Expert Financial Analysis and Reporting

I recently recommended purchase of Johnson & Johnson (JNJ) in a report on April 24, 2010 called Johnson & Johnson Looks Promising on New Product Potential. The major factor driving the recommendation is my view that JNJ will be launching two drugs with blockbuster potential in mid-2011. One of these is abiraterone, the subject of this report, and the other is telaprevir, the hepatitis C drug which JNJ has licensed from Vertex (VRTX) for the European, South American, Middle East, Africa and Australian markets. I also believe that a third drug, Xarelto (an anticoagulant) has blockbuster potential if JNJ has successfully answered questions raised by the FDA about a liver toxicity signal. If so, it could receive approval in late 2011.

 

Overview of Abiraterone

In October of 2010, Johnson & Johnson presented results from an interim analysis of a phase III trial of abiraterone in post-chemotherapy patients. Patients studied in the trial were metastatic prostate cancer patients who had failed all other forms of therapy. They were the sickest, most advanced and most desperate of prostate cancer patients. They had failed chemotherapy which is generally the last line of defense. In this population, abiraterone extended median survival by 14.8 months versus 10.9 months in the control arm that was comprised of patients who received just steroids; the overall survival advantage was 3.9 months. The trial results were viewed by the investigators as so stunningly positive that the study was stopped prematurely and all patients on the steroid control arm were stitched over to abiraterone.

 

Based on this data, Johnson & Johnson filed an NDA for abiraterone for this post-chemotherapy prostate cancer indication on December 20, 2010. The FDA assigned the NDA a priority review which means that the agency regards abiraterone as a significant therapeutic advance. This should result in a shortened six month review so that approval could be gained as early as May 2011. In Europe, the EMEA assigned abiraterone an accelerated assessment so that approval in Europe in the post-chemotherapy setting could come in the same mid-2011 time frame.

 

Prostate cancer is a testosterone driven disease so that in the early stages of this slow growing cancer the aim of drug therapy is to block as much testosterone production as possible. However, the cancer eventually finds ways to overcome the testosterone blocking effects of drugs. Abiraterone has a mechanism of action that allows it to block testosterone production when all other currently used drugs have failed. Later in this report, I will go over the mode of action of abiraterone for those who are interested in the biology of the product.

 

There is a lot of buzz and excitement about abiraterone in the academic community. Based on my research, prostate cancer specialists are pre-sold on the drug based on the phase III results. They also are familiar with the mode of action of the drug as it works similarly to ketoconazole which enjoys significant off-label use in prostate cancer. However, abiraterone is more specific and more effective and is beginning to be referred to as “super ketoconazole”. This leads me to expect a rapid uptake in the post-chemotherapy setting.

 

In the US, the post-chemotherapy market is comprised of 10,000 new patients per year. The only competition for abiraterone is the taxane chemotherapy agent Jentava which is less effective and more toxic. I expect rapid uptake and widespread use in this segment. JNJ has not stated what the price per treatment year might be but I have heard speculation that it could be $36,000 to $60,000 per treatment year. I am estimating that it will be $40,000. This results in a US addressable market of $400+ million. I estimate that the European market is somewhat larger at perhaps $500+ million. I project that abiraterone will penetrate about 60% of both the US and European markets in 2013 which would result in US sales of roughly $235 million and European sales of $310 million.

 

In 2014, I am expecting approval of abiraterone in the pre-chemotherapy setting in which it will be indicated for use before chemotherapy. This expands the addressable market in the US to 32,000 patients or $1.3 billion. I believe that abiraterone can capture 60% of the US market in 2015 or $780 million. Again the European opportunity should be slightly higher or an addressable market of $1.6 billion. Capturing 60% of this market could result in European sales of $960 million.

 

I am estimating that rest of world sales will be 10% of total sales in each year. My sales estimates for abiraterone are as follows:

 

Sales Projections for Abiraterone 2011-2015 ($ millions)
	2011	2012	2013	2014	2015
Sales ($ millions)
US	30	165	235	530	780
Europe	35	225	310	650	960
ROW	5	75	100	120	160
Worldwide	70	465	646	1,300	1,900

 

Source: SmithOnStocks estimates.

