Johnson & Johnson's large size suits some investors, but there's no denying growth in the pharmaceuticals is slow: 9 of 15 drugs saw sales declines in 1st quarter 2017.
Sales of myeloma drug Darzalex grew 99% compared to same quarter a year ago which made it JNJ's best performer in relative terms.
Darzalex was designed by $11b Danish mAb powerhouse Genmab A/S which sells for high multiples of sales and earnings, but alas earnings are positive for the 4th straight year.
An $11b market cap will look cheap in retrospect if Darzalex sales peak at $9b, and Genmab may be one of the best pure plays on a future blockbuster.
Darzalex daratumumab was Johnson & Johnson's (NYSE:JNJ) fastest growing drug during the first quarter of 2017 with US sales of $201 million, up 99% over 1st quarter of 2016. Global sales of the myeloma drug were $255 million compared to $101 million in the same quarter a year ago.
JNJ total sales growth was an anemic 1.6%. Total consumer growth was 1.0%. Total pharmaceutical sales in 2017Q1 were $67 million more than in 2016Q1, representing growth of 0.8%. Global sales declined across much of the portfolio, notably -6% for best-seller Remicade and by -9% for 3rd best selling drug Xarelto.
All of JNJ's pharmaceutical growth came from 6 drugs (not counting those categorized as 'other'). The largest growth in sales was for Darzalex which grew by $154 million.
Here is the $ growth for the quarter vs same quarter a year ago for those 6 drugs:
growth in quarterly sales ($million)
DARZALEX.....................$154
IMBRUVICA....................$148
INVEGA SUSTENNA..........$ 91
STELARA........................$ 88
SIMPONI /SIMPONI ARIA..$ 38
EDURANT /RILPIVIRINE....$ 30
The rest of the drugs named in the JNJ portfolio lost ground in Q1 of 2017. So investors are paying a premium to get JNJ's diversified pharmaceutical portfolio that includes 9 drugs with declining sales.
Growth oriented investors might put their funds to better use in JNJ partner Genmab A/S (OTC:GNMSF), (OTCPK:GMXAY).
Scientists at Genmab published their discovery of daratumumab 10 years ago (de Weers, 2007). Daratumumab alias HuMax-CD38 is an anti-CD38 human mAb (monoclonal antibody). It was selected from a panel of 42 novel mAb generated in transgenic mice because it was the most effective at killing myeloma cells in a test tube via multiple mechanisms. CD38 is a receptor and enzyme that is found on the surface of cells in the bone marrow at low levels, but is enriched on the surface of myeloma cells. It thus seemed an excellent target.
One of de Weers' co-authors published results from a phase 1-2 trial involving patients with relapsed myeloma or myeloma that was refractory to two or more prior lines of therapy. In that trial daratumumab as monotherapy was safe and appeared effective (Lokhorst, 2015).
Myeloma experts Vincent Rajkumar and Robert Kyle of Mayo Clinic Rochester call daratumumab a monoclonal breatkthrough in their October 6, 2016 NEJM editorial comments on the bortezomib-based CASTOR trial and on the lenalidomide-based POLLUX trial published in the same issue.
In the POLLUX trial (Dimopoulos, 2016) of previously treated patients, daratumumab provided an overall 12-month survival advantage (92.1% vs 86.8%) to patients treated with Revlimid and dexamethasone. The absolute PFS achieved that trial appeared superior to that achieved in CASTOR.
Daratumumab was granted accelerated approval in November 2015 as monotherapy for patients with multiple myeloma who have received at least three prior lines of therapy (see NCT02477891 submitted June 2015). On November 21, 2016, the U.S. Food and Drug Administration approved daratumumab in combination with lenalidomide and dexamethasone, or bortezomib and dexamethasone, for the treatment of patients with multiple myeloma who have received at least one prior therapy. Darzalex is the first monoclonal antibody to receive FDA approval to treat multiple myeloma.
Although not yet approved as frontline therapy - that will take several years as it did for Celgene's (NASDAQ:CELG) Revlimid - almost all patients with myeloma will eventually be candidates for Darzalex. Genmab CEO Jan van de Winkel has estimated that sales will peak at $9 billion or more. Sales of JNJ top-selling drug Remicade may have peaked at $7b in 2016, just to provide a comparison. $9 billion in sales of Darzalex would mean nearly $1.8 billion yearly for Genmab given the 20% royalty figure that has been reported for sales exceeding $3b.
Genmab has other important drugs in its pipeline, but a brief discussion of ofatumumab and pipeline candidates is relegated to Footnotes.
More important to investors who might be trying to decide between the impeccable, bond-like quality that JNJ offers and the growth potential of one of its much smaller partners, is whether the particular partner being considered is, and will remain, financially independent. And Genmab is showing signs that it will.
Genmab's net earnings were last negative in 2012 (-DKK 487 million) and have grown each year since to DKK 1,187 million in 2016. Genmab has been cash flow positive for the past 3 years, increasing cash on the balance sheet to DKK 3,922 million in 2016. Share count grew by only 6% from year end 2014 to year end 2016. See figure 1 below.
The quality of Genmab's revenue is also increasing, derived more from recurring royalties than sporadic milestone payments. Total royalties comprised 29% of the revenue in 2016, compared to just 8% in 2015, and covered 68% of total operating expenses in 2016 versus 16% in 2015. See figures 2 & 3 below.
Guidance for 2017 is revenue at circa DKK 2,050 million representing a modest 13% growth but the quality of that growth will again improve with anticipated doubling of the income stream from royalties.
Genmab's growth is not labor or capital intensive. It sold its manufacturing facility in 2013. Headcount has increased from 179 in 2012 to only 205 in '16 such that revenue per employee is a healthy $1.27 million. Compare that to $0.31 million per employee for mAb manufacturer Regeneron (NASDAQ:REGN), and $0.27 million for Seattle Genetics (NASDAQ:SGEN) which does not have manufacturing capacity on a commercial scale.
Seattle Genetics is probably Genmab's closest mAb peer, having a market cap of $9b vs $11b for GNMSF.
SGEN total revenue grew less (up 25%) in 2016 than did GNMSF's (up 60%) but, of course, the quality of that revenue was superior in that nearly 2/3 came from SGEN's own sales of Adcetris. But SGEN's expenses are growing faster than its revenue so that losses continue to accumulate. Balance sheet cash has nearly doubled in the past 2 FY, but share count has increased by 14%. The mid-range total revenue forecast for 2017 of $425 million is 1.5% higher than the $418 million in 2016.