Johnson

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Johnson & Johnson (NYSE:JNJ) just reported its full-year results for 2015, and while revenue overall fell 5.7% from 2014, sales of its diabetes drug Invokana surged 123% to $1.3 billion. Why has Invokana become Johnson & Johnson's newest billion-dollar blockbuster? Read on to find out.

First, a bit of background
Invokana, which got Food and Drug Administration approval in 2013, helps diabetes patients maintain their blood sugar target by inhibiting the reabsorption of glucose in the bloodstream, thereby boosting the amount of glucose that leaves the body in a patient's urine.

That's important because, over time, high blood sugar levels can lead to life-threatening conditions, including heart disease.

Traditionally, doctors attempt to curb blood sugar levels by using metformin, a drug that reduces glucose production in the liver and that's been on the U.S. market since 1995. Although metformin can be effective, it fails to control blood sugar levels adequately in many patients, and when that happens, doctors turn to other drugs for help, including Merck & Co.'s (NYSE:MRK) Januvia, a DPP-4 inhibitor that's been on the market since 2006, and SGLT2 inhibiting drugs, including Invokana, Eli Lilly & Co.'s (NYSE:LLY) Jardiance and AstraZeneca's (NYSE:AZN) Farxiga.

Gaining momentum
In trials, Invokana improved hemoglobin A1c levels and fasting plasma glucose levels in type 2 patients when used alone and as part of combination therapy alongside metformin.

Invokana's solid efficacy and its different mechanism of action has led to a steady increase in prescription volume and sales. Although Johnson & Johnson didn't break out Invokana revenue in 2013, the drug's sales totaled $586 in 2014 and $1.3 billion in 2015.

Its growth trajectory over the past two years is even more intriguing when you consider that it happened in spite of the FDA approval of Jardiance and Farxiga, both of which hit the market in 2014.

Despite having to compete for prescriptions with those two new SGLT2 drugs, management reports that its Invokana market share improved to 6.5% in the fourth quarter from 6.3% in the third quarter. Since Jardiance and Farxiga haven't dented Invokana's prescription trend, it appears that their approval has only served to strengthen the case for using SGLT2 inhibitors more widely.

If that's the case, then the market potential for Invokana could be substantially greater than it is today, especially when you consider that Januvia hauls in $6 billion per year for Merck & Co.

Looking forward
An estimated 415 million people have diabetes worldwide, including 44.3 million people in North America and the Caribbean, according to the International Diabetes Federation.

Given that the IDF estimates 51.8 million people in North America have pre-diabetes, the number of diabetes cases is expected to grow rapidly over the coming decades, and if it does, spending on diabetes patients could skyrocket from its current $348 billion pace, in turn forcing payers and prescribers to shift more patients to treatment protocols that may delay disease progression and reduce the likelihood of life-threatening conditions such as cardiovascular disease. 

That kind of a backdrop would seem to play right into Invokana's hands, and if it results in Invokana's becoming a part of diabetes standard of care, the drug's billion-dollar run rate last year may only hint at its eventual peak annual sales.

 

Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. The Motley Fool recommends Johnson & 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.