 

There may be further potential for abiraterone in earlier stages of prostate cancer that is not included in the above estimates.

 

Abiraterone Phase III Results in Post-Chemotherapy Patients Were Strikingly Positive

In October of 2010, Johnson & Johnson presented results from an interim analysis of a phase III trial of abiraterone in post-chemotherapy patients. This was the first time that a testosterone ablation therapy showed efficacy in late stage prostate cancer and the results were striking. The trial included 1,195 patients with metastatic castrate resistant prostate cancer who had failed treatment with one or more chemotherapy regimens, at least one of which contained Taxoterre (docetaxel), the standard of care. Patients were randomized into two groups that received prednisolone/ prednisone combined with abiraterone or just prednisolone/ prednisone.

 

The data showed that treatment with abiraterone resulted in a 35% reduction in the risk of death versus placebo (p

 

The Prostate Cancer Market

Prostate cancer is the most common cancer in males, generally occurring later in life. It is a slow-growing cancer and early detection can result in a surgical cure if the cancer is confined to the prostate gland. Surgical treatment involves complete removal of the prostate in a procedure called radical prostatectectomy. Patients at this stage of the disease also have other options including radiation, cryotherapy or just watchful waiting.

 

If the cancer has spread beyond the prostate gland, surgery is not an option and patients are put on hormonal therapy, a chemical castration which blocks most of the production of testosterone. The hormone testosterone spurs the growth of both normal and cancerous prostate cells. By sharply ablating the level of testosterone, hormonal therapy can generally control the disease for two to three years before it continues to progress.

 

After hormonal therapy fails, the next and last course of action has been chemotherapy treatment. Taxoterre is the only approved drug for this stage of the disease; it is a difficult drug to tolerate. Provenge was approved in May of 2010 for use after hormonal therapy has failed and before chemotherapy is started, creating an opportunity for patients to obtain a therapeutic benefit before chemotherapy.

 

I estimate that there are about 220,000 new cases of prostate cancer diagnosed each year in the US. Of these, roughly 80% or 176,000 have localized disease that can be treated with surgery, radiation, cryotherapy or watchful waiting. Of the other 20% or 44,000 patients, most are hormone sensitive and receive LHRH agonists like Lupron. Over the course of 2 to 3 years patients gradually become resistant to the LHRH agonists and the androgen receptor blocker Casodex is added to the regimen or they may be given ketoconazole used in an off label indication. About 32,000 men each year become hormone refractory and their disease has metastasized widely; they are currently candidates for Provenge and the chemotherapy agent (usually Taxoterre).

 

Prostate Cancer Market By Types of Patients	Annual Number of patients	Current treatments
Newly diagnosed patients each year	220,000
Localized disease	176,000	Surgery, radiation, cryotherapy, watchful waiting
Non-localized disease requiring hormone therapy (first line)	44,000	LHRH agonists like Lupron
Patients failing or needing a supplement to LHRH agonists (second line)	44,000	Casodex, Casodex added to LHRH agent, ketoconazole
Patients failing hormone therapy (third line)	32,000	Provenge
Patients given chemotherapy (fourth line)	32,000	Chemotherapy (Taxoterre is most widely used drug)
Post chemotherapy (fifth line)	10,000	Jevtana, abiraterone*

 

* Should be approved shortly

 

Abiraterone in Earlier Pre-Chemotherapy Stages of Prostate Cancer

Abiraterone also promises to have significant utility in earlier stages of disease. Johnson & Johnson has just completed enrollment in a phase III trial of abiraterone in pre-chemotherapy patients. Investors are anticipating positive results in the pre-chemotherapy trial, comparable to those in post-chemotherapy. There will be important interim data from this trial in late 2011 looking at progression free survival. Another interim look in 1H, 2012 will provide insight into overall survival. If the overall survival data is positive at this interim look, JNJ could file an NDA and receive approval for use in the pre-chemotherapy setting in 1H, 2013. However, if the results are encouraging but not statistically significant, approval could be delayed until 2H, 2014.

