November 12, 2013

What's The Next Growth Driver For Johnson & Johnson? (after Simeprevir …)

Fusion Research

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: Fusion Research is a team of equity analysts. This article was written by Satya Prakash, one of our research analysts. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.

Nov 12 2013, 12:04  |  about: JNJ, includes: BMY, GILD, MVRBF

Hepatitis C virus, or HCV, is a dangerous disease that can be fatal.According to the World Health Organization, around 3% of the world's population, or nearly 203 million people, currently suffer from HCV. Genotype 1 HCV is the most common HCV, which prevails in around 70% of HCV cases, and there is a 75%-85% chance that HCV will be chronic. Looking at this opportunity, drug manufacturers are focusing on enhancing their HCV drug portfolios.

To capture this market, the world's eighth largest pharmaceutical company, Johnson & Johnson (JNJ), with its subsidiary Janssen Research and Development, is focusing on developing a stronger HCV drug portfolio and is expecting to enhance its footprint in the HCV market. Janssen has expertise and operational excellence in developing new drugs, which will enable Johnson & Johnson to deepen its footprint and recognition in the pharmaceutical industry.

Trial phase results for Johnson HCV drug

Janssen, in partnership with Medivir AB (OTC:MVRBF), developed the HCV drug "Simeprevir", also known by the trade name of "SOVRIAD", a once daily oral capsule. This drug is designed to treat genotype 1 chronic HCV in adult patients suffering with liver diseases and all stages of fibrosis. This is the first of the next-generation HCV direct-acting antivirals, or DAA, to be approved.

In its CONCERTO trial, as part of a regimen with pegylated interferon and ribavirin, antiviral drugs, Simeprevir showed superior efficacy. In this trial, 89% of genotype 1 HCV patients achieved the sustained virological response, or SVR, of 12 weeks, which means the Hepatitis virus won't affect patients for six months after discontinuing the 12-week treatment. SVR is an efficacy measure of HCV treatment that demonstrates the absence of HCV in the blood for at least six months after discontinuing the treatment.

Further, the company has run three pivotal phase III QUEST-1, QUEST-2, and PROMISE studies, which confirm the clinical benefits and the superior efficacy of Simeprevir. In QUEST-1 and QUEST-2 studies, around 80% of the patients treated with Simeprevir in combination with pegylated interferon and ribavirin achieved the primary endpoint of SVR of 12 weeks compared to 50% of the patients treated with a placebo in combination with pegylated interferon and ribavirin.

In the Phase III PROMISE study, 79% of the HCV patients treated with Simeprevir, who have previously experienced a relapse after their prior treatment with pegylated interferon-based therapy, achieved the primary endpoint of SVR of 12 weeks compared to 37% of patients treated with placebo plus pegylated interferon and ribavirin.

Additionally, Johnson & Johnson announced the data from its phase IIa COSMOS study. It is the combinational study of Simeprevir and Gilead's (GILD) HCV drug, "Sofosbuvir", which is used as an investigational protease inhibitor to treat genotype 1 HCV patients. On November 5, 2013, according to late-breaking findings of the COSMOS study, this combination was able to produce high SVR in hard-to-treat patients. Around 93% of patients suffering with genotype 1 HCV attained the SVR of 12 weeks.

Johnson & Johnson also announced the acquisition of GlaxoSmithKline'sinvestigational compound, "GSK2336805", a complex inhibitor used to treat chronic HCV. Along with treating HCV in adult patients, it will also treat liver diseases, including all stages of liver fibrosis. GSK2336805 is currently under phase II trial study, and Johnson & Johnson acquired all the rights related to development and commercialization of this drug. It will also use the combination of this drug with its other HCV drugs, such as Simeprevir, to evaluate the efficacy of the combined drugs.

We expect superior results from all these trial phase studies will enable Johnson & Johnson to expedite the regulatory approvals process and the marketing rights for Simeprevir. Additionally, by combining GlaxoSmithKline's GSK2336805, the company expects to develop Simeprevir more effective, which may enhance the drug's efficacy in treating HCV patients.

Regulatory approval supported by trial phase's results

Johnson & Johnson filed applications with several regulatory bodies for Simeprevir approval since the beginning of 2013. Based on the CONCERTO clinical trial result, the company was able to receive approval in Japan. The other three pivotal trial studies helped the company receive priority review status for Simeprevir.

