The Biggest Threat Facing Johnson & Johnson

Source: Johnson & Johnson

Johnson & Johnson is one of the globe's biggest healthcare companies. Its businesses include everything from Band-Aids to catheters, to cancer busting compounds. But Johnson's status as a dividend paying Goliath doesn't mean it's immune to pitfalls. So we asked some of our top analysts to weigh in with what they believe to be the biggest threats to Johnson going forward. Read below to learn what they think.

: A major story for Johnson & Johnson has been the revival of its pharmaceuticals division. After facing a first wave of patent losses several years ago, a flurry of new drug approvals helped the division grow 11% in 2013 fueling companywide 6% top line growth. That growth appears to be accelerating, with pharmaceutical sales growing a stunning 21% in the most recent quarter. But for all of that success, the division is facing additional patent losses in the coming years that could stall growth. 

In 2013, top selling immunology drug Remicade contributed $6.7 billion, or nearly a quarter of the company's pharmaceutical revenue. By 2018, when Remicade loses patent protection in the U.S., those sales could dwindle to mere fractions of what they once were, putting significant strain on the company's fastest growing business. It will be up to newer drugs like Simponi and Stelara to carry Remicade's torch, leaving Johnson & Johnson with the task of convincing doctors that its next generation products have a place in a biosimilar-flooded market.

I hear what you're saying Seth, but In my eyes it's the stiffer competition for Johnson's top selling prostate cancer drug, Zytiga, that poses the biggest threat to Johnson & Johnson this year.

Since winning approval in 2011, Zytiga has been a remarkable success, racking up sales of $1.7 billion in 2013 and $1.07 billion through the first six months of 2014.

But sales may slide now that Medivation and Astella's competing drug, Xtandi, has notched the FDA go-ahead for use in pre-chemotherapy prostate cancer patients.

Despite coming onto the scene more than a year after Zytiga, Xtandi has become the market share leader in the much smaller post-chemotherapy setting and that suggests that its approval for use in the much larger pre-chemotherapy indication will allow it to win substantial market share away from Zytiga there, too. Xtandi's opportunity in the pre-chemotherapy indication is further supported by its label, which includes language noting its ability to improve overall survival -- something that Zytiga can't claim.

Since Zytiga is one of Johnson's top selling drugs this year, a drop-off in sales could weigh down its profit, so investors should pay close attention to Johnson's next few earnings reports to see if Zytiga's momentum stalls.

: But it's not just Zytiga that has allowed J&J to be a top performer in the Dow this year, it's the company's hepatitis C drug Olysio, too. In the second quarter, Olysio hit blockbuster status by posting $725 million in sales during the quarter.

The drug's monstrous performance has been somewhat surprising given that it was up against Gilead Sciences'  terminator hep C drug Sovaldi. But as it turns out, doctors have been co-prescribing the two drugs at a fairly nice clip, leading to Olysio's unexpectedly strong sales.

Even so, I think Olysio may have already peaked only about half a year into its U.S. launch. Within the next four to five months, we should see a glut of new hepatitis C drugs, from the likes of AbbVie and Bristol-Myers Squibb, hit the market that will surely cut into Olysio sales. Perhaps more importantly, the likely approval of the fixed-dosed combo pill of ledipasvir and Sovaldi later this year should make Olysio co-prescriptions unnecessary, in most cases. All told, I think most of the drug's $2 billion-plus in projected 2014 sales could be wiped out in 2015.

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Todd Campbell owns shares of Gilead Sciences and Medivation. George Budwell owns shares of Johnson & Johnson. Seth Robey doesn't own positions in the companies mentioned. The Motley Fool recommends Gilead Sciences and Johnson & Johnson. The Motley Fool owns shares of Gilead Sciences and Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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