Health

Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

The pharma world can be cutthroat as firms jockey for position with competing drugs. But even in that context, Pfizer's decision to announce a late-November launch of its competing version of Johnson & Johnson's best-selling drug Remicade the afternoon before J&J released its third-quarter earnings seems a bit cold. 

Pfizer's announcement cast a shadow on another blockbuster quarter from J&J, whose shares fell 2.7 percent on Tuesday. But J&J isn't going to let Remicade's $6.5 billion in sales slip gently into the good night. And it's better positioned than just about any other company to weather such a storm. 

Down, Not Out
Concerns about competition for its best selling drug Remicade dropped Johnson & Johnson shares Tuesday.
Source: Bloomberg
Intraday times are displayed in ET.

Pfizer's drug, Inflectra, is not your standard generic. J&J's drug Remicade is what's known as a biologic drug, made with living cells instead of a chemical process. It's impossible to copy exactly; hence the term "biosimilar." The regulatory tango involved in getting such a drug approved is about as complicated as making it. 

Inflectra is just the second biosimilar to hit the U.S. market. It's going to be a huge test of how willing doctors are to prescribe biosimilars, how aggressive payers will be in pushing them, and how firms will fight for biologic market share over the next decade. 

Remicade sales helped Johnson & Johnson top earnings estimates in the latest quarter. Sales of the drug grew more than 10 percent from a year ago -- but such performance likely won't be seen again.

Merck markets the drug in Europe and splits the profits with Johnson & Johnson. Biosimilars first launched in that region in February of last year, and Merck saw sales drop by more than $500 million compared to 2014, a substantially bigger decline than what analysts currently expect for J&J in 2017. 

Patent Bunny Slope?
Analysts expect a relatively slow dropoff in J&J's Remicade sales as biosimilar copies hit the U.S. market
Source: Bloomberg

Things are a bit more complicated in the U.S.

Pfizer's drug is an "at risk" launch; there are still outstanding patent appeals that could tangle things up. The FDA has yet to release guidance that would make it easier for pharmacists to switch patients from Remicade to Inflectra. Pfizer is also pricing its drug at a relatively modest 15 percent discount, which may help J&J minimize the sales impact. 

The J&J company line, per its earnings call, is that it already faces biosimilar competition elsewhere and has managed to preserve most of its market share. It argues doctors and patients will be reluctant to switch and expects only a "modest" impact from Pfizer's launch.  

Remicade sales will drop -- possibly more than expected, if it loses major market share or payers press J&J for discounts. 

That means J&J must rely on its pipeline for future growth -- but there are worse things. Last year, J&J committed to file for regulatory approval for a total of 10 drugs with at least $1 billion peak sales potential each by 2019. One of those, the cancer drug Darzalex, has already been approved.

By 2019, the company also expects to file for 10 line extensions -- expanded approvals for existing drugs -- that it says could account for at least $500 million each in peak sales. If even a modest portion of that forecast is met, then Remicade becomes much less of a worry.

Though J&J's device and consumer businesses are declining in relative importance, they still combined to deliver $9.4 billion in sales in the quarter and give the company a steady base other competing pharma firms lack. That makes J&J less dependent on Remicade.

Yes, the drug accounted for 21 percent of pharmaceutical sales in the latest quarter. But it provided only 10 percent of J&J's total sales. Contrast that with AbbVie, whose biosimilar-threatened blockbuster Humira accounted for 64 percent of revenue in the second quarter. 

If that's not enough, J&J also has $42.5 billion in cash on hand and is on the hunt for pharma acquisitions. It's on its way to more than $72 billion in revenue in 2016 and delivers on or exceeds expectations quarter after quarter. 

Always On Time
Johnson & Johnson has made a habit of beating or exceeding analyst's quarterly earnings expectations
Source: Bloomberg
Adjusted to make comparable with Bloomberg estimates

If Pfizer wants to truly rattle J&J, it may have to try a bit harder. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Max Nisen in New York at mnisen@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net