Bayer ( BAYRY - Analyst Report ) and partner, Johnson & Johnson’s ( JNJ - Analyst Report ) Janssen Research and Development unit recently received some encouraging news with the European Commission (EC) clearing their blood thinner Xarelto in the EU for an additional indication.

The clearance from the EC will allow the HealthCare unit of Bayer to market Xarelto in the EU for the treatment of pulmonary embolism (PE) and prevent recurrent deep vein thrombosis (DVT) and PE in adults. We note that thrombosis refers to the formation of a blood clot inside a blood vessel, thereby blocking a vein (venous thrombosis) or artery (arterial thrombosis).

Following the approval, Xarelto became the first novel oral anticoagulant to be cleared in the EU for the indication. Approval was based on data from a global phase III study (EINSTEIN-PE: n=4,833). Bayer stated in its press release that Xarelto is approved for the indication in more than 20 countries globally.

We are encouraged by Bayer/Johnson & Johnson’s label expansion efforts for Xarelto, which is already approved for multiple indications, including the lucrative stroke prevention in nonvalvular atrial fibrillation (SPAF) indication. Successful label expansion should boost the sales potential of the drug.

We remind investors that earlier in the month, Bayer announced the US approval of Xarelto for treating DVT, PE and reducing the risk of recurrent DVT and PE. The US Food and Drug Administration (FDA) reviewed the marketing application, filed in May 2012, for Xarelto for the indication on a priority basis. Applications for priority review designated drugs are reviewed by the FDA within six months of submission as against the usual ten months.

Our Recommendation

We have an Outperform recommendation on Bayer. The stock carries a Zacks #2 Rank (Buy rating) in the short run. We have a Neutral recommendation on Johnson & Johnson. The stock carries a Zacks #3 Rank (Hold rating) in the short run.