Company Overview: Johnson & Johnson is a holding company, which is engaged in the research and development, manufacture and sale of a range of products in the healthcare field. It operates through three segments: Consumer, Pharmaceutical and Medical Devices. Its primary focus is products related to human health and well-being. The Consumer segment includes a range of products used in the baby care, oral care, skin care, over-the-counter pharmaceutical, women's health and wound care markets. The Pharmaceutical segment is focused on five therapeutic areas, including immunology, infectious diseases, neuroscience, oncology, and cardiovascular and metabolic diseases. The Medical Devices segment includes a range of products used in the orthopedic, surgery, cardiovascular, diabetes care and vision care fields. Its research facilities are located in the United States, Belgium, Brazil, Canada, China, France, Germany, India, Israel, Japan, the Netherlands, Singapore, Switzerland and the United Kingdom.


JNJ Details

Strong First quarter 2018 performance, beating the analysts’ expectation: Johnson & Johnson (NYSE: JNJ) in the first quarter of FY18 posted better than expected results on the back of strong pharmaceutical growth. The results were bolstered by foreign exchange rates, which the company said had a 4.2% positive impact. The sales of key drugs like cancer therapies, Darzalex and Imbruvica rose by double digits in the first quarter 2018. JNJ’s pharmaceutical business rose 19% to $9.84 billion in the first quarter 2018 while sales in its consumer and medical-devices segments rose 5.3% and 7.5%, respectively. The first-quarter underlying operational sales growth for consumer has increased 2%, which is an increase over the fourth quarter of 2017. JNJ has reported the adjusted earnings per share of $2.06, beating the analysts’ estimate for the adjusted earnings per share of $2.02. The company had reported the adjusted revenue growth of 12.6 percent to $20.01 billion in the first quarter of FY18, beating the analysts’ estimate for revenue of $19.46 billion. Further, the company has raised its sales outlook for the year 2018 despite ongoing pricing pressures for its prescription drugs and medical devices.
 

Financial Highlights (Source: Company Reports)

Supply chain actions: JNJ has planned to implement a series of actions across the global supply chain in order to focus on the company’s resources and increase investments in critical capabilities, technologies and solutions necessary to manufacture and supply the company’s product portfolio. This will enable the company to better meet patient and customer needs, make it more agile in a rapidly evolving healthcare landscape and drive business growth. Moreover, JNJ expects the supply chain actions will include expanding the use of strategic collaborations and bolstering the initiatives to reduce complexity, improve cost competitiveness, enhance capabilities and optimize the network. The discussions regarding specific future actions are ongoing and are subject to all relevant consultation requirements before they are finalized. Overall, JNJ expects supply chain actions to generate approximately $600 million to $800 million in annual pretax cost savings that will be substantially delivered by 2022. Further, the company expects to record pretax restructuring charges of approximately $1.9 million to $2.3 billion over the 4 to 5-years’ period of this activity, which the company will treat as special items.

Major Developments during the First Quarter of 2018: During the first quarter of 2018, JNJ had filed a supplemental New Drug Application with the FDA for IMBRUVICA for the treatment of Waldenström's macroglobulinemia used in combination with rituximab in treatment of naïve and previously treated subjects. The company had announced worldwide collaboration with Bristol-Myers Squibb Company to develop and commercialize FXIa inhibitor, including, BMS986177, which is an anticoagulant drug candidate being studied for the prevention and treatment of major thrombotic conditions. The company has made a decision to discontinue further development of cadazolid in Phase 3 for the treatment of clostridium difficile-associated diarrhea. Moreover, the binding offer was announced from Platinum Equity, which is a private investment firm, to acquire the LifeScan business for approximately $2.1 billion, but is subject to customary adjustments. JNJ completed the acquisition of Orthotaxy S.A.S., which is a privately-held developer of software-enabled surgery technologies, including a differentiated robotic-assisted surgery. Additionally, during the first quarter 2018, U.S. Food and Drug Administration (FDA) had approved an additional indication for ZYTIGA (abiraterone acetate), in combination with prednisone for the treatment of patients with metastatic high-risk castration-sensitive prostate cancer. The FDA has approved ERLEADA, which is an oral androgen receptor inhibitor for the treatment of patients with non-metastatic castration-resistant prostate cancer.


