J&J's head-to-head gamble pays off

Analysis

Johnson & Johnson’s gamble of conducting a head-to-head study of key pipeline drug ustekinumab (Stelara; CNTO 1275) versus a main competitor in Amgen and Wyeth’s Enbrel in the treatment of psoriasis, appears to have paid off with data from the trial demonstrating clear efficacy superiority for ustekinumab.

J&J’s mainly successful track record, not without some setbacks, in delivering on its impressively valued late-stage pipeline is likely a key reason why the pharma giant’s shares touched a record high last week of $72.22, a surprising revelation in the current financial turmoil. Whilst the pharma sector may not quite be the safe haven it was in the past, J&J’s diversified business model is clearly instilling investors with confidence.

Large market opportunity

JP Morgan estimates the global psoriasis market to grow rapidly from $1.1bn this year to $3bn by 2010. The disease is most commonly treated with biological products including Enbrel, Abbott Laboratories’ Humira, J&J’s Remicade and Genentech’s Raptiva.

The data presented yesterday at the European Academy of Dermatology and Venereology conference showed that after 12 weeks, ustekinumab 90mg injected just twice caused significantly more skin clearance than Enbrel 50mg injected 24 times over the same period.

This efficacy data, coupled with its more convenient dosing, will therefore make the US approval for ustekinumab more likely, with a PDUFA of December 3 following a unanimous recommendation from an FDA advisory committee in June.

The only concerns raised by the committee focused on the drug’s administration; 7 of the 11 panel members recommended that the drug be given by a physician versus self-administration.

Further upgrades possible

The drug is currently worth $3.4bn to J&J with consensus forecasts for sales of $1.35bn by 2014, according to EvaluatePharma’s NPV Analyzer. This positive head-to-head data may drive sales estimates higher; forecasts for sales in 2012 have already risen 50% over the last year from $631m to $962m, according to archived consensus data.

Ustekinumab is J&J’s third most valuable pipeline product behind schizophrenia drug paliperidone palmitate and anti-rheumatic agent golimumab (CNTO 148). Highlighting the impressive value of J&J’s late-stage pipeline, the combined value of J&J’s products that are currently filed with the FDA or in phase III trials are potentially worth a staggering $24.2bn, significantly higher than its big pharma peers.

Competition on the horizon

Ustekinumab is an antibody that targets the interleukin 12 and 23 proteins believed to play a role in immune-related inflammatory disorders and will be the first of its kind onto the market.

However, J&J is not likely to have it all its own way as Abbott Laboratories is currently conducting phase III trials of a similar anti-IL-12 and IL-23 antibody, ABT-874, which the group originally licensed from Cambridge Antibody Technology in 2002.

Despite the lack of pivotal phase III data, analysts have already pencilled in sales of ABT-874 by 2014 of $874m, valuing the drug at $2.3bn to Abbott and representing the company’s most valuable pipeline candidate.

However, given the positive data for ustekinumab compared to Enbrel, Abbott may now be forced to bite the bullet and conduct another risky head-to-head study for ABT-874 against both products.

Sound business strategy

J&J’s diversified business model, covering pharmaceutical, consumer healthcare, medical devices and diagnostics, brought about through a number of smart acquisitions over the years is clearly paying off and providing investors with confidence that the company is well-placed to deal with an increasingly competitive pharma market and the broader turbulence within the financial markets.

Many of the company acquisitions made by J&J, such as Centocor in 1999 and Tibotec-Virco in 2002, have paid off handsomely and look set to continue to do so. (Johnson & Johnson acquisitions adding up, July 7, 2008)

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