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Key Takeaways from JNJ's Q3 Call: Remicade, Pipeline, Acquisitions

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Healthcare giant and industry bellwether Johnson & Johnson (JNJ - Free Report) reported third quarter 2016 results before the market opened yesterday with both earnings and revenues surpassing expectations (Read more: J&J Outshines in Q3 Earnings on Strong Pharma Sales). However, shares were down 2.6% on concerns regarding future growth prospects of the company’s blockbuster top-selling drug, Remicade.

Here’s a close look at some important takeaways from the company’s third quarter conference call.

Remicade Biosimilar Round the Corner

Needless to say, the most discussed topic on the call was Pfizer, Inc.’s (PFE - Free Report) recent announcement that it will be launching its biosimilar version of J&J’s multi-billion dollar drug, Remicade, in late November. Inflectra, Pfizer’s biosimilar, will be priced at a 15% discount to the current wholesaler acquisition cost (WAC) of Remicade.

J&J expects the rate of penetration of a biosimilar entrant to be modest. Here’s why: with Inflectra not being interchangeable, patients who are stable on Remicade are highly unlikely to switch to a biosimilar – that would be about 70% of the patients. The significant long-term safety data on Remicade, strong advocacy from patients and clear physician preference should also work in Remicade’s favor.

Secondly, J&J said that it has a strong patient assistance program in place which could prove to be a market differentiator. Moreover, the company is ready to compete in all channels to provide patients with the most affordable option in every situation.

J&J also pointed out that in Canada, Australia and Brazil where biosimilar Remicade is already available, the company has maintained more than 90% volume share.

Meanwhile, the company intends to appeal a court ruling in August related to the ‘471 patent. Moreover, a trial related to the media patent is scheduled for mid-Feb 2017.

Pipeline on Track

Last year, J&J had announced that it intends to seek approval for more than 10 new products between 2015 and 2019. The company said that each of these products has blockbuster potential and it would be targeting more than 40 line extensions of existing and new drugs as well. This target was reiterated on the company’s third quarter call with the company providing an update on important pipeline candidates.

While sirukumab, a key candidate in the immunology pipeline, has been filed for approval in the U.S. and EU for a rheumatoid arthritis indication, the company expects to submit the regulatory application for guselkumab for psoriasis by year-end. Plans are also on to move guselkumab into late-stage development for psoriatic arthritis.

Within oncology, J&J has a broad clinical development program for apalutamide in both pre-metastatic and metastatic prostate cancer. The company is also evaluating it in combination with Zytiga and PARP inhibitor, niraparib. Niraparib is in phase II studies with regulatory filings expected in 2019.

In the neurology segment, esketamine (treatment-resistant depression) is already in late-stage development. Meanwhile, the company is moving a 3DAA combination of Olysio, AL-335 and odalasvir into late-stage studies for hepatitis C virus infection.

Acquisition Plans?

J&J, which will be completing its acquisition of Abbott Medical Optics in the first quarter of 2017, was asked about its acquisition plans. The company has about $40 billion in cash and marketable securities. The company said that it has specific areas of focus in the Consumer segment with the focus mainly on international growth specifically emerging markets, over-the-counter medications and the beauty space particularly in Asia. Within the Medical Devices segment, J&J said that it continues to look for bolt-on acquisitions in orthopedics and general surgery. In the cardiovascular segment, although certain areas like structural heart look attractive, the company was pretty clear about being disciplined from a valuation aspect.

Where Pharma is concerned, J&J will most likely use an “acquisition type” strategy instead of a licensing strategy if it decides to add another major therapeutic area to its existing five major therapeutic areas.

Our Take

Though the upcoming entry of Inflectra will remain a source of concern and does bring in a certain element of uncertainty regarding Pharma segment sales, J&J should be able to retain share as the 15% discount offered by Pfizer may not really end up in huge patient switches especially with the product not being interchangeable. Meanwhile, J&J’s evolving product mix should drive growth in the face of biosimilar competition and market dynamics.

JOHNSON & JOHNS Price and Consensus

J&J is a Zacks Rank #3 (Hold) stock. A couple of better-ranked stocks in the large cap pharma sector are Bayer AG (BAYRY - Free Report) and Merck & Co., Inc. (MRK - Free Report) . Bayer, which will be reporting third quarter results on Oct 26, has a pretty good earnings track record having surpassed expectations in three of the last four quarters. Merck also has an impressive earnings track record having surpassed expectations in each of the last four quarters and is expected to report results on Oct 25. Both Bayer and Merck are Zacks Rank #2 (Buy) stocks. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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