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| Table of Contents |
| Intro and Overview |
| Introduction |
| Business Overview |
| Trends and Forces |
| Key Trends and Forces |
| Competition |
Key Trends and Forces
Tightening FDA Regulations
When FDA commissioner Margaret Hamburg began her tenure in 2009, she announced that the FDA would toughen it's enforcement efforts to protect public health.[1] As the FDA has drawn criticisms for its failures in preventing deaths caused by drugs such as Vioxx, Hamburg has come in with several fixes that include stricter monitoring of drug adverse events, more funding for the agency, stronger ability to force product recalls, and more scientific expertise within the agency.[2] On May 19, 2010, the FDA announced 21 proposals aimed at increasing transparency to the public regarding regulatory information.[3]
Such information will increase the amount of information accessible to the public with regard to companies' pipeline drugs and manufacturing facilities that might otherwise not have been disclosed. While the tightened regulations and increased transparency will eventually improve the overall quality of pharmaceutical products, there will be growing pains as companies adjust to the stricter standards and stronger enforcement. Johnson & Johnson's ability to adjust to these new standards will impact its valuation and financial success.
Omnicare Scandal
In January 2010, the U.S. Department of Justice accused J&J of paying millions of dollars in kickbacks to Omnicare Inc., the largest U.S. pharmacy for nursing home patients, in exchange for pushing prescriptions for its products including the antipsychotic drug Risperdal. Not surprisingly, the New Brunswick, New Jersey company is fighting the accusations. It asked a federal judge to throw out the Omnicare case. Last month, J&J recalled even more lots of Tylenol and other over-the-counter medicines as a precautionary measure.[4]
Product Development
Developing a new product is a time-consuming and costly endeavor. In 2010, Johnson & Johnson spent a total of $6.84 billion in research and development, 11.1 % of total sales, in its three business segments.[5] New products introduced in the last five years accounted for over 30% of sales. The company currently holds almost 54,000 patents domestically and internationally.
For pharmaceutical products, hundreds of thousands of candidate compounds must be screened to identify a handful of potential drugs. Even fewer of these candidate drugs are found to be effective at treating a disease. The drug must then pass strict safety standards in several series of clinical trials. According to The Pharmaceutical Research and Manufacturers of America's 2006 Pharmaceutical Industry Profile, developing a new drug and bringing it to the market takes up to 10 to 15 years and on average costs $800 million.
Over-the-counter products, such as Johnson & Johnson's Tylenol or LifeScan blood glucose monitors, are also subject to FDA regulation and approval. Medical devices, such as products by DePuy and Cordis, also must undergo clinical trials in order to meet efficacy and safety requirements.
In February of 2009, Johnson & Johnson won approval in Sweden for its premature ejaculation drug Priligy (dapoxetine) and is similarly expecting approval in several other EU countries. The first drug of its kind, Priligy is a pill that has been shown to effectively delay ejaculation in men 18-64 years of age.[6] Although previously rejected by the FDA, Johnson & Johnson retains the option to file another submission in the future. Analysts have estimated the potential market for the drug to be $575 million per year.[7]
Comfyde (Carisbamate) is a drug being developed by Johnson & Johnson to treat epilepsy. The mechanism of action for Comfyde is unknown and currently under investigation.[8] Phase III trials have been completed, and on October 2008, Johnson & Johnson submitted an NDA to seek approval for Comfyde for use as an antiepileptic.[9] The antiepileptic drug market is $12 billion.
Generic Drugs
Due to Food and Drug Administration (FDA) regulations, pharmaceutical patents last 17 years, during which a pharmaceutical company has an exclusive right to manufacture a particular drug. After the patent expires, generic versions of the product can be produced and sold by competitors. Generic medication is cheaper than brand medication, and the lower cost is often a strong incentive for consumers to choose generic over brands. In addition, the presence of a generic alternative may prompt a decrease in the brand name medication price.
Like products of other major drugmakers, most of Johnson & Johnson's pharmaceutical products has been or will eventually be affected by the loss of market exclusivity. The U.S. patent for Risperdal, the company's most profitable drug, will expire in the end of 2007, and sales are likely to decline significantly after the loss of patent protection.
Litigation
Companies in the health care industry face significant liabilities if a product is later found to be defective or produce adverse reactions. Even though such adverse effects are previously unknown and impossible to predict, damages claimed in such lawsuits are usually substantial. All three segment's of Johnson & Johnson's business face the risk of litigation.
As of the end of 2006, Johnson & Johnson faces 1,500 such lawsuits against its products. Notably, there are 700 claimants for the antipsychotic drug Risperdal, which is also the company's bestselling drug. Although insurance covers some of Johnson & Johnson's litigation costs, unexpected liabilities could have a serious financial impact on the company.
Health insurance
Changes in health care coverage may impact sales. If an insurance program changes its policies and removes coverage for a certain treatment, sales are likely to decrease. In general, insurance programs are more likely to cover essential expenses, such as heart disease medication, and less likely to cover nonessential expenses, such as cosmetic surgery.
Johnson & Johnson's Procrit is often used by chemotherapy patients, and Risperdal is often prescribed to the elderly. These prescriptions are covered by Medicare, which helps to increase sales.
Consumer Health
Consumers are beginning to take greater responsibility and interest in their own health, especially as technology makes health information readily accessible. In 2006, 53% of adults used the internet to find health information. This trend for increased consumer awareness affects Johnson & Johnson's consumer health and pharmaceutical segments, as products are now targeted more towards the consumer. (Read more about Johnson & Johnson's competition...)
References
- ↑ New F.D.A. Chief Says She’ll Toughen Enforcement Efforts
- ↑ The FDA: A tough tonic
- ↑ FDA Transparency Could Tank Pharma Stocks
- ↑ http://247wallst.com/2010/08/04/as-jj-faces-crisis-questions-arise-about-boards-role/
- ↑
- ↑ http://www.tradingmarkets.com/.site/news/Stock%20News/2170588/
- ↑ http://www.bloomberg.com/apps/news?pid=conewsstory&refer=conews&tkr=LLY%3AUS&sid=ae7ddq6aGZgk
- ↑ Carisbamate prevents the development and expression of spontaneous recurrent epileptiform discharges and is neuroprotective in cultured hippocampal neurons
- ↑ Johnson & Johnson Pharmaceutical Research & Development, L.L.C. Submits New Drug Application to FDA for Carisbamate
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