This year hasn’t been a particularly great one for Johnson & Johnson (NYSE:JNJ), or its shareholders. JNJ stock is trailing the market’s performance with a mere 2.7% year-to-date gain — and it had the advantage of starting 2019 after a hard crash in December. Some sort of bounce was inevitable following the meltdown linked to reports that the company knew for years its talcum powder showed traces of asbestos.
J&J is also one of the companyies implicated in what’s become an opioid crisis, joining Teva Pharmaceutical Industries (NYSE:TEVA) and Mallinckrodt (NYSE:MNK).
Even before those challenges surfaced, Johnson and Johnson was struggling. The current price near $131 is where JNJ was trading in the middle of 2017. Every time it looked like it was finally moving to higher highs since then, something up-ended it. Even beyond its now-abating asbestos liability, investors aren’t quite sure the company is going to be competitive going forward.
It will be. Its drug development pipeline is stronger than the market’s giving it credit for.
JNJ Stock Looks Ready to Thrive
It’s easy to forget the same company that makes popular brands of baby shampoo also operates a prescription pharmaceutical business, but it does. Of last quarter’s $20 billion in sales, more than half came from prescription drug sales. Stelara alone added more than $1.5 billion to the top line, while sales of oncology drug Imbruvica improved 34% to $831 million.
Revenue is on pace to come in flat this year, allowing for what’s only apt to be a modest 5% increase in earnings. Next year is only likely to be a little better, as the expiration of Remicade sinks in.
But, the future beyond 2020 is healthier than it may appear. As of the most recent look, J&J — via its Janssen arm — intends to file 15 new drug applications by 2023.
One new therapy, JNJ-4528 is proving to be effective in treating multiple myeloma — at least in phase two. Because of this, the European Medicines Agency has granted a priority medicine status that will accelerate its review process. This status is also a tacit sign that the need for a solution is grave.
Niraparib is arguably the most interesting prospect of names that could bolster the bottom line within the foreseeable future.
Niraparib is a PARP drug — short for poly ADP-ribose polymerase — being co-developed with GlaxoSmithKline’s (NYSE:GSK) Tesaro unit as a prostrate cancer treatment. The same drug has already demonstrated it can extend the lives of ovarian cancer patients without adding side effects. It could likely have similar effects on other forms of cancer.
Perhaps even more exciting, however, is the more-than-40 requests Janssen will make of the U.S. Food and Drug Administration to widen the approved uses of existing drugs.
Imbruvica is part of that mix, as is Spravato, which was first approved as a treatment for depression earlier this year. Imbruvica, co-owned with AbbVie (NYSE:ABBV), is expected to drive $7 billion worth of annual revenue at its peak.
Bottom Line for Johnson and Johnson
Little of this potential revenue growth is set to materialize this year or next. Investors must have patience.
Or, maybe they don’t.
“We expect 2020 top-line growth to accelerate vs. 2019 on both a reported and organic basis,” noted Credit Suisse analyst Matt Miksic. “In addition, (blood thinner) Xarelto appears to be on an improving growth trajectory in the third quarter and generic pressure on (prostate cancer drug) Zytiga in the quarter is trending to be less severe than we modeled.”
It’s plausible investors and other analysts have looked past the several dozen new profit centers that might join the menu between now and 2023.
Certainly the opioid matter could prove to be headache for years, as lawsuits start to see specific dollar amounts linked to their outcomes. Its case in Oklahoma led to a verdict of $572 million, for perspective. That’s no small amount. It’s a number though, and as Miksic believes, the stock’s performance will improve as investors continue to better understand the JNJ pipeline.
That shift should give investors room and reason to recognize all the acquisitions haven’t been for naught.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can learn more about him at his website jamesbrumley.com, or follow him on Twitter, at @jbrumley.
