Johnson & Johnson’s Oncology Segment Will Likely See Strong Growth In The Near Term Led By Zytiga & Darzalex

Johnson & Johnson’s (NYSE:JNJ) Oncology drugs account for around 10% of the company’s overall revenues and EBITDA. Oncology has been a key growth driver for J&J in the recent past, and we expect this trend to continue in the near term, and beyond, primarily led by a ramp up in sales of existing drugs, and label expansion. We have created an interactive dashboard ~ What Is The Outlook For Johnson & Johnson’s Oncology Drugs.  You can adjust the revenue drivers to see the impact on the company’s overall revenues, earnings, and price estimate. Below we discuss J&J’s oncology drugs in detail.

Imbruvica, Darzalex, And Zytiga Will Likely Continue To See Strong Growth 

The Pharmaceuticals segment accounts for roughly half of J&J’s total sales, and Oncology accounts for nearly a quarter of Pharmaceuticals sales. Oncology drug sales have increased rapidly over the last few years, amounting to $7.3 billion in 2017. They were up 44% (y-o-y) in the first half of 2018. This can be attributed to strong growth for Imbruvica, Darzalex, and Zytiga. 

Imbruvica was launched in 2014 and it is used for the treatment of chronic lymphocytic leukemia and mantle cell lymphoma. 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). The drug’s marketing rights are shared between J&J and Abbvie. The latter is highly optimistic about Imbruvica’s prospects, and expects overall peak sales to reach more than $7 billion, which will translate into J&J’s share of peak sales reaching north of $4 billion. This can be achieved with expansion to additional indications. As of June 2018, the drug was being tested for 7 line extensions in phase 3. We forecast the drug’s revenues to grow from $1.9 billion in 2017 to north of $2.5 billion by 2019.

Darzalex was approved by the FDA in late 2015. It is a first-in-class immunotherapy for multiple myeloma. The clinical data presented in 2015 showed that the patients using Darzalex had a survival rate of 90%, and progression free survival rate after 1.5 years of more than 70%. The drug was co-developed by J&J and GenMab, with J&J having exclusive marketing rights worldwide, and pays milestone payments to GenMab. As of June 2018, phase 3 pipeline contained trials for 7 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. We currently forecast the drug sales to be north of $2 billion by 2019.

Looking at Zytiga, it was approved in 2011 for the treatment of prostate cancer. Earlier this year, the drug in a combination with Prednisone was approved for the treatment of earlier form of metastatic prostate cancer. The company’s management stated that Zytiga is seeing growth in the metastatic high-risk castration sensitive prostate cancer indication based on the LATITUDE clinical trials, and it is unlikely to see any generic competition this year. This should bode well for its sales. We forecast the drug sales to be north of $3 billion in 2018, but to decline slowly thereafter. Among other drugs, Velcade sales will likely decline in the coming years. Looking at its late stage pipeline, J&J currently has 4 new compounds, which combined can potentially generate $5 billion in peak sales.

Overall, Oncology is on a strong growth trajectory, and it will be an important driver for Johnson & Johnson’s near term growth. While Zyitga and Darzalex are expected to lead the near term growth, expansion of labels for Imbruvica and Darzalex, along with new compounds, will likely drive the long term growth.

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