What Factors Will Drive Growth For J&J’s Cardiovascular Pharma Portfolio?
Johnson & Johnson’s (NYSE:JNJ) cardiovascular and metabolism portfolio, which primarily consists of Xarelto and Invokana, accounts for around 15% of the company’s value, according to our estimates. Within pharmaceuticals, the company derives most of its value from oncology drugs, which we believe will also be the key growth drivers in the coming years. Looking at the cardiovascular and metabolism segment, we expect Xarelto and Invokana to perform well over the next few years and their sales to peak at $2.5 billion in 2018-2019 and $1.8 billion in 2022, respectively.
The chart below shows the historical and projected revenue trajectory for Johnson & Johnson’s cardiovascular and metabolism segment.
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Xarelto is an anti-coagulant (blood thinner). The drug was launched in 2011 in the U.S. and its revenues stood at nearly $2.29 billion in 2016 and $1.8 billion for the nine month period ending September 2017. Johnson & Johnson has marketing rights for the drug in the U.S. However, Xarelto nears its patent expiry in 2020, and the sales are likely to decline thereafter. While Xarelto’s performance is encouraging, considering that the drug has broken into a crowded and competitive therapeutic area of cardiovascular diseases, the competition from other innovative drugs could weigh on its sales. It should be noted that Johnson & Johnson’s phase 3 pipeline currently does not have any other critical cardiovascular and metabolism compounds.
Looking at Invokana, it is an oral medication for type 2 diabetes that helps to lower blood glucose levels. The drug was approved by the FDA in 2013 and its sales stood at $1.4 billion in 2016. While Xarelto is gaining market share, Invokana is facing a decline in market share this year due to competitive pressure, and the revenue growth is also impacted by drop in prices. However, we believe the drug will grow in mid-single digit in the coming years. This will be driven by uptake in the U.S. and potential expansion in international markets. It should also be noted that about 30 million people in the U.S. were living with diabetes in 2015, which is over 9% of the total population. Apart from this, about 100 million people living in the country have diabetic or pre-diabetes conditions. These data points suggest that despite competitive pressure, Invokana may still be able to expand in the U.S. market, albeit at a slow pace.
We have a $125 price estimate for Johnson & Johnson, which is around 10% below the current market price.
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