NVSEF - Johnson & Johnson: Supplemental BLA Of Carvykti Gives Great Growth Opportunity

2023-07-06 14:48:32 ET

Summary

• Johnson & Johnson's Supplemental Biologics Licensing Application of CARVYKTI was filed; approval would allow company to target a much earlier Multiple Myeloma patient population.
• Sales of CARVYTKI have not ramped up well since launch, but efforts are being made to increase manufacturing capacity to boost revenues.
• DARZALEX is another drug in the pipeline which has been approved to treat patients with Multiple Myeloma.
• In Q1 of 2023, Johnson & Johnson was able to report First Quarter sales growth of 5.6% to $24.7 billion; this was thanks to several other drugs in its pipeline such as STELARA, ERLEADA, ZARELTO, IMBRUVICA, and ZYTIGA.

Johnson & Johnson (JNJ) is a good pharmaceutical company to look into. The reason why I state that is because it holds the potential to further increase sales of its CAR-T cell therapy by the name of CARVYKTI, which has already been approved by the FDA as a 5th-line treatment for patients with multiple myeloma [MM]. Sales have been in line in the most recent quarters that have been announced, but have not gained much momentum as of yet because of lack of production capacity.

This issue is being addressed, because J&J and its partner Legend Biotech (LEGN) have gone out to seek manufacturing help from Novartis (NVS). In addition, J&J announced plans last year to invest in its Raritan, New Jersey facility to build up production so that it could boost sales for CARVYTKI. In addition, it is also building a state-of-the-art Belgium facility to further increase production. Where the company could see some additional growth opportunity with respect to sales of CARVYKTI, would be the supplemental Biologics Licensing Application [BLA] for this treatment it filed. The hope is that J&J could expand its use towards earlier lines of MM patients. The only reason why the BLA was filed was because the primary endpoint of progression-free survival [PFS] being met in the phase 3 CARTITUDE-4 study. It is the first randomized phase 3 study of its kind to evaluate efficacy of a cell therapy as early as the first relapse in Multiple Myeloma [MM].

Supplemental Biologics Licensing Application Could Help Boost CARVYKTI Sales

As I stated above, J&J and Legend Biotech are seeking to receive FDA approval of a supplemental Biologics Licensing Application [BLA] of CARVYKTI for the treatment of patients with Multiple Myeloma [MM]. It has already been approved for 5th line MM patients, but this supplemental BLA would allow the big pharma to receive FDA approval in being able to treat a much earlier MM line patient population.

Multiple Myeloma is a type of blood cancer where a type of white blood cell [plasma cell] becomes cancerous. White blood cells are needed by the body in order to fight off infections by making antibodies that recognize and attack bacteria and other foreign invaders. However, when MM occurs in a patient, the cancerous plasma cells start to build up in the bone marrow and space out healthy blood cells. Such cancerous plasma cells in the bone marrow then produce proteins that cause health issues.

It is a large market opportunity for sure. It is expected that the multiple myeloma market will reach $16.31 billion in 2030 . With J&J seeking a supplemental BLA of CARVYTKI for earlier line patients, this opens it up to target another portion of the MM indication. The reason for the filing of the sBLA is because of the primary endpoint being met in the phase 3 CARTITUDE-4 study , which evaluated progression-free survival [PFS] for patients given:

• CARVYKTI
• Pomalidomide, bortezomib and dexamethasone [PVD]
• Daratumumab, pomalidomide and dexamethasone [DPd].

This study tested patients with relapsed or lenalidomide-refractory multiple myeloma who had received at least one to three prior lines of therapy. It was shown that improvement in the primary endpoint of progression-free survival [PFS] was met with statistical significance . CARVYKTI reduced risk of progression/death by 74%, which was statistically significant with a p-value of p<0.0001. Expanding to this MM patient population in itself is good news, but another item to note is that this was the first randomized phase 3 study of its kind using a cell therapy to treat MM patients as early as after the first relapse. With this data on hand, J&J was able to submit a sBLA of CARVYTKI to the FDA to treat this specific patient population.

