Amgen Inc.(NASDAQ: AMGN) andBristol-Myers Squibb's(NYSE: BMY) medicines,and a novel alternative toheart surgery usingheart valves made byEdwards Lifesciences(NYSE: EW),are leading to bigchanges in how doctors treat heart disease.
In thisedition of The Motley Fool's Industry Focus: Healthcare podcast, analyst Kristine Harjes is joined by contributor Todd Campbell toexplore cholesterol busters,anticoagulants, and a surgery that may be safer than traditional open heart surgery.
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A full transcript follows the video.
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This podcast was recorded on Feb. 15, 2017.
Kristine Harjes:Welcome to Industry Focus, the podcast that dives into a different sector of the stock market every day. Today isFeb. 15, and this is the healthcare edition of the show. I'm your host, Kristine Harjes,and I have healthcare specialist Todd Campbell on the line. Welcome to the show, Todd!
Todd Campbell: Hi, Kristine!How are you today?
Harjes: I'mdoing pretty well! How are you?!
Campbell: Mymuscles are sore. I'm up in New Hampshire, and we gotabsolutely buried in snow this past weekend.
Harjes: I heard you guys got dumped onand I was shocked because here in D.C., we got nothing.
Campbell: Consider yourselves lucky! We gotover a foot of snow.I think I might actually break down at the end of this year andbuy myself the snow blower.
Harjes: Thatis a worthwhile investment. I wouldn't blame you one bit.
Campbell: I know my back will appreciate it.
Harjes: Well,I have heard that shoveling is a good exercise.
Campbell: It ispretty heart healthy.
Harjes:Hah, you arealluding to the theme of today's show, soI will dive into laying that out. Yesterday was Valentine's Day, Feb. 14. And we'renot done celebrating just yet. In the spirit of the holiday, this week'sshow is all about hearts. Specifically, we're going to give some cardiac stocks a little bit of love. It's apretty big deal. When you look at the heart disease,it's the number one cause of death in the United States. Itkills more people than cancerand anything else. It's just insane when you look at some of the numbers. Somebody in the U.S.has a heart attack every 34 seconds. So,clearly, in the world of healthcare anddrug developers and medical-device makers,this is a big market. So,there are a lot of stocks that we can talk about, and a lot of differentdevices and drugs. We're going to try to touch ona whole bunch of different ones today. Sound good, Todd?
Campbell: This isgoing to be an exciting show. I'm really looking forward to this.
Harjes: Yeah. So,let's start with cholesterol. Twenty-five million, andprobably more, Americans take statins to control theircholesterol to prevent cardiovascular diseases. But,there is a new type of cholesterol buster that has come into town --actually, it's already in town, it's already on the market. These are calledPCSK9 inhibitors.I think I've talked about them on the show before, but as arefresher, Todd, do you want to explain what makes them different?
Campbell: Sure. We havethe major ways to treat highbad cholesterol. We have statins, that have beenaround since the '90s. What statins do is limit theproduction of cholesterol in the liver. Now, we havethis other way of attacking or lowering cholesterol called PCSK9inhibitors because they block an enzyme in the liver that'sresponsible for breaking down these receptors that are in the liver that help clear badcholesterol from the bloodstream. Or,saying this a little bit more simply,because it blocks this,there are more receptors in the liver, so morebad cholesterol can be cleared from a patient's blood stream.
Harjes: Yeah. Itfeels like a triple negative going on there, but thethings that you need to know is that basically,they work differently from statinswhich is great, because statins don't always workto the fullest extent, andsometimes they're even poorly tolerated by patients.
Campbell: Yeah. Asyou mentioned, probably 25 million or more people taking statins to helplower or control their cholesterol. Many of these patients are notadequately treated by statins. As aresult, those figures you were talking about earlier, there is a connection betweencholesterol and cardiovascular events. At least, we'rediscovering that as we do more and more research into heart disease and stroke. So,anything that we can develop and get on the market and get to patients thatlowers cholesterol is a good thing. These drugs,when they came out,Amgenmakes one, it's called Repatha,it came out and got approved in August of 2015. Repatha is fast becoming an important drug. The sales are notblitzkrieg sales yet,certainly not treating as many patients as statins are, but there are reasons to think that the use of thesedrugs is going to climb over time.
