.S. sales of Xarelto jumped to $270 million in the third quarter from $215 million in the second quarter.

The pick-up in marketing spending by these competitors also aims to insulate sales from new competition from Daiichi Sankyo. Daiichi hopes to file for FDA approval of its new anti-coagulant in early 2014.

The market opportunity
The number of hip and knee replacements sank during the recession. However an expansion in Medicaid and insurance enrollment tied to health care exchanges, coupled with an improving economy, could help the number of procedures climb.

That would be important to these companies given blood clots can occur in as many as 40% to 60% of the 800,000 patients undergoing orthopedic surgery. That makes the condition the most common cause of hospital readmissions following surgery. Given the Centers for Medicaid and Medicare Services is using a carrot and stick approach to reduce readmissions, the use of these new anticoagulants should have solid support from hospitals.

Sales for Xarelto have also benefited from its atrial fibrillation label expansion back in 2011 and the number of cases of AF is likely to grow because the disease becomes more common as people age. This suggests longer-living baby boomers will add market demand for these next generation anti-coagulants. Improving health care in developing countries is also resulting in longer living global populations likely to require treatment.

Bayer and J&J are working to expand Xarelto across additional indications to drive future growth, too. The two companies have an ongoing phase 3 trial studying the drug in patients with chronic heart failure and the FDA has awarded the drug fast track status for that indication. Chronic heart failure is one of the most common reasons for hospitalization globally, suggesting a significant potential market.

Fool-worthy final thoughts
Boehringer and the well-heeled Pfizer and Bristol aren't going to go away quietly. They'll continue to advance their drugs across similar indications as Bayer and Johnson's Xarelto. However Xarelto seems to have an enviable position given its growth this year and already established market share.

Xarelto also has an advantage of once daily dosing, which can help ensure patients stick to the treatment regimen. Pradaxa and Eliquis are taken twice a day instead.

All of the anti-coagulants still face headaches tied to adverse effects and each is working on developing compounds that can counteract their blood thinning characteristics. Bayer and J&J have partnered with Portola Pharmaceuticals to study PRT4445, an agent it hopes will eliminate that hurdle. If so, Bayer CEO Majijn Dekkers prediction for peak sales of $2.5 billion a year for Xarelto may pan out, especially since analysts peg sales of anticoagulants climbing to $10 billion over time.