JNJ Gains Momentum With Approvals For Broader Use Of Zytiga

In an anticipated move, Europe has granted approval to Johnson & Johnson’s (NYSE:JNJ) blockbuster potential oncology drug Zytiga for expanded use in metastatic castration-resistant prostate cancer (mCCRPC), who have not yet been treated with chemotherapy but have failed hormone treatment. ^[1] A committee last month had recommended the expanded use of the drug, which until now was limited to patients diagnosed with both hormone treatment and chemotherapy.

The good news came barely a month after the drug secured FDA approval for similar indication. ^[2] We expect these approvals to pave the way for continued growth in Zytiga sales in the near future. JNJ’s stock has gained traction on the back of these approvals and is nearing our $75 price estimate.

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Prostate cancer is the most prevalent cancers in men with around 250,000 Americans alone being diagnosed with this cancer each year. ^[3] Zytiga is mainly used to treat mCCRPC patients (no longer responsive to reduction of androgen/testosterone by chemical or surgical means). While there are many treatment therapies available, many patients don’t respond to them presenting opportunities for new drugs. This can be witnessed from the fact that Zytiga sales soared to $700 million in the first nine months of 2012 from just just $200 million in full 2011 following the first approval.

Zytiga had previously only been approved for use in patients who didn’t respond to prior chemotherapy and hormone treatment, limiting eligible patients and consequently revenues. FDA and European Medicines Agency (EMA) approvals, however, will now open a bigger market as the drug can now be prescribed to more patients, bringing in additional revenue. We expect other regulatory agencies to also follow suit.

On the back of these expected approvals, we believe that Zytiga has a sales potential of around $1.5 billion, and it can help the company fend-off some of the anticipated revenue losses. JNJ has been battling revenue losses in its pharmaceutical franchise due to patent expiries in recent years. The healthcare conglomerate lost patent protection for some of its largest selling drugs like Concerta and Levaquin in 2011, which was followed by, Invega, a mental disorder pill in 2012. The patent for Aciphex, a heartburn drug, is set to expire in mid-2013. The drug garnered over $600 millions in the first nine months of 2012. Recent approval for TB drug Bedaquiline or Sirturo will also bring reprieve for JNJ (Read Johnson & Johnson Updates: Receives FDA Approval For New Tuberculosis Drug).

It may not be a smooth road ahead for Zytiga as Xtandi, considered the closest rival of Zytiga, received FDA approval in August, about three months ahead of schedule and will be aggressively pitched to attract physicians and patients. ^[4] In studies Xtandi showed a survival advantage of 5 months compared with Zytiga’s 4.6 months or nearly 10 days even as difference is not statistically significant. ^[4] The fact that Zytiga was the only oral pill, before the approval of Xtandi, also helped in robust growth of Zytiga. However, Zytiga still has the cost advantage over its rival. While Zytiga currently costs about $5,500 per month, Xtandi is priced at $7,450 for a month’s dose. ^[5] And, it remains to be seen if Xtandi will be able to make a major dent in Zytiga’s potential sales.

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1. ZYTIGA® Approved In The EU For Use In The Treatment Of Metastatic Castration-Resistant Prostate Cancer Before Chemotherapy, JNJ, Jan 11 2013 [↩]
2. UPDATE: FDA Approves J&J’s Zytiga for Hard-to-Treat Prostate Cancer, Nasdaq, Dec 10 2012 [↩]
3. Prostrate Cancer, cancer.org [↩]
4. New Drug For Prostate Cancer Gets F.D.A. Nod, NYtimes, Aug 31 2012 [↩] [↩]
5. J&J’s Zytiga gets early challenge from Medivation’s new pill, FiercePharma, Sep 4, 2012 [↩]