Harjes: Right. Anda big one of those reasons is that,pretty recently, we found out that Repatha actuallyreduces cardiovascular risksmore than just taking statins alone. This was a huge deal when these numbers came out, because A, they were long-awaited, and B, they're really important to insurers. As of right now, insurers are a little bit dodgy aboutwhether or not they want to cover the cost of this drug. It'sexpensive, it's $14,000 a year, whereas statins costhundreds of dollars. There's a tremendous difference in price tag. But, withevidence that Repatha can reduce these risks, many think that insurers will start covering this drug now.
Campbell: Yeah,that was one of the main reasons, right, Kristine, that sales of this drug haven't hit blockbuster levels yet.
Harjes: Whichthey were largely expected to be.
Campbell: Oh,big time. If you just do the simple math,if you have 25 million people on statins, ifeven only a fraction of those patients start using a drug that cost $14,000 a year, you'retalking about billions of dollars in sales. So, theopportunity is very big, because, now, this study has come out and shown that there is indeed a link to taking this with statins andthe ability to reduce cardiovascular events likeheart attack and stroke. It's a pretty important finding. There are two drugson the market right now that are PCSK9s. There's Amgen's Repatha, and there's also another drug called Praluent that's made bySanofiand Regeneron. But, whatinvestors need to know about that is that Amgen issuing those companies for patent infringement, and so far they are winning.
Harjes: Right. So, Praluent could,essentially, beforced off the marketas soon as next month. This is going back and forth and back and forth in courts,but as of right now,it does look like Amgen has the upper hand.
Campbell: Yeah. There's an appeals courtdecision that will come outthey say some time as early as June or as late as December. If Amgen comes outvictorious, then Sanofi and Regeneron areeither going to have to pull their drug orfigure out a deal with Amgen topay them a royalty stream. Now,I don't know why Amgen would want royalties if they have a drug that alreadydelivers the goods in cardiovascular outcomes. Maybe it'll come down to -- Sanofi and Regeneron areconducting their own study incardiovascular outcomes --who had the better outcome in those studies.
Harjes: Right. What'sinteresting is that we actually don't knowthe magnitude of the outcome from the Repatha study. Wedon't have the numbers on that yet.
Campbell: No,and we won't get those until a key industry conference in March. Maybe investors will tune into our show as we getfurther into spring, and we'll give people an update onwhat those numbers actually were. We knowthere was a statistical benefit, we don't know how big thatstatistical benefit is. And the number, in case you're curious, thatpeople are targeting as being a good number, would be greater than a 20% reduction in those events. If you see that, thenit's likely to open up many more patients toqualify for these drugs.
Harjes: Right. Andspeaking of timelines, the Praluent data, for theirlong-term cardiovascular risks trial, that study willcome out later this year. That's even farther down the road.
Campbell: Right. Andwhat's really interesting is, will that data come outbefore the appeals court issues theirdecision or after?That's really going to make things complex for thesecompanies,to figure out how to handle thissituation depending on who wins.
Harjes: Yeah.I think that whether or not Amgen decides to go for aroyalty largely depends on the outcome of these trials.
Campbell: I agree with that.
Harjes:All right, Todd! Wealready covered the cholesterol drug market. The next thing we want to talk about on our heart episode isa company calledEdwards Lifesciences.
Campbell: This isgoing to be a stock that not a lot of listeners are going to know about. It's not as well-known as a company like Amgen. Butit's still a very important companybecause it's changing how surgeons treat patients that havenarrowing arteries in their heart.
