J&J Patches Together Strong Sales Growth With Ortho EVRA, Duragesic

J&J will step up promotion of Ortho EVRA in the fourth quarter, marking the end of supply constraints for the contraceptive patch.

"On the EVRA front, we continue to have supply constraints, although we've made great progress in that regard," J&J CFO Robert Darretta said during a third quarter analyst call Oct. 14.

"The last time I was updated on it we expected the constraints to be largely behind us during this quarter," Darretta said.

"That's why you'll see more advertising and certainly some additional promotional effort behind EVRA this quarter," J&J VP-Investor Relations Helen Short added.

Demand for EVRA (norelgestromin/ethinyl estradiol) exceeded manufacturing capacity following approval of the contraceptive patch in November 2002. While the product was always available to patients for prescription, J&J had to limit sampling in the spring.

Regular sampling, as well as increased advertising, will resume in the fourth quarter, J&J said.

Direct-to-consumer advertising for Ortho EVRA has focused on the convenience of the once-weekly application (¹ (Also see "Ortho EVRA Marketing Could Stress Convenience Over Oral Contraceptive" - Pink Sheet, 26 Nov, 2001.), p. 6).

J&J's hormonal contraceptive line grew 9% in the U.S. in the third quarter to $259 mil. U.S. sales for the first nine months have risen 10% to $752 mil. from $682 mil. for the first three quarters of 2002.

"The success of EVRA, the first contraceptive patch, and Ortho Tri-Cyclin Lo , a new low-dose oral contraceptive launched in late 2002, have more than offset the impact of generic competition affecting Ortho-Novum 7/7/7 and other older oral brands," Short said.

J&J recently filed for a pediatric extension for the original formulation of Ortho Tri-Cyclin, Short noted. Under a settlement with Barr, a generic version of the product will enter the market no later than Dec. 29, and earlier if the pediatric extension is denied (² (Also see "Ortho Tri-Cyclen Generics To Enter Market Before Year End" - Pink Sheet, 4 Aug, 2003.), p. 8).

FDA has 90 days to act on the pediatric exclusivity filing, which "is very close to the date that Barr would be entitled to enter the market regardless with a generic version," Short noted. "The expectation is that probably at the very end of December...that we'll see generic competition against Ortho Tri-Cyclin."

J&J is also preparing for another Barr launch, the three-month cycle oral contraceptive Seasonale . Barr has said Seasonale has the potential to take 10% of the total market, one analyst said during the call.

"At this point it's really too early for us to tell what kind of impact it's going to have," Short replied.

Seasonale (levonorgestrel/ethinyl estradiol) cleared FDA Sept. 5 and will be launched Nov. 1 as the first oral contraceptive with a 91-day regimen. Barr does not expect the first paid scripts of Seasonale to be filled until the first few months of 2004 because of sampling (³ , p. 38).

"We're watching it very closely, but we have not specifically modeled an impact that we would be in a position to share with anyone at this point," Short added.

J&J has been able to post strong pharmaceutical sales despite a poor showing by its $2 bil.-plus Procrit (epoetin) brand (see ⁴ (Also see "J&J Procrit Once-Weekly Labeling Resubmitted To FDA" - Pink Sheet, 20 Oct, 2003.) ).

J&J's U.S. pharmaceutical sales grew 11.8% in the third quarter to $3.2 bil. Through the nine months, U.S. pharma sales are up 11.3% to $9.8 bil.

The transdermal chronic pain therapy Duragesic (fentanyl) had a standout quarter, with U.S. sales growing 47% to $262 mil. Year-to-date sales in the U.S. grew 31% to $730 mil.

"Duragesic continues to benefit from the further expansion of the chronic pain market as well as the unique product characteristics of the transdermal patch technology," Short said. "New clinical data reviewed at medical forums has generated expanded usage in a broader range of chronic pain types where opioids are indicated," she noted.

A follow-on for Duragesic, dubbed AP48, is in Phase III trials. It is on track for FDA submission in early 2004.

