Industry Trend Analysis - Offsetting Remicade Decline Will Be A Priority For J&J - MAR 2018

BMI View: Remicade continues to dominate Johnson & Johnson ' s Immunology sales, but its sales are in decline as biosimilar competition intensifies; questions over biosimilar interchangeability suggest that sales are falling largely as a result of a failure to gain new customers. J&J is working to offset falling Remicade revenues, however, and in Q417 for the first time, non-Remicade Immunology sales were worth more. As Tremfya ' s sales prospects improve, the gap between Remicade and non-Remicade sales will widen in FY18.

Johnson & Johnson reported Q417 total sales worth USD20.2bn, up by 11.5% over Q416. For FY17, sales reached USD76.5bn, up by 6.3% over FY16. The firm noted that its performance was driven by its Pharmaceutical business and added that FY18 full-year guidance for sales was in the region of USD80.6bn to USD81.4bn.

J&J commented that sales were aided by growth for Tremfya (guselkumab), for the treatment of adults with moderate-to-severe plaque psoriasis. Additional contributors to operational sales growth included Stelara (ustekinumab), but were partially offset by declines in Remicade (infliximab) resulting from biosimilar entrants. Both Stelara and Remicade are used in treating a number of immune-mediated inflammatory diseases.

Total Immunology sales in Q417 were worth USD3,086mn, equal to 31.9% of total Pharmaceutical sales worth USD9,681mn. The Immunology segment saw sales grow by 5.1% over the USD2,936mn reported a year earlier, but was down by 5.6% against the USD3,269mn reported for Q317. Immunology nonetheless remained J&J's most important segment within its Pharmaceuticals division.

Remicade Decline Presents Difficulties

Within the Immunology segment, Remicade is J&J's most valuable drug in terms of sales, but those sales are in decline, which will present the firm with difficulties. Q417 Remicade sales were worth USD1,466mn, equal to 47.5% of total Immunology sales. This was down by 9.7% over the USD1,624mn reported for Q416, and was down by 11.0% over the USD1,647mn reported for Q317. Sales of Remicade as a percentage of total Immunology sales has been in steady decline over the last few years; in Q116, Remicade sales accounted for 61.1% of Immunology sales, but apart from a spike in Q117, this figure has fallen.

Remicade's Value To J&J Is Falling
Remicade Sales As A Percentage Of Total Immunology Sales (%)
Source: Johnson & Johnson, BMI

It is notable that J&J has attributed Remicade's decline on increasing biosimilar competition. Remicade has been subject to biosimilar competition in various global markets, most notably those of the EU, for some time. In the EU, the first biosimilar version of Remicade was approved in September 2013, and represented the first biosimilar monoclonal antibody to be approved. In the US, the first biosimilar version of Remicade was approved in April 2016, and two more have since been approved: one in April 2017 and the second in December 2017. The approvals mean that biosimilar versions of Remicade currently account for one-third of all approved biosimilars in the US.

J&J has sought to protect Remicade from biosimilar competition through various legal means. One of these has been to effectively challenge any notion that the biosimilars are interchangeable. This has not been an issue so far in the US; none of the approved biosimilars can be marketed as interchangeable with Remicade. As a result, the biosimilar market is evolving differently from that of simple generics, as biosimilars cannot be seen to be in direct competition with their reference products; patients who have been prescribed Remicade cannot be substituted with a biosimilar version, unlike the case with generics. Nonetheless, sales of Remicade are falling both in the US and in international markets, and although the fall is less than would be seen with competition for simple generics, as J&J has noted, biosimilars are clearly having an impact. This suggests that J&J is not losing its existing Remicade customers overall, but is losing market share and the ability to gain new Remicade customers. Other companies facing biosimilar competition for their biologics will undoubtedly be keen to observe the situation J&J faces.

Two of the Remicade biosimilars approved in the US to date have come from Pfizer through its Hospira subsidiary and agreements with Celltrion. J&J has been engaged in litigation with Pfizer over the products, which has resulted in the first version, Inflectra, not being launched in the US until November 2016, despite gaining FDA approval in April 2016. Pfizer has also responded with lawsuits, most notably one filed in September 2017 in the US District Court for the Eastern District of Pennsylvania. The lawsuit alleged that J&J's exclusionary contracts and other practices Pfizer has described as anticompetitive have denied US patients access to therapeutic options and undermined the benefits of 'robust price competition in the innovative and growing biologics marketplace' for patients. The lawsuit further claims that J&J's 'systemic' efforts to maintain a monopoly in connection with Remicade by 'inappropriately excluding biosimilar competitors' violates federal antitrust laws and undermines the principal goals of the federal Biologics Price Competition and Innovation Act (BPCIA). BMI noted at the time that the lawsuit represented a warning shot to the biologic industry and ultimately served to increase pressure on the FDA to establish guidelines for interchangeability (see ' Pfizer Lawsuit Is A Prelude To Interchangeability Battle ' , September 25 2017). More recently, Bloomberg reported in January 2018 that J&J has lost a US Court of Appeals case brought by Pfizer regarding the validity of one of its Remicade patents. This will increase pressure on Remicade sales.

Remicade In Retreat
J&J's Quarterly Remicade Sales (USDmn)
Source: Johnson & Johnson, BMI

Other Immunology Products See Mixed Fortunes

Whilst J&J noted that sales of Tremfya had been good, it has not revealed what those sales were for Q417; however, it lists other Immunology sales worth USD49mn for Q417, which is likely to include sales for Tremfya. The drug is new, however, having first gained FDA approval on July 13 2017. It is the first and currently only approved biologic therapy that selectively blocks only IL-23, and J&J will be seeking healthy sales for the drug, especially as the firm has noted in the past that it has been well received by patients and physicians.

Aside from Remicade, J&J has included sales figures for its two other key Immunology drugs, Simponi/ Simponi Aria (golimumab), indicated for various autoimmune conditions including rheumatoid arthritis and ulcerative colitis, and Stelara. Stelara remains by some margin the larger of the two drugs in terms of sales, with Q417 revenues of USD1,081mn. This was up by 23.0% over the USD879mn reported for Q416, but was down by 3.8% over the USD1,124mn reported for Q317. Sales for Simponi/ Simponi Aria were smaller, but saw rises against both prior periods. Q417 Simponi/ Simponi Aria sales were worth USD490mn, up by 1.0% over the 426mn reported in Q416, and up by 2.9% over the USD476mn reported in Q317.

Other Immunology Products See Mixed Fortunes
J&J's Non-Remicade Quarterly Immunology Sales (USDmn)
Source: Johnson & Johnson, BMI

The downturn in Stelara sales seen in Q417 will be a cause of concern, but overall the firm's non- Remicade Immunology portfolio is performing well. Importantly, Q417 marked the first time that combined non- Remicade sales overtook those of Remicade. The non- Remicade products raised revenues in Q417 collectively worth USD1,620mn, which was USD154mn more than was achieved by Remicade. The gulf between the two will widen during FY18, as Remicade sales continue to fall and sales of other Immunology drugs continue to rise overall. This will be boosted by sales of Tremfya which will increase during the year.