Harjes: Right. Traditionally, thatsituation is solved with open heart surgery, which is a huge deal. There's some riskinvolved with it. And while Edwards Lifesciences does have some surgical heart valves that they make, they'realso the leader and transcatheter heart valves, which is a non-surgical option.
Campbell: Right. Everyonce in awhile, we like to play games with our listeners. Let's do a quick game.I know you know the answers, so don't chime in.
Harjes: Youdon't have to tell them I know![laughs]
Campbell: [laughs] All right. How manytraditional surgeries are done in the U.S.for aortic stenosis, ornarrowing of the heart arteries? Is it 500,000, 1 million, or 1.5 million? Let's give our listeners five seconds ... dideverybody get the answers in? It's 1.5 million. There are a lot of patients thatunfortunately suffer from this life-threatening situation. Treatingmany of those patients with open heart surgery is, frankly,dangerous. A lot of these patients are older,they may have other diseases that could make them more at-risk. In many cases, open-heartsurgery isn't the best choice. Andthat's where Edwards Lifesciences comes in,because they get about 50% of their revenue inselling products that are used to treat thiscondition without having to open up the body or the chestcavity. Instead, they can insert a new valve into a major artery,and then put that into the failing valve, and avoid those complications and risk that comes with themore dangerous surgery.
Harjes: Exactly. Right now, this is a market sized at $2.5 billion forEdwards Lifesciences. But they expect the opportunity here isgoing to double to greater than $5 billion by 2021,which is not really that far away. They're calling that there's going to be increased awareness ofthis type of surgery,indication expansion,technological advances, all of these tailwinds that can open up this opportunity even more for them.
Campbell: Right. Thesmallest portion of the people who are going under thisopen heart surgery are the ones that are most at risk. As youmove that out to intermediate-risk patients, you move that to low-risk patients, you'reopening up the addressable market of thisapproach to so many more people, so many more patients. And that should continue to fuelrevenue growth over time. That revenue growth may not be in the 30% to 50% year-over-year rate that we've seenhistorically with this company,but I would imagine that you're going to continue to see double-digit growth in, at least, procedure rates for this approachover the course of the next five years. If so, then investors could come out nicely rewarded.
Harjes: Right. This is acompany that has grown a ton already. There'spretty high expectations for it, too. Back in October, when they reported earnings, they fellquite a bit just because their growthstopped being as big. They went from 23% to 20% year-over-year growth in the quarter they were reporting on, and investors sent the stockdownwards just because it was only 20% growth.
Campbell: Right. What'sinteresting is, investors need to remember, they have these other slow-growingparts of the business that account for 50% of sales. So,if you just break out this fast-growingpart of the business, you went from in Q2, year-over-year growth of 49% to $418 million to Q3, 38.5% to $410 million, Q4 up 38% or so to $432 million. So, yes, you'redecelerating, but wow, we're still talking about very fast growth for this company. I guess you could say that maybe it waspriced to perfection last fall,maybe it's less so priced to perfection now.
Harjes: Yeah. So,interested investors definitely take a look at this one, it's apretty cool company. Last topic of the day that we wanted to bring up are blood thinners. This iskind of a parallel storyto the cholesterol story that we toldat the beginning of the show. There's a long-standingblood thinner called Warfarin that's been used fordecades as the predominant blood thinner,anticoagulant. But,there's a new class of drugs that are on the market called factor Xa inhibitors.
Campbell: Yeah. This is a much-neededimprovement over Warfarin, in my view. Warfarin has been the go-to drug in what's a $10 billion market since the '50s, maybe the '60s. To beable to go in and say, Warfarinrequires significant amounts of patienttesting and dose adjustment anddietary restrictions because of the way it works --we can talk about that in a second -- factor Xainhibitors don't have those same drawbacks or requirements. As a result, doctors are increasingly gaining comfort with them and using themmore and more and more. That'stranslating into billions of dollars in salesfor the makers of these drugs:Johnson & Johnson,which makes Xarelto, andBristol-MyersandPfizer, which are teamed up onEliquis.
