ViewPoints: Zytiga spearheads robust Q2 performance for Johnson & Johnson, but management suggests caution on patent exclusivity for key cancer franchise

Sometimes it can look so simple. Johnson & Johnson kicked off Big Pharma's Q2 earnings season on Tuesday with a robust set of results for its pharmaceutical division. The key theme – launching new products drives revenue growth.

Insight, Analysis & Opinion

This may sound like stating the obvious, but much of Big Pharma has not exactly covered itself in glory in recent years when it comes to new product launches, albeit if FDA approval rates for 2012 appear more promising. Thus it was not surprising to hear Johnson & Johnson management touting the healthy sales contribution of recently launched products when the company announced its Q2 results.

For those products that Johnson & Johnson breaks out revenues for, five drugs stand out: Zytiga (Q2 sales of $395 million), Stelara ($371 million), Xarelto ($189 million), Simponi ($175 million) and Incivo ($172 million); each of which have been approved and launched since 2007.

Together, these brands accounted for around 19 percent of Johnson & Johnson's total pharmaceutical sales in Q2 and 18 percent of pharmaceutical revenue recorded for the first half of 2013. Furthermore, they acted to drive Q2 pharma revenues in at $326 million above consensus.

The company's second-quarter results further define Johnson & Johnson as having one of the 'freshest' portfolios among its Big Pharma peers, with supplemental evidence provided by a recent analysis by FirstWord. See FirstWord Lists: New product launches of the past five years – which Big Pharma companies have performed best?

Based on 2012 revenues generated by the 10 largest pharma players for products approved as new molecular entities (NMEs) by the FDA since 2007, Johnson & Johnson was positioned second among its Big Pharma peers, with a 'new product contribution' ratio of 10.3 percent (Novartis had a ratio of 10.7 percent; the Swiss company reports its Q2 results on Wednesday).

The products analysed differ slightly (Xarelto and Incivo were filed with the FDA by Bayer and Vertex Pharmaceuticals, respectively, for example) but the underlying narrative is shared. Furthermore, Q2 results demonstrate that new product launches are accounting for an increasing share of pharma revenues at Johnson & Johnson, driven primarily by rapid growth for Zytiga and other new launches; the same five products accounted for just 12 percent of pharma sales in Q2 2012 and H1 2012, versus the aforementioned 19 percent and 18 percent ratios in the same periods for 2013, respectively.

A key question is whether Johnson & Johnson can continue driving such a performance? The signs appear positive. The company's first-in-class (SGLT-2 inhibitor) oral diabetes treatment Invokana appears to be tracking ahead of analyst expectations (although the company is yet to break out sales for the product) and expectations remain high for the cancer therapy ibrutinib, which Johnson & Johnson is developing in collaboration with Pharmacyclics. See ViewPoints: Have analysts undervalued the SGLT-2 diabetes drug class? and ViewPoints: Will the FDA send out message on breakthrough therapy status with speedy approval for Johnson & Johnson, Pharmacyclics' multi-billion dollar candidate ibrutinib?

Johnson & Johnson has also looked to shore up its long-term position in the prostate cancer market via the recent acquisition of Aragon Pharmaceuticals, and specifically the second-generation androgen receptor signalling inhibitor ARN-509. With CEO Alex Gorsky reiterating the view on Tuesday that Johnson & Johnson is working towards a 2016 US patent expiry date for Zytiga, the acquisition of Aragon is likely to play an integral role in retaining share in the prostate cancer market (there has been some recent speculation that an additional patent on Zytiga may extend exclusivity until 2021). Gorsky described ARN-509 as a "great addition to our portfolio" and "potentially complimentary" to the rapid growth Zytiga franchise. See ViewPoints: Johnson & Johnson bets big in prostate cancer market with Aragon acquisition and In Focus: ARN-509 to build on achievements of Zytiga.

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