Nearly 10% Of J&J’s Value Is Contingent On The Growth Of These 2 Drugs

by Trefis Team
-11.21%
Downside
142
Market
126
Trefis
JNJ
Johnson & Johnson
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Johnson & Johnson (NYSE:JNJ) has reinvented itself somewhat over the last 5 years, transforming from a primarily medical device and consumer-focused company to one that places equal – or arguably even greater – emphasis on the pharma business. Much of J&J’s stock appreciation in recent years can be attributed to growth in drug sales. However, the situation is somewhat different now. J&J is facing some headwinds, as a number of its drugs are nearing their maturity, and its biggest drug Remicade will face competition from biosimilar Inflectra. So it becomes critical to understand – what will drive J&J’s value in the future? As far as the pharma business is concerned, the biggest driver will be the Oncology segment, which constitutes nearly 20% of J&J’s value according to our estimates. Nearly half of this, or 10% of J&J’s value, can be attributed to the segment’s expected incremental growth. We expect that this will largely be driven by two drugs – Imbruvica and Darzalex. J&J’s collaborations with AbbVie and GenMab seem to be paying off, which makes a strong case for pharma giants with marketing muscle tying up with innovative biotech firms.

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

Imbruvica

Imbruvica, launched in 2014, saw its sales hit nearly $1.25 billion in 2016. The drug is used for the treatment of chronic lymphocytic leukemia and mantle cell lymphoma. AbbVie, which shares the drug’s marketing rights with J&J, is highly optimistic about Imbruvica’s prospects and expects overall peak sales to reach more than $11 billion. This implies that J&J’s share of peak sales will hit $4-5 billion. Expansion to additional indications will help, as the drug is being tested for multiple line extensions in phase 3. Compared to traditional chemotherapy, Imbruvica reduces previously untreated chronic lymphocytic leukemia patient’s risk of death by a massive 85% in patients aged 65 or above.

Darzalex

Darzalex was approved by the FDA in late 2015, and is estimated to have peak sales potential of as much as $7 billion. The drug was co-developed by J&J and GenMab but J&J has exclusive marketing rights worldwide. It will pay milestone/royalty payments to GenMab. Darzalex is a first-in-class immunotherapy for multiple myeloma. As of Jan 2017, the phase 3 pipeline contained trials for three line extensions for the drug. Some of these are likely to make it through the FDA approval process and will aid the drug’s revenue growth. The clinical data presented in late 2015 (after the drug’s approval) further strengthened its prospects.Patients who used Darzalex had a survival rate of 90% and progression free survival rate after 1.5 years of more than 70%.

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