Johnson & Johnson: The Year 2013 In Review

by Trefis Team
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Trefis
JNJ
Johnson & Johnson
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In the context of big pharmaceutical companies, Johnson & Johnson (NYSE:JNJ) had a fairly good year, despite the pressure on its medical devices and diagnostics business. The pharmaceutical segment benefited from strong growth in immunology and oncology drug sales and the approval of the company’s first type 2 diabetes drug Invokana. The company’s image is undergoing a transformation and the focus on medical devices business is reducing. Going forward, we expect J&J to become one of the biggest players in the pharmaceuticals industry, giving tough competition to the likes of Pfizer (NYSE:P) and Merck (NYSE:MRK). Here are some of its key achievements during 2013.

Our price estimate for Johnson & Johnson stands at $90, implying a slight discount to the market price.

See our complete analysis for Johnson & Johnson

The Pharmaceutical Business Became Prominent

J&J’s image underwent a transformation as its pharmaceuticals business became more significant. The company has traditionally been known for its medical devices and diagnostics equipment, but that is slowly changing.

In the first nine months of 2013, J&J’s immunology drug sales surged by 15.1% globally. [1] The growth rate was more or less uniform in all the quarters, indicating the company’s sustained expansion in this segment. Growing at a staggering rate of 40%, international markets accounted for more than 28% of revenues during the same period, up from 23% a year ago. [1] While the company’s biggest immunology drug, Remicade, showed healthy growth of 7%, sales for Simponi and Stelara grew by 59.2% and 43.8% respectively. [1] The overall immunology drug market is increasing and international markets present a huge growth potential. Stelara and Simponi are gaining market share with the former doing especially well in Japan.

In addition to the above, J&J’s global oncology drugs sales grew by 47% to $2.6 billion during the first nine months of 2013. [1] Zytiga, now approved to treat both chemo refractory and chemo naïve metastatic castration resistant prostate cancer, saw its sales increase by 72.6% globally due to strong market growth and share gain. [1] The drug has captured 30% share of metastatic castrate resistant prostate cancer market in the U.S. In addition to this, J&J’s acquired Aragon Pharmaceuticals, which will allow it to take ownership and control of Aragon’s androgen receptor antagonist program, thus complementing Zytiga’s success. Under this program, Aragon is developing a second generation androgen receptor signaling inhibitor, ARN-509, which is currently in phase 2 development stage and could potentially become a very viable drug for treatment of castration resistant prostate cancer. Prostate cancer is the second most common cancer in men worldwide and is among the leading causes of death. While the market opportunity is big, the acquisition can be seen as a strategic move by the company to mitigate the impact of Zytiga losing patent in 2016. Zytiga garnered close to $1 billion in sales in 2012. [1]

Velcade, J&J’s biggest cancer drug, saw its sales jump by an impressive 13.8% in the first nine months of 2013. [1] The drug is used for treatment of multiple myeloma and is benefiting from strong performance in the frontline setting and the launch of the subcutaneous version. Velcade’s sales stood at $1.5 billion in 2012, and we expect the figure to continue to grow until 2014, when the drug loses its patent protection.

Johnson & Johnson Entered Diabetes Market

J&J received a major boost when its type 2 diabetes drug, Invokana (commonly known as Canagliflozin), was granted FDA approval in early 2013. Showing great promise, it is thought to be a potential blockbuster. This marked the company’s first entry in this growing market, and the drug’s performance has been impressive since then as it took some share from Merck’s Januvia in the U.S. (read Januvia’s Performance Raises Concerns For Merck)

With obesity on the rise, diabetes is affecting an ever increasing number of  people globally. In the U.S. alone, roughly 26 million people suffer from the condition. [2] Owing to these factors, the global diabetes drug market has seen rapid growth in the last couple of years. According to GBI Research, a leading business intelligence provider, the type 2 diabetes drug market, which constitutes a significant chunk of the total diabetes drug market, is expected to grow from $26 billion in 2011 to $50 billion in 2021 in developed markets, including the U.S., Japan and Europe. [3] In addition to this, China is likely to emerge as a major market for diabetes drug makers over the next few years as a significant chunk of its population currently suffers from the disease, or is at a risk of developing it (read China’s Diabetes Market Could Become A Big Focus For Pharma Companies).

Currency Fluctuation & Pricing Pressure In Medical Devices Business Continued To Moderate The Growth

The strengthening dollar negatively impacted J&J’s pharmaceutical segment’s growth by 1.1% and that of medical devices & diagnostics by 2.2% during the first nine months of 2013. [1]

While the medical devices & diagnostics division showed moderate growth, due to its acquisition of Synthes last year, sales were down excluding the orthopaedics division, where Synthes’ revenues are consolidated. This can be attributed to certain inventory issues, pricing pressure and lower number of selling days. The growing competition in the market cannot be ignored and J&J is likely to reduce focus on medical devices going forward. In fact, the company is in the process of selling off its diagnostics unit, Ortho-Clinical Diagnostics.

Understand How a Company’s Products Impact its Stock Price at Trefis

2009

2010

2011

2012

Streaming Content Costs as % of Revenue

3%

7%

22%

44%

Total Content Costs as % of Revenue

13%

