Why Johnson & Johnson’s Oncology Focus Is Important For Its Future

by Trefis Team
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JNJ
Johnson & Johnson
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Oncology is a therapeutic area that deals with the treatment of cancer. It is one of the key growth segments for J&J and for the pharmaceutical industry in general. Primary care areas such as cardiovascular and allergy are already flooded with products, and therefore the focus on oncology could help the company command better pricing. Although oncology is a relatively small business segment for J&J, it presents substantial growth opportunity. The company’s global oncology drug sales grew by 51% during Q2 2013, up from 33.2% growth it saw in the first quarter. [1]

The opportunity comes from the fact that global incidence of Cancer is likely to increase from about 12.7 million in 2008 to 21.3 million in 2030. [2] In addition, the number of deaths are likely to show a similar growth trajectory as depicted in the chart below. Cancer is a not a single disease, it has in fact more than 200 types and thousands of subtypes affecting more than 60 organs. That gives an opportunity for the company to develop novel therapies and capture niche markets.

Source: J&J Investor Presentation

See our complete analysis for Johnson & Johnson

J&J’s Advancement In Prostate Cancer Business

Zytiga, which is now approved to treat both chemo refractory and chemo naïve metastatic castration resistant prostate cancer, saw its sales grow 70% globally due to strong market growth and share gain. The drug has captured 30% share of metastatic castrate resistant prostate cancer market in the U.S. [3] In addition to this, J&J’s acquisition of Aragon Pharmaceuticals will allow it to take ownership and control of Aragon’s androgen receptor antagonist program, which can complement Zytiga’s success. Under this program, Aragon is developing a second generation androgen receptor signaling inhibitor, ARN-509, which is currently in phase 2 development stage and could potentially become a very viable drug for treatment of castration resistant prostate cancer.

Prostate cancer is the second most common cancer in men globally. Approximately 900,000 men were diagnosed worldwide with this disease in 2008, which represented 14% of the cancer cases diagnosed in men that year. [4] If we look at only the U.S., we note that prostate cancer was the most common cancer in men in 2009, with a total of 206,640 men diagnosed with the condition during the year. [5] The number of deaths stood at 28,088. It is estimated that developed countries accounted for over 70% of the total number of prostate cancer cases in 2008. [4] This can be primarily attributed to widespread use of prostate-specific antigen testing in these nations, which detects the disease with high accuracy. [4] J&J has an opportunity here as it has significant expertise in developed markets, with added assurance of transparent patent laws.

 

 

According to Evaluate Pharma, the global oncology market stood at $67.7 billion in 2012. [2] This figure is expected to grow to $100.5 billion by 2017, implying a compounded annual growth rate (CAGR) of 7%. In comparison, the market for prostate, heme and lung cancer is expected to grow at a CAGR of 8% and it appears that J&J is aptly directing its efforts.

Our price estimate for Johnson & Johnson stands at $85, implying a slight premium to the market price.

Understand How a Company’s Products Impact its Stock Price at Trefis

2009

2010

2011

2012

Streaming Content Costs as % of Revenue

3%

7%

22%

44%

Total Content Costs as % of Revenue

13%

14%

25%

46%

Streaming Content Obligations as % of Revenue

60%

122%

156%

Total Streaming Content Obligations ($ Million)

1,299

3,907

5,634

Notes:
  1. J&J’s SEC Filings []
  2. J&J’s Investor Presentation [] []
  3. J&J’s Q2 2013 Earnings Transcript []
  4. Cancer Research UK [] [] []
  5. Center for Disease Control and Prevention []
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