 

Abiraterone can and will be used in the same patient group in which Provenge has approval, (pre-chemotherapy), but not until it gains formal approval in 2013 or 2014. While it should be approved in 2011 in the post-chemotherapy setting, strict reimbursement guidelines will limit its use to the labeled indication. I do not expect much off-label use in pre-chemotherapy patients. While I think that doctors will want to prescribe it, I think payors will firmly resist it until the indication is added in the label and they will then have to reimburse it.

 

Mode of Action

Abiraterone works through the same mechanism of action as ketoconazole. It is a selective and high affinity inhibitor of CYP17A, a key enzyme in the androgen synthesis pathway in both the testicles and adrenal glands. Remember that the LHRH agonists only affect androgen production in the testicles. Its differentiated mode of action has led to the off-label use of ketoconazole in prostate cancer after androgen deprivation therapy fails. Abiraterone has exhibited 10 fold higher binding activity against this enzyme and has a better safety profile than ketoconazole. It promises to be a much superior drug. Abiraterone reduces the amount of testosterone that is available for signaling the androgen receptor.

 

A drawback of abiraterone is that its mechanism of action also causes an increase in a class of hormones called mineralo-corticoids including ACTH, which leads to an increase in blood pressure. To offset this side effect, abiraterone must be combined with low doses of prednisone or prednisolone to inhibit ACTH. Unfortunately, prednisone and prednisolone bring with them a laundry list of side effects that are undesirable, especially if they are taken over a long period of time.

 

Abiraterone and Provenge

Dendreon’s (DNDN) Provenge is the first prostate cancer vaccine to be approved, and constitutes an entirely new approach to therapy through boosting the immune system’s response to cancer. A problem with Provenge is that the physician and patient can’t easily assess clinical benefit. There is generally no shrinkage in tumor size that can be detected with CT scans, and usually there is no change in PSA levels. It is hard to persuade a patient that Provenge is having benefit when there is no effect on measurable disease, even though this is what was demonstrated in the clinical trials. Prostate cancer patients are particularly attentive to changes in their PSA levels. They want and expect PSA levels to drop after therapy begins. One physician told us that about 20% of the eligible patients in his practice decided not to go with Provenge. Most of these patients have had the disease for 10 years and were highly knowledgeable about therapy.

 

Importantly, Provenge and abiraterone should not be viewed as an either/or choice. Patients are very likely to be given both during the course of their disease, but never together because abiraterone must be used in combination with steroids that depress the immune system and blunt the therapeutic effect of Provenge. This means that they must be used sequentially. The consensus view among physicians with whom we have conferred is that Provenge should be used first if the patient is showing few or any symptoms. This would provide a therapeutic benefit, and then abiraterone could be given later to extend the benefit. However, if the patient is more symptomatic after hormone therapy, they will most likely be given abiraterone and will never receive Provenge.

 

Provenge versus abiraterone decisions could be influenced by financial concerns. Doctors don’t get paid for prescribing a pill like abiraterone. With Provenge, which must be infused, Medicare pays for the ASP plus 6% so that the doctor is making about $1,560 for each infusion and also gets paid for his time so that he can make over $5,000 for a course of Provenge therapy. For an urologist, this is the same economic return as doing three radical prostatectomies. For the average urologist who is working harder every day and making less money; this is a powerful economic incentive.

 

Provenge in the U.S. will have two to three years to establish its role in prostate cancer in the pre-chemotherapy setting before it meets direct competition from abiraterone. In Europe, Provenge will have less of a lead or possibly no lead over abiraterone as its sales in that theater won’t start until 2013 or 2014. I expect approval if abiraterone in Europe for post-chemotherapy patients in mid-2011 and probably in 1H, 2014 for pre-chemotherapy patients.

Disclosure: The author of this article owned shares of Johnson & Johnson at the time this note was written. This should be taken into account as it may introduce bias into the conclusions and interpretations that are made. In reading this note, you acknowledge that you have not used it as the sole basis of your decision making and that all investment decisions are based on your own analysis. An investment in Johnson & Johnson carries substantial risk and investors could potentially lose much of their investment. The reader acknowledges that he/she has carefully read the Investment Approach, Terms/Conditions and Disclosures sections in the About Us section of the website. The reader acknowledges that he/she will not hold SmithOnStocks accountable for any investment loss that may be incurred if a decision is made to invest in Johnson & Johnson

 

 

 

 

 

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