On October 24, 2013, after reviewing all three trial phase III studies, the FDA Advisory Committee recommended approval of Simeprevir to the FDA for the treatment of genotype 1 chronic HCV. The FDA is expected to give its decision regarding the approval of Simeprevir on November 27, 2013. Johnson & Johnson also filed a Marketing Authorization Application, or MAA, for Simeprevir for the treatment of genotype 1 and genotype 4 chronic HCV with the European Medicines Agency, or EMA.

Simeprevir is expected to be available in the market by early 2014, and this will help Johnson & Johnson deepen its footprint in the HCV market. Further, the FDA approval and the acceptance of the MAA in Europe will drive its future earnings higher.

Opportunities in HCV drug market

HCV is a leading cause of chronic liver disease; it is expected to infect around 150 million people globally and is responsible for the death of 350,000 people annually. In the U.S., nearly 3.5 million people are suffering with HCV, one million patients have been diagnosed, and around 350,000 patients are receiving HCV treatment. In Japan, approximately two million Japanese residents are suffering with chronic HCV, and 70% of them have genotype 1.

We expect this is a lucrative opportunity for Johnson & Johnson in HCV drug market. The positive response from the Advisory Committee will act as a supporting base for the company in receiving FDA approval. Simeprevir is approved in Japan, and if the company is able to receive the FDA approval also, then it has strong chance to grab the opportunity available in this drug market. Simeprevir is expected to contribute more than $400 million by 2016 and $647 million by 2017 to the company's top-line, and it will continue to maintain investors' interest in the company.

Growth for other HCV drug manufacturers

In the COSMOS study with Johnson & Johnson, Gilead's Sofosbuvir is being evaluated as a part of multiple therapeutic regimens, in combination of ribavirin. This combination therapy is found to be more effective than Sofosbuvir alone. In the trial phase, Sofosbuvir was able to treat 95% of patients with the eight-week dosing. Sofosbuvir is currently in phase III trial, and on October 25, 2013, it received apositive response from the Antiviral Drug Advisory Committee of the FDA under its priority review. Now the FDA will give its final decision on December 8, 2013.

We expect the positive response will help it receive FDA approval comfortably. In September 2013, the FDA granted emergency approval to use Sofosbuvir and Bristol-Myers Squibb's (BMY) HCV drug, "Daclatasvir," to treat 59-year-old General Motors employee, Robert Gholston Jr. Additionally, the EMA validated the Sofosbuvir Marketing Authorization Application for all 27 European Union countries, and it is expected that Sofosbuvir will be available in the European Union by the first half of 2014. With the regulatory approvals, Gilead expects to treatapproximately 150,000 HCV patients per year and analysts expect Sofosbuvir may contribute $6.4 billion to Gilead's revenue by 2017.

On the other hand, Bristol-Myers has submitted the New Drug Application, or NDA, to Japan's Pharmaceutical and Medical Devices Agency to market its combination therapy of Daclatasvir and "Asunaprevir". This is an all-oral interferon-free and ribavirin-free regimen, used for the treatment of HCV patients. The submission was based on the phase III trial that demonstrated 84.7% of HCV patients in Japan achieved the SVR of 24 weeks after the end of treatment. It is the first time that an interferon-free and ribavirin-free therapy is presented for approval to treat HCV. It is expected that this new combination therapy will provide vast opportunities for Bristol-Myers and build its HCV drugs portfolio stronger.


We expect Simeprevir's efficacy and safety profile in trial phases and the positive response in its priority review by the FDA Advisory Committee is a positive sign for Johnson & Johnson. We also expect that Simeprevir's approval in Japan will give it some leverage in receiving FDA approval. This will drive the company's revenue higher and provide a significant contribution to its earnings too. Further, the combinational therapy and the acquisition of GSK2336805 will enable Johnson & Johnson to build a strong presence in the HCV drug market.


Its stock has generated a year-to-date return of around 37.5% to investors. To maintain the same level of investor confidence, Johnson & Johnson increased its 2013 EPS guidance to $5.44-$5.49 from $5.35-$5.45 per share. On October 15, 2013, Johnson declared its third quarter results; it showed year-over-year revenue growth of 3.1% to $17.6 billion. Looking at this performance, we believe the company may easily achieve its EPS guidance and predict meaningful upside in its stock price in the long term.


No comments:

Post a Comment