Financials

Johnson & Johnson is a big pharmaceutical company with a diverse portfolio of products. However, it has been able to achieve steady growth with respect to all of its clinical segments. In Q1 of 2023 it was able to report First-Quarter sales growth of 5.6% to $24.7 billion. When looking at the category that CARVYKTI is a part of, which is "Pharmaceutical Sales," this segment saw worldwide adjusted operational sales growth of 7.2%. This was driven by a number of drugs such as STELARA, ERLEADA, ZARELTO, IMBRUVICA, ZYTIGA and many others. However, it is important to note that J&J has another drug which has been approved for the treatment of patients with multiple myeloma, and this goes by the name of DARZALEX [daratumumab]. It has been approved alone and in combination with other drugs to treat this patient population.

The truth is that CARVYKTI has seen a rough start when it came to sales in the 2022 period. Each quarter, sales of this drug have stagnated to around $55 million. Not that there is anything wrong with this drug, it's just that the company is having trouble in being able to produce enough supply to meet demand. Things did change slightly though in this most recent Q1 of 2023 earnings, because CARVYKTI sales reached $72 million for this period.

Sales for this cell-therapy are expected to increase moving forward. Why is that? That's because management is taking steps to improve manufacturing capacity moving forward. Therefore, not only is the manufacturing issue being addressed to hopefully boost sales in the coming quarters, but also potential to expand to an earlier relapsed MM patient population. That is, to expand use of CARVYKTI with an sBLA for it going after such patients who have received at least one prior therapy with a proteasome inhibitor and an immunomodulatory agent. The balance sheet of this big pharmaceutical company looks good, because it ended Q1 of 2023 with cash, cash equivalents and restricted cash of $26.9 billon. Along with ending this quarter with about $5.4 billion in marketable securities as well.

Risks To Business

There are several risks that traders and investors should be aware of before investing in J&J. The first risk to consider is with respect to the sBLA filing of CARVYTKI for the treatment of patients with MM who have received at least one prior therapy with a proteasome inhibitor and an immunomodulatory agent. There is no guarantee that the FDA will grant the sBLA of CARVYTKI for this indication. The second risk to consider would then be with respect to sales of this cell therapy moving forward. This most recent Q1 2023 earnings saw sales of CARVYTKI move up slightly, which is a good sign. However, there is no guarantee that the manufacturing issues will be fully addressed and no assurance that sales will continue to grow at the same pace they have been.

Another risk to consider with this pharmaceutical company would be with respect to its ongoing legal proceedings. While such legal issues that might arise won't heavily impact the financial position it will be in, it could possibly have a material adverse effect on Johnson & Johnson's results of operations and cash flows for a specific period. For instance, there is the Talc powder lawsuits that it is dealing with. However, it has agreed to pay $8.9 billion to resolve all cancer lawsuits tied to its talc-based powders. Not only that, but monies in the settlement are expected to be paid out over 25 years. If this goes through, then at least it could bypass this chapter with respect to the Talc lawsuits.

It has several other product liabilities as well relating to lawsuits for other products as well. These are listed in the 10-Q SEC Filing , starting on page 29 under "Product Liability." Johnson & Johnson believes that it has defenses against these lawsuits, but it can't predict what may or may not happen during litigation. I attribute a decline in the stock price due to many of the ongoing litigations, which could take many years to conclude. Still, it is working at least towards resolving the lawsuits where it can so that it can avoid having to put a strain on its financials over an extended period of time.

Conclusion

J&J is a good pharmaceutical company to own for the long-term. As I stated above, the company has big hopes moving forward in 2023 with respect to its MM drug franchise. Not only does it have CARVYKTI for this indication, but it also has DARZALEX as well. Management believes that, with data being produced for its MM drug franchise, plus procedural data in its medical devices unit, it feels good about moving forward in 2023 and beyond .

As I stated above, Johnson & Johnson is still achieving growth in terms of sales each quarter. In Q1 of 2023, it produced sales growth of 5.6% to $24.7 billion. With DARZALEX and CARVYKTI already approved to treat MM patients, plus the ability to obtain a sBLA of CARVYKTI for an earlier line MM patient population, these are the reasons why I believe that Johnson & Johnson is a good pharmaceutical company to look into.

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