Drivers of Operational Performance for Consumer Segment (Source: Company Reports)

First New Depression Drug Launch in 35 Years: JNJ is working to bring ketamine to the prescription drug market, and if they are successful, this would mark the first time in well over 35 years that a new depression drug treatment was released. JNJ company Janssen Research and Development is actively pursuing the development of a formulation of the drug that would be safe and more convenient to administer. The company had received breakthrough therapy designation for its nasal formulation from the US Food and Drug Administration in 2016, which is an elite and competitive status that is designed to speed the drug through the complex federal approval process. Their OTC rose 0.9% which understates the true performance of the franchise. In the U.S., the strong consumption in both adult as well as children’s TYLENOL and children’s MOTRIN has offset a negative comparison to the first quarter of 2017 when pipeline was built for the launch of the rapid release and chewable children’s TYLENOL negatively impacting worldwide OTC operational growth in the first quarter of 2018 by an estimated three points.

Product performance: DARZALEX continued their solid performance. In the U.S. market, growth and the strong launch uptake of the one prior line indication is leading to share gains. Outside the U.S., DARZALEX is enhancing its penetration in the 29 EMEA countries while the growth in the Asia-Pacific region was boosted by the product’s approval in Japan last November. IMBRUVICA in the U.S. showed over three points of market share as compared to the earlier year across all lines of therapy, based on the fourth-quarter data boosted by share in line 1 chronic lymphocytic leukemia or CLL. ZYTIGA showed a solid quarter growing 54%, while In February, the FDA got ZYTIGA for patients with metastatic high-risk castration sensitive prostate cancer based on the LATITUDE clinical trial which was a driver for ZYTIGA’s first quarter performance resulting in market and share expansion.

Capital Management: JNJ has planned to invest more than $30 billion in capital projects and research-and-development in the U.S. through 2021, which is 15% more than the company invested over the previous four years. The company said U.S. tax reform played a significant role in the increase.
 

Guidance Update (Source: Company Reports)

Positive Outlook despite pricing and competitive pressures: The pricing and competitive pressures is a threat for JNJ. JNJ’s average price paid for its medicines in the U.S. fell by 4.6% over last year due to the company's discounts. The company expects the competition in the pharmaceutical business to continue throughout the year. During the first quarter 2018, world-wide sales of autoimmune therapy Remicade, the company's top-selling product, fell 16.9% due to the competition from lower-priced copies, known as biosimilars, and JNJ's own discounting. Further, another JNJ's top-selling drug, prostate-cancer treatment Zytiga, is expected to face generic competition late this year or early next year. The pricing pressures had also impacted sales of the company’s spine, trauma and knee parts, which fell in the first quarter 2018. Meanwhile, President Trump is expected to speak next week about high drug prices, but analysts are expecting proposals that won't hurt pharmaceutical companies, such as efforts to reduce the out-of-pocket costs borne by patients. Despite these challenges and based on strong fundamentals, the company increased its sales guidance for the full-year 2018 to a range of $81.0 to $81.8 billion, at the back of operational growth expected to be in the range of 4.0% to 5.0%. JNJ also reaffirmed its adjusted earnings guidance for full-year 2018 to a range of $8.00 to $8.20 per share, reflecting expected operational growth in the range of 6.8% to 9.6%.

Stock Recommendation: Up 4.8% in last one year, the securities of JNJ lost over 10% in the last quarter but were seen to be consolidating lately. The company delivered a strong first quarter of 2018 performance extending their second half of 2017 performance. Pharmaceuticals’ segment performed better than the overall market while Consumers segment growth maintained its acceleration and medical device has platforms that are enhancing market leading positions. The group is also executing plans for other areas to improve performance that are not meeting their objectives. Their financial performance was also above expectations. We recommend a “Buy” on the stock at the current price of $ 127.72.
 

JNJ Daily Chart (Source: Thomson Reuters)

Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.