What Is Johnson & Johnson's Opportunity In Hepatitis C Market?

Last month the Food and Drug Administration approved Johnson & Johnson’s new chronic Hepatitis C drug Olysio (simeprevir) for use in the treatment of patients suffering from genotype 1 of the disease. The drug will help cut down the duration of the treatment substantially, which typically lasts for a year. Currently there are about 3.2 million people in the U.S. suffering from chronic Hepatitis C - a liver disease transmitted through blood and other body fluids. According to some estimates, the new drug could garner as much as $450 million in annual sales by 2016. However that’s still small in the context of the overall Hepatitis C market.

J&J has continued to impress with growth in its pharmaceutical business, driven by the surge in sales of immunology and oncology (cancer therapy) drugs. Hepatits C, and infectious disease treatment, in general, can be another growth area for the company assuming that it can fight off competition from major players such as Gilead Sciences .

Our price estimate for Johnson & Johnson stands at $90, implying a discount of about 5% to the market price.

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The Seriousness Of The Disease And The Market Opportunity

Genotype 1 constitutes roughly 70% of Hepatitis C cases in the U.S. and is the most common form of the disease globally. Hepatitis C is a serious global health concern due to its high prevalence rate, low rate of diagnosis, long term unpredictable disease progression and the relative age of the population. According to J&J, approximately 150 million people globally are living with Hepatitis C virus and 60%-70% of them are likely to develop a chronic infection. More people die from Hepatitis C every year than from HIV, making it one of the most dangerous viral infections. The overall market is expected to grow past $23 billion by 2018, according to consulting firm Decision Resources. Besides the disease’s high prevalence, the increasing cost of treatment will help drive market growth. Currently the treatment involves drug injections and J&J can gain significant market share by developing oral pills that can greatly enhance the quality of a patient’s life. Gilead Sciences recently got approval for one such novel drug and is expected to dominate the segment going forward.

Competition Can Be Fierce

J&J doesn’t have a strong position in the anti-infective drugs market and will find it difficult to compete with Gilead Sciences’ newly approved oral treatment for Hepatitis C. The drug, under the name sofusbuvir (sovaldi), doesn’t require the use of ‘interferon’ and will greatly reduce the treatment’s duration. Interferon has been an essential part of Hepatitis C treatment so far but has been responsible for developing flu-like symptoms in patients. This has discouraged some patients from opting for the therapy, suggesting that the new drug may find immediate acceptance in the medical community. Apart from high pricing, there is no reason why Gilead’s sovaldi won’t do well. In fact, the company expects first quarter sales of $225 million and peak sales to top $7-$8 billion. If the pricing is moderated in the future, the company can gain strong volume share. While J&J’s new drug holds promise, it will need to come up with a more novel and convenient therapy for Hepatitis C to make a material difference to the stock.

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