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.
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.Notes:
- Diabetes Therapeutics Market to 2017 – Better Glycemic Control and Reduced Potential Risk of Hypoglycemia to Increase the Market Share of DPP-IV Inhibitors and GLP-1 Agonists, marketresearch.com, Feb 29, 2012 [↩]
- FDA advisory panel backs efficacy of J&J TB drug, Reuters, Nov 29 2012 [↩]
- The Global Use of Medicines:Outlook Through 2015, IMS Health, May 2011 [↩]