Harjes: Youmentioned Warfarin'smechanism of action. Really, all it does is targets vitamin K,which prevents blood clots. When youmentioned adietary change for some patients, that's toreduce vitamin K intake for the patient. As youmentioned, it's kind of an imperfect drug,despite having been used for a long time. So, when the factor Xainhibitors came to market,it was a pretty big deal, and they'redefinitely picking up steam quickly.
Campbell: Think about that for a second --the ability for Warfarin to work isdependent on what you had to eat this past week.[laughs] So, yeah, you'relooking for something that's going to be,potentially, the sameefficacy, less patient burden, andin the case of Eliquis, potentially abetter safety profile. As a result,Xarelto sales totaled $2.3 billion last year. That was up22%. Eliquis sales totaled over $3 billion, and that was up 80%.
Harjes: Yeah,these companies are making a ton of money on these drugs. But,I think the important question to ask iswhich one has the advantage?
Campbell: In my view,Eliquis, obviously, is being prescribed at amuch faster rate. It's growing much quicker,80% to $3.3 billion ispretty remarkable growth. I believe that the reason behind that is,if you look at the studies that were done inevaluating Eliquis'ability to prevent clots, one of the things they looked at was the risk of bleeds. Because,obviously, if you're preventingblood clots,your blood is getting a little thinner,so if you nick yourself or whatever,theoretically, you could bleed. So,you have these bleeding events thatcan occur on drugs likeWarfarin, Xarelto, andEliquis. Eliquis showed, in trials,that it works better than Warfarin inreducing the number of bleeds. That's ahuge potential safety advantage over these other drugs in the class. As a result, I think that's why this drug isgaining ground so much more quickly. Andit's likely to continue to gain ground more quickly than the other factor Xa drugs that are coming to market.
Harjes: Yeah,I would agree. At the recent J.P. Morgan Healthcare conference, the CEO ofBristol-Myers said that they arerelatively close to nabbing the lead spot fortotal prescriptions rankings for this drug, Eliquis, which isalready No. 1 in the institutional setting,meaning hospitals, etc,and also among cardiologists. In this scenario, it's also beating out Warfarin.
Campbell: Whichis fascinating. Think abouthow rapidly the use of these drugs has been,and Warfarin still has huge market share.
Harjes: Yeah,they have 54% of patients arestill on Warfarin. But a large part of that is becauseno antidote currently exists andis approved for the factor Xainhibitors, as opposed to Warfarin which,surprise, you could just take vitamin K and it undoes it.
Campbell: Right. So,you don't want to use these factor Xa drugs,necessarily, inelderly patients who are frail and may besubject to falls, etc,until an antidote gets available. Maybe, Kristine, that's going to happen soon.
Harjes: Yeah,I was going to resist the temptation totalk about one of my favorite stockson the show, but the conversation has led us there, so I'll just quickly throw it out there thatPortola Pharmaceuticals, if you haven't already heard me talk about this stock,is working on developing exactly that antidote.
Campbell: Right. Andwe don't know if or when it would get approved,but the FDA is considering it. I think a resubmission of the application. If yougo back and listen to our shows in the past, we talked about this. But,it would, obviously, be a very big advance for doctors and patients, and it would probablyexpand the use of these drugs like Eliquissignificantly, because now it could get used in more and more patients.
Harjes: Right. And Todd,I know you've written a bunch of articles about thisentire market. I have written one or twomyself. Listeners, if you're curious,I'm happy to send them to you. Just shoot us an email at firstname.lastname@example.org. Todd,thank you so much for all of the insights today. As always, people on the program may have interests in the stocks that they talk about,and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. For Todd Campbell, I'm Kristine Harjes. Thanks for listening and Fool on!
Kristine Harjes owns shares of Johnson and Johnson and Portola Pharmaceuticals. Todd Campbell owns shares of Pfizer and Portola Pharmaceuticals. The Motley Fool recommends Johnson and Johnson. The Motley Fool has a disclosure policy.