ASCO Results Suggest A Breather For J&J’s Zytiga


The revenues from Johnson & Johnson‘s (NYSE:JNJ) prostate cancer drug Zytiga have slowed in recent years. We believe that this is primarily due to competition from Pfizer’s Xtandi, which has done reasonably well among oncologists. However, J&J has an opportunity to gain a competitive edge as the recently presented clinical trial results at ASCO suggest increased efficacy of Zytiga in both low-risk and high-risk prostate cancer patients. Zytiga accounts for less than 5% of J&J’s revenue, but is a part of its most valuable pharmaceutical segment – Oncology. We believe that there is a potential for around a 5% upside to J&J’s valuation if Zytiga exceeds $3.5 billion in annual sales, assuming that the newly presented results help it gain wider acceptance among health care providers.

Prostate cancer is one of most prevalent cancers in men. Around 161,360 Americans are expected to be diagnosed with the cancer in 2017, with nearly 26,730 expected fatalities.

Our price estimate of $119 for Johnson & Johnson is slightly below the market.

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Xtandi Has Given Tough Competition To J&J’s Zytiga

Just a few years ago, Zytiga had the advantage of being the only oral pill for prostate cancer. With the approval of Xtandi (now acquired by Pfizer) in late 2012, the drug lost this advantage but maintained its edge on pricing. Zytiga’s annual sales grew substantially from $961 million in 2012 to $2.2 billion in 2014. However, since then, the revenue growth seems to have tapered off, which can largely be attributed to competition from Xtandi. In late 2015, Xtandi surpassed Zytiga in terms of the number of prescriptions written. Xtandi is a monotherapy, whereas patients need to take Zytiga in combination with a steroid to counter the side effects. Additionally, patients taking Zytiga also need regular liver enzyme monitoring because of potential liver toxicity risk of the drug. These advantages have helped Xtandi gain ground in recent years.

It is interesting to note that even though Xtandi’s net sales in Q1 2017 declined 11%, the demand grew by 13%. The decline in sales can be attributed to an increase in utilization of Pfizer’s patient assistance programs, and Pfizer believes that the situation will stabilize and that reimbursements are likely to flow better going forward.

Clinical Trial Results Presented At ASCO Conference Bode Well For Zytiga

The results presented at the recent ASCO (American Society for Clinical Oncology) conference suggest that Zytiga can bounce back against Xtandi. J&J reported that Zytiga reduced the risk of death by nearly 38% in newly diagnosed high-risk patients who hadn’t yet been treated with ADT (a standard therapy).  In newly diagnosed low-risk patients, adding Zytiga to standard therapy increased the percentage of patients surviving three year or more by 700 basis points. However, a combination therapy with Xtandi failed to meet its objectives, effectively implying that patients were better off switching to Zytiga than being on the combo. If J&J files for additional approval based on these results, it can potentially race ahead of Pfizer’s Xtandi. We currently forecast Zytiga’s sales to decline gradually over the long term considering recent saturation and competition. However, if sales were to increase to $3-3.5 billion by the end of our forecast period, it would imply nearly 5% upside to our price estimate for J&J

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