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Shares of healthcare conglomerate Johnson & Johnson (NYSE: JNJ) delivered an incredibly strong performance in February, rising 8% during the month, according to data from S&P Global Market Intelligence. Interestingly enough, no single catalyst stands out as being responsible for the move. Instead, four drivers appear to have worked together to push J&J higher.
If forced to choose the most important February catalyst, I'd say the positive opinion of multiple-myeloma drug Darzalex from the Committee for Medicinal Products for Human Use (CHMP) takes the cake. The CHMP is the review panel of the European Medicines Agency (EMA) that offers recommendations to the EMA. Based on data from the phase 3 POLLUX study, CHMP recommended that Darzalex's marketing authorization be broadened to include combinations with Celgene's Revlimid and dexamethasone, or Velcade and dexamethasone. Genmab, which receives a healthy royalty on sales of Darzalex, also had to be happy with this opinion.
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Secondly, Johnson & Johnson has likely benefited from President Trump having too much on his plate to tackle drug-pricing reform. With the repeal and replace of the Affordable Care Act taking precedence, as well as tax reform and deregulation near the top of Trump's agenda, drug-pricing reform could be pushed down the road. With more than 46% of J&J's sales now derived from its pharma segment, the continuation of strong pricing power is welcomed by its shareholders.
Third, don't discount the Actelion (NASDAQOTH: ALIOF) carryover effect, especially after the company published its prospectus for the $30 billion takeover offer in mid-February. With sales of top-selling drug Remicade under threat from the November launch of Inflectra, a biosimilar version of Remicade, J&J is looking for new ways to ignite growth. Buying Swiss-based Actelion and its portfolio of niche drugs for pulmonary arterial hypertension should improve its long-term growth rate by 1.5% to 2% per year.
Finally, don't overlook the stock market's momentum. The Dow Jones Industrial Average recently logged 12 consecutive gains, which was its longest such streak in 30 years. J&J, being a component of the Dow, was likely caught up in the euphoria caused by multiple new all-time highs.
It was business as usual for Johnson & Johnson in February, and I see no reason for you to alter your investment thesis at this point.
Image source: Getty Images.
Johnson & Johnson remains uniquely diversified internally and geographically. It's comprised of more than 250 subsidiaries, which allows it to divest assets, or acquire them, without disrupting its core business.
What's more, J&J's three core operating segments -- pharmaceuticals, medical devices, and consumer health products -- each serves a purpose. Consumer health may be the slowest-growing, but it provides near-guaranteed cash flow, along with relatable products that create an attachment to the J&J brand. Medical devices have been slower-growing of late, too, but they offer a long-tail growth opportunity, with more hip and knee procedures as America's baby boomers grow older. Lastly, pharma packs a margin and growth punch with exceptional pricing power.
I'd also caution against investors being too worried about Remicade's supposed demise. Sales of Darzalex are already on track to top $1 billion in 2017, and Genmab's CEO recently predicted that expansion of the drug could push peak sales to around $9 billion. This would more than cancel out any negative impacts from biosimilar competition on Remicade. J&J is also expecting to file new drug applications for 10 drugs between 2015 and 2019 (Darzalex being one) with over $1 billion each in sales potential.
It's steady as she goes for J&J, and shareholders couldn't be happier.
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