In an expected event, the U.S. FDA rejected Johnson & Johnson‘s (NYSE:JNJ) application for the broader use of Xarelto. Xarelto is a drug used for blood thinning and is approved for preventing strokes with indications of abnormal heart rhythms and preventing blood clots in patients who have knee or hip replacements. JNJ was looking forward to expanding the use of the drug to prevent heart attack and stroke in patients who have previously had severe chest pain or heart attack. Last month, a 10-member outside expert panel had ruled against the drug’s additional use with a 4-6 vote.
In a separate event, the FDA unexpectedly delayed the much-awaited approval of Pfizer‘s (NYSE:PFE) Eliquis, considered the closest competitor to Xarelto in this segment. ((F.D.A. Unexpectedly Delays Move on Anticlotting Drug, The New York Times, June 26 2012)) Below we take a look at how these events could impact the valuations of JNJ and Pfizer.
Acute coronary syndrome is said to cause 1.2 million hospitalizations a year and offers a multi-billion dollar opportunity for the drug manufacturers to come up with an antithrombotic drug that can help prevent heart attack in patients with history of heart problems. ((J&J, Bayer Fail to Win Expanded U.S. Backing for Xarelto, Bloomberg BusinessWeek, June 22 2012)) An Antithrombotic drug helps prevent clotting inside the body that can restrict blood circulation to the organs. JNJ’ Xarelto and Pfizer’s Eliquis belong to the antithrombotic family.
While JNJ has received a setback at this moment, many are expecting the drug to get approval in a year. If approved, the drug will make up for some of the losses JNJ will face due to the expiry of several other major drugs in next 3-4 years.
Pfizer, which has had a reason to cheer following Xarelto’s failure, also suffered a setback as the FDA delayed the approval of its drug Eliquis second time in a year citing the need for more information on management and verification of data. Eliquis, the closest competitor of Xarelto, has been awaiting the FDA approval and many were expecting the drug to receive approval as soon as the end of this month. While Pfizer is confident about working around the issue in a short time, the approval could be pushed to next year.
While we expect Eliquis to get approval as the drug is already approved in Europe and has displayed a better safety profile before, any further delay will have a substantial impact on the company’s value as the cardiovascular division contributes nearly 14% of the our $25 price estimate for Pfizer. With Xarelto no longer in competition, Pfizer could have strengthened its position in the cardiovascular division with extra time on its hands.