Despite some ups and downs, Johnson & Johnson's (NYSE: JNJ) pharmaceutical division consistently outperforms its peers in terms of branded drug sales. As a result, pharmaceutical sales are now responsible for a majority of the healthcare conglomerate's total revenue.
Sales of J&J's former top product, Remicade, have started sliding, thanks to competition from lower-cost biosimilars. The company recently presented a smorgasbord of reasons why its pharmaceutical segment can continue outperforming despite the pressure. Here are six of the most important ones J&J wants you to know about.
Continue Reading Below
1. Doing better than you might think
Thanks to consumer and medical-device segments that have been taking steps back, overall annual revenue rose from a meager $74.3 billion in 2014 to $81.6 billion in 2018. The company's a long way from a crisis, though, thanks to pharmaceutical sales that have been growing a lot faster than you might think.
From 2010 through 2018, total pharmaceutical sales rose at an 8.9% annual rate. That was nearly double the growth rate of the global branded market.
2. There's a lot to look forward to
There are 18 drugs in Johnson & Johnson's product lineup that have earned approval since 2011, and the company is set up to continue this pace. The company has at least 10 potential new drugs in its late-stage pipeline and could file for approvals and possibly launch them between now and 2023.
Johnson & Johnson isn't neglecting the products it's already launched. It anticipates more than 40 line extensions to bring existing drugs to a larger audience. At least 10 of these extensions could boost annual sales of drugs already on the market by $500 million or more.
3. Fingers in lots of pies
Johnson & Johnson has been able to raise its dividend payout each year for 57 consecutive years because it always has an eye open for the next big thing in healthcare. With a whopping $18.5 billion in free cash flow over the past year, there's plenty of powder available to fire in interesting new directions.
Through heaps of different partnerships, Johnson & Johnson's clinical-stage pipeline covers a lot of bases. In oncology, there's a cellular cancer therapy beginning the second half of a phase 2 study this year and a multi-specific antibody that brings immune cells in contact with cancer cells that's in clinical-stage testing, as well. In 2020, J&J will begin human studies with engineered viruses that selectively replicate inside cancer cells before bursting out to infect more cancer cells.
Johnson & Johnson's late-stage pipeline also includes a gene therapy directed at a rare eye disease and an injectable RNA interference drug for people infected with the hepatitis B virus that it licensed from Arrowhead Pharmaceuticals. The company's also targeting the human microbiome with a potential treatment for inflammatory bowel disease, and there's an experimental gene therapy that could cure a rare eye disorder in clinical-stage testing.
4. J&J's immunology segment doesn't end with Remicade
First-quarter Stelara sales surged 32% year over year to an annualized $5.6 billion and they're probably going to continue climbing. Successful phase 3 results with ulcerative colitis patients who didn't respond to other treatments could help Stelara become a new option for around 1.7 million people around the globe with the disease.
In the psoriasis arena, J&J's recently launched Tremfya is wiping the floor with Cosentyx from Novartis. Sales of the Swiss pharma giant's psoriasis injection reached an annualized $3.2 billion in the first quarter, but Tremfya could end up devouring its share of patients. During a head-to-head study with Cosentyx, a significantly higher percentage of psoriasis patients taking Tremfya achieved 90% skin clearance.
5. Investing heavily in immuno-oncology
At the moment, J&J's oncology strategy isn't leaving many stones unturned. Johnson & Johnson has 17 potential new oncology drugs that entice the immune system to recognize and attack cancer in different ways, and 10 of them are already in clinical trials.
First-quarter sales of the company's leukemia therapy Imbruvica bounded 34% higher year over year to an annualized $3.1 billion. So far, it's been approved in 10 indications across six diseases, and the company could file eight potential new drug applications for Imbruvica in the foreseeable future.
6. Shareholders are still a top priority
It might look like Johnson & Johnson is getting carried away and throwing more money at experimental new drugs than it can afford to, but that isn't the case. In 2018, J&J spent an eye-popping $10.8 billion on research and development, but operations also generated $18.5 billion in free cash flow over the same period.
With plenty of profits to pay for drug development, the company had no qualms about beginning a $5 billion share-repurchase program recently. That's on top of $9.5 billion in dividends that the company paid to shareholders in 2018.
At recent prices, the stock trades at 15.9 times forward earnings expectations. That's a steep price for a company growing this slowly, but there's also a good chance that Johnson & Johnson's pharmaceutical segment can pull this train uphill a little faster than expected.
10 stocks we like better than Johnson & JohnsonWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*
David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Johnson & Johnson wasn't one of them! That's right -- they think these 10 stocks are even better buys.
*Stock Advisor returns as of March 1, 2019