In the next few years, the pharmaceutical sector is headed to
incur losses of over $100 billion as patent exclusivity of several
blockbuster drugs are scheduled to expire. After a drug patent
expires, generic manufacturers can replicate and sell the product
at much cheaper prices, generally leading to a steep decline in the
pharma company's revenues. We have recently analyzed the impact of
patent cliff on major pharma companies like Merck and Abbott. (Read
Pfizer Patent Cliff: A Look At The Cardiovascular Drugs
Division
,
Merck Patent Cliff: A Look At The Anti-Infectives Drugs
Division
and
Abbott Patent Cliff: A Look At The Autoimmune and HIV Antiviral
Divisons
). In this article, we will discuss Johnson & Johnson's
impending patent expiries and prospects of it's overall
pharmaceutical division.
See our complete analysis for Johnson &
Johnson
Patent Cliff Hurting Revenues
J&J has already lost the patents on some of its largest
selling drugs like Concerta, Levaquin and Invega between 2011 and
2012, putting at risk more than $2.5 billion in revenues. The
company is likely to continue battling revenue decline due to
patent expiries over the next 2-3 years. Aciphex, a heartburn drug,
will lose its patent protect mid next year. Velcade, which attained
the blockbuster status last year and is used to treat a type of
cancer (mantel cell lymphoma and multiple myeloma), will see its
patent expiring in 2014. Remicade, J&J's biggest blockbuster
drug for autoimmune diseases (e.g. rheumatoid arthritis), with
sales of more than $5 billion in 2011, will also lose its patent
protection in 2014, affecting sales in the immunology drugs
segment.
J&J also faced a setback with the failure of its trial drug
Bapineuzumab for Alzheimers (Read Pfizer and Johnson & Johnson
Dump Alzheimer Drug After Failed Clinical Trials), the sales of
which could have more than made up for the revenue loss from
Invega's patent expiry.
Strong Pipeline Offsets Concerns…
Despite all of these factors, we expect the company's
pharmaceutical franchise to perform relatively well due to some
potential blockbuster drugs like Canagliflozin, an experimental
drug for type 2 diabetes. The drug has shown efficacy in phase III
trials by reducing blood sugar in diabetics with an elevated risk
of heart problems. It also results in significant decline in blood
pressure and weight loss. If approved, the drug will be the
company's first treatment in the fast growing diabetes drug market
and could bring more than $1 billion in revenues. (Read New
Diabetes Drug Can Bolster J&J's $74 Value).
In addition, J&J could get early approval for Bedaquilinean,
an experimental drug for the treatment of tuberculosis (TB). TB is
presently considered resistant to most available drugs and provides
an opportunity for new types of medication. This cure could earn
$300 million in sales.
Current Drugs Also Hold Promise
Further, Zytiga, a prostate cancer drug, continues to
hold promise as the drug received a priority review status
this August for larger use. (Read JNJ Updates: Strikes Cancer
Deal, Zytiga Gets FDA Priority Review Status). This means that the
drug could be approved in about three months from now. The FDA
usually grants this status for drugs that either show strong
efficacy or where no treatment exists currently. Xarelto, a blood
thinning drug is also awaiting FDA approval for extended use to
prevent heart attack and stroke. (Read JNJ Knocks On FDA Door
A Second Time For Broader Use Of Anticlotting Drug Xarelto). The
company's anti-infective drugs Prezista and Intelence, used in the
treatment of HIV, continue to see higher uptake. Anti-virals,
especially to combat HIV, have seen tremendous growth in the past
decade. According to IMS Health's predictions, this segment could
grow by 7-8% for the next 4-5 years. These drugs could revive
J&J's loss resulting from Levaquin's patent expiry..
We believe J&J's immunology drug division will benefit from
the continued growth in Simponi, especially in the international
market. The drug maker has filed for label extensions for Simponi
to other diseases like ulcerative colitis which should drive
sustained growth going forward. The company also stands to benefit
from Merck giving up rights of Simponi and Remicade in fast growing
markets of Canada, Central and South America, Middle East, Africa
and Asia-Pacific regions. Further, profits for these two drugs (in
the regions where Merck retained rights) are now being divided
evenly between the two companies as opposed to prior split of 58%
to Merck and 42% to J&J. This will also help JNJ increase its
revenues, even if moderately.
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