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Johnson & Johnson Wants Investors to Ignore Falling Hepatitis C Drug Sales

By Motley Fool Staff - Jan 31, 2016 at 10:38AM

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Olysio's flash-in-the-pan success may be unfairly and negatively skewing investors' perception of Johnson & Johnson's performance.

Motley Fool healthcare contributor Todd Campbell and analyst Kristine Harjes discuss why Johnson & Johnson (JNJ -1.10%) is trying to convince investors to ignore the past two years' worth of sales for its hepatitis C drug Olysio. Should shareholders turn on the way-back machine and pretend that Olysio never happened, and if so, why? Find out in this clip of Industry Focus: Healthcare.

A full transcript follows the video.


This podcast was recorded on Jan. 27, 2016.

Kristine Harjes: I don't know if you've ever seen this before, I've never seen something like this before. Essentially, what happens is, Johnson & Johnson's hepatitis C drug Olysio just gets absolutely crushed. And they knew what was going to happen, they'd been sign-posting it. But they essentially tuck in hepatitis C revenue right in there with your "net of" items, which are usually just going to be divestments and acquisitions. But a couple of times in this call, they're listing, "oh, if you ignore divestments, acquisitions, and also hepatitis C... " And I'm just sitting there like, "what? Is that cheating? Can you do that?"

Todd Campbell: I think it would definitely be cheating if they said, "ignore the benefit for this year, but embrace the benefit you had in 2014 from it." Yeah. Let's go on the way-back machine for the moment and explain to the listeners what we're talking about. In late 2013, two companies were in a major horse race to reinvent patient care in hepatitis C. Those two companies were Johnson & Johnson, which was developing Olysio, and Gilead Sciences (GILD 0.82%), which was developing Sovaldi. Olysio won FDA approval, I believe, in November of '13, and Sovaldi won it in December of '13. 

However, despite both of them being good drugs, Sovaldi ended up being the dominant drug, winning most of the market share, because, frankly, it performed better overall than Olysio. That being said, doctors did discover that if they took Olysio and combined it with Sovaldi, it worked really well in patients that had tough-to-treat hepatitis C. So, sales of Olysio ended up coming in in 2014 at about $2.3 billion, which was ... I don't want to call it a bonus, but it certainly wasn't all that expected that they would do that well in 2014. In 2015, those sales fell off a cliff, if you will. It was still a solid $621 million, I think. But they fell off a cliff from the $2.3 billion. So you lost a lot in sales. And the reason for that was in October, Harvoni had won approval for use in genotype 1, and Harvoni was a better option, single-tablet, less costly than trying to use the combination of Olysio and Sovaldi. So as a result, it became a niche-status drug. 

So, Johnson is trying to say, "Listen, that was a one-time event on the drug front. Olysio sales surged, then they fall. So maybe, just, don't count that when you're looking at our performance."

Harjes: It kind of makes sense. They've got this gigantic pharmaceutical subsection of the business, and they knew that this was exactly what was going to happen, and they didn't want to say, "Look at how much our pharmaceutical unit is tanking," because that's not really the case. What are some of the growth drivers here that stood out to you in the pharmaceutical unit?

Campbell: Well, investors should remember that Johnson & Johnson has three major segments. It does a lot of business in pharmaceuticals, obviously, it also does a pretty good amount of business in medical devices, and it also has a $13 billion or so a year business in consumer goods, where it sells brands like a Band-Aid and Listerine.

Harjes: Of course, that's why most people know the Johnson & Johnson name.

Kristine Harjes owns shares of Gilead Sciences and Johnson & Johnson. Todd Campbell owns shares of Gilead Sciences. The Motley Fool owns shares of and recommends Gilead Sciences. 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.

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