Healthcare & Dividends | Where the Money Is - 11/26/2014 | The Motley Fool

TL;DR

Stellar succeeded commercially but faces growing competition, while biotech companies generally avoid dividends so they can reinvest in research, development, and acquisitions. Johnson & Johnson reported about $540 million in third-quarter Stellar sales, up 47% year over year, as Novartis and Amgen advanced competing psoriasis drugs. Read on to understand the competitive risks, drug-comparison challenges, and implications for dividend investors.

Transcript

a conversation about autoimmune diseases and why biotechs don't pay a dividend because this is where the money is hey fools Healthcare analyst Michael Douglas here with our Healthcare contributor Todd Campbell all the way from New Hampshire Todd how's it going it's going well I'm I'm getting really excited about the apple pie tomorrow how about you... Read More

Key Insights

• 🌓 Stellar has been successful in gaining market share in the psoriasis drug market, with sales reaching $540 million in the third quarter.
• 💪 Competitors, such as Novartis and Amgen, are developing drugs that could challenge Stellar's market share, with strong efficacy and FDA approvals.
• 👨‍🔬 Biotech companies prioritize reinvesting profits into research and development or acquisitions rather than paying dividends to shareholders.
• 🎨 Comparing drug efficacy can be challenging due to differences in trial design, populations, and efficacy measures.
• ❓ Biotech companies offer significant growth opportunities but are generally considered more speculative investments.
• 🔬 Investing in dividend-paying pharmaceutical companies, like Johnson & Johnson, may be more suitable for dividend investors.

Questions & Answers

Q: Why do biotech companies typically not pay dividends?

Biotech companies generally reinvest profits in research and development or acquisitions instead of distributing them to shareholders. Their priority is expanding drug pipelines and developing new therapies, although a few companies such as Amgen pay small dividends.

Q: How successful has Stellar been for Johnson & Johnson?

Stellar generated about $540 million in third-quarter sales, representing a roughly $2 billion annual run rate. Sales were up 47% year over year, and the psoriasis drug had won market share from Enbrel and Humira.

Q: What four hurdles determine whether a drug succeeds?

A drug must first be safe and then demonstrate that it works. It also needs sufficient commercial support, including marketing resources and an experienced sales team, before confronting the fourth hurdle: competition.

Q: Which competitors pose the greatest threat to Stellar?

Novartis was described as the closest near-term competitor because Centex had shown strong efficacy and solid safety in trials and received a unanimous recommendation for approval from an FDA advisory committee. Amgen's Brodalumab could also threaten Stellar after producing impressive head-to-head results.

Q: Why could Johnson & Johnson help Stellar defend its market share?

Johnson & Johnson has a massive marketing operation and established relationships with doctors. Those advantages could make it difficult for competing psoriasis drugs to persuade doctors to switch.

Q: Why are head-to-head drug trials especially useful?

Comparisons across separate clinical trials can be unreliable because trial designs, patient populations, and efficacy measures may differ. A head-to-head trial evaluates the drugs more directly, as Amgen did when comparing Brodalumab with Stellar.

Q: How large is the potential psoriasis market discussed in the episode?

The discussion says more than a million people in the United States and a couple million in Europe use psoriasis drugs to improve their symptoms. It also estimates that psoriasis affects about 3% of the global population, or around 125 million people worldwide.

Q: What remained uncertain about the competing psoriasis drugs?

Amgen, Novartis, and Celgene each expected their drugs to become billion-dollar blockbusters. The speakers emphasized that whether those expectations would be realized remained uncertain and described the following two years as an important competitive period.

Summary & Key Takeaways

• Stellar, a drug used to treat psoriasis, has been successful in winning market share from competitors like Enbrel and Humira, with sales reaching $540 million in the third quarter.

• Competitors in the psoriasis drug market, such as Novartis and Amgen, are developing drugs that could challenge Stellar's market share.

• Biotech companies, including Stellar's manufacturer Johnson & Johnson, typically reinvest profits into research and development rather than paying dividends.