"We are still on track in terms of filing something early next year with the FDA and certainly our strategy is going to be to try to move as much of the business to AP48 prior to the expiration of the patent" for Duragesic, Short said. Mylan has an ANDA pending for the product.

J&J was asked whether it would withdraw the Duragesic formulation once AP48 is approved; the company responded that it would be "premature to comment" on the possibility.

The performance of Duragesic was particularly important for J&J, because the antipsychotic Risperdal (risperidone) joined Procrit in turning in a weak showing for the quarter in the U.S., with domestic sales dropping 1% to $335 mil.

J&J hopes a long-acting formulation, Risperdal Consta , will help the product regain momentum. An NDA for the new formulation is pending, with a user fee deadline in October (⁵ (Also see "Tidbits From First Quarter Conference Calls, In Brief" - Pink Sheet, 5 May, 2003.), p. 11).

J&J attributed the Risperdal family's strong showing outside the U.S. (sales up 41%) to the availability of Consta at a premium price.

"It's an extraordinarily cost-effective product for any health care system and it's been priced accordingly," Darretta said. "So a significant portion of the revenue [in EU] is associated with the higher price point."

J&J's investment in drug delivery technologies is also paying off in the company's income statement.

J&J noted that its "other income & expense" line included $91 mil. in income during the third quarter, compared to a loss of $129 mil. a year ago (primarily due to payment of a settlement to Amgen).

Although the other income & expenses line will continue to fluctuate, J&J noted that the consolidation of Alza establishes a steady baseline of income.

"It used to be somewhat lower than that...prior to Alza becoming part of J&J. Alza has a stream of royalties because of the nature of their historical business, so it has become larger with the addition of Alza," Darretta said. J&J acquired Alza in 2001 (⁶ (Also see "J&J Increases Alza Ante By $5 Bil. Over Abbott: Concerta Has J&J Upbeat" - Pink Sheet, 2 Apr, 2001.), p. 20).

The Alza-developed attention deficit/hyperactivity disorder treatment Concerta (methylphenidate) is facing a difficult competitive challenge from Lilly's Strattera (atomoxetine).

J&J announced plans to conduct a head-to-head study of the two products in 1,100 children. J&J also hopes to match Strattera's indication for treatment of ADHD in adults; Concerta is in Phase III studies in adults.

J&J is also expecting an impact from the launch of Prilosec OTC on its proton pump inhibitor Aciphex (rabeprazole). Sales of Aciphex grew 22% in the third quarter to $152 mil., J&J reported. However, the company acknowledged that prescriptions have trended down since the OTC launch.

"Certainly the Prilosec OTC availability will have some impact in the category," Darretta noted. "I think it's too early in that process to draw any conclusions." J&J has "seen that kind of trend before in terms of Aciphex and the scripts going up and down," Short added.

Although J&J's sales growth remains strong, the company's R&D spending continues to outpace sales growth by a wide margin.

Third quarter R&D spending grew 23.6%, including significant fees associated with the licensing and development of multiple myeloma agent Velcade (bortezomib) from Millennium. J&J will cover nearly half of Velcade's future worldwide development costs and will pay Millennium up to $750 mil. plus "double digit" royalties for Velcade's ex-U.S. rights (⁷ (Also see "Millennium Retains Velcade U.S. Rights; J&J Picks Up Half Of R&D Costs" - Pink Sheet, 7 Jul, 2003.), p. 7).

Excluding the Velcade arrangement, J&J R&D still grew 18% for the quarter. "I don't anticipate 18% rate growth as a sustainable rate of increase in [R&D], but it is certainly our desire to have it grow more rapidly than sales," Darretta stated.

One aspect of J&J's cost control strategy is an early retirement program, focused primarily on recent acquisitions.

"It's an enhanced retirement program that's made available for individual operating companies that might have a headcount management opportunity to employ," Darretta said.

Employees who are 55 years or older with at least 10 years experience with the corporation are eligible. "That's a very modest portion of our domestic work force," Darretta said.