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Amgen, Inc. (AMGN), Johnson & Johnson (JNJ): Boom Or Ticking Time Bomb?

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Reaching the coveted $1 billion mark in annual sales is no small feat for a drug. Look at the performance of any company’s portfolio at the end of the year and you will notice that only a handful of drugs become blockbusters. Aside from developing and marketing the drug, sustaining that level of sales can be challenging as well. How, then, do some drugs grow to become megablockbusters?

To answer that question, let’s take a look at three successful anti-inflammatory drugs: Humira from AbbVie Inc (NYSE:ABBV), Remicade from Johnson & Johnson (NYSE:JNJ), and Enbrel from the trio of Amgen, Inc. (NASDAQ:AMGN)Pfizer Inc. (NYSE:PFE), and Takeda. The three drugs combined for more than $23 billion in 2012 sales and offer a great blueprint for investors looking for the next big drug. Here are three characteristics of a megablockbuster.

1. Treat causes, not symptoms
The emergence of biologics has allowed the pharmaceutical industry to treat the underlying causes of diseases more effectively, rather than simply treating the symptoms that arise from a condition. This isn’t a staple of blockbusters, but future billion-dollar drugs that treat causes will have an efficacy edge over others that don’t. A study published last summer demonstrated that rheumatoid arthritis patients taking one of the three biologic treatments above saw mortality rates drop by half. This and an early start have allowed Amgen, Inc. (NASDAQ:AMGN), Johnson & Johnson (NYSE:JNJ), and AbbVie Inc (NYSE:ABBV) to capture huge swaths of the immunology market.

Another characteristic of successful drugs is that they treat chronic diseases — in this case, autoimmune diseases. Patients will likely need to take medication for years or even the rest of their lives to maximize their standard of living. That provides a steady and relatively predictable future market for anti-inflammatory drugs.

2. Drastically improve treatment
Biotech investors have likely read the term “unmet medical need” several gajillion times. But let’s face it, developing a safe and effective treatment for diseases that leave patients with few or no options can be a successful endeavor. By default, meeting an unmet medical need or drastically improving upon current treatments yields first-to-market status. Figuring out how to treat once “untreatable” immune diseases has paid off immensely for the four companies:

Company Drug 2012 Sales
AbbVie Humira $9.27 billion
Johnson & Johnson Remicade $6.14 billion
Amgen Enbrel $4.24 billion
Pfizer Enbrel $3.73 billion

Source: SEC filings.

The three injectable drugs above provided the health care industry with convenient solutions to big problems, but that could also hasten their decline. Oral treatments are never far behind, and new injectable drugs add even more convenience to patient’s lives while also reducing dosing regimens.

3. Treat multiple indications
Treating multiple diseases (or sub-groups) with one compound can significantly increase annual sales. Drugs that can be used to combat several unmet medical needs are perfect candidates for megablockbuster status. Take a look at the approved uses for Humira, which this year will become the second drug ever to eclipse $10 billion in annual sales.

Condition Market
Rheumatoid arthritis North America, Europe
Psoriatic arthritis North America, Europe
Ankylosing spondylitis North America, Europe
Crohn’s disease North America, Europe
Plaque psoriasis North America, Europe
Juvenile idiopathic arthritis North America, Europe
Ulcerative colitis United States, Europe
Axial spondyloarthritis Europe
Pediatric Crohn’s disease Europe

Source: AbbVie 10-K.

Some of these markets may not be very large on their own, but together they represent millions of potential patients. Keep in mind that there is no free pass: Companies have to conduct clinical trials for each new indication. Nevertheless, maintaining a relatively clean safety profile (Humira, Enbrel, and Remicade) can go a long way in cementing a drug’s reputation with doctors — ultimately leading to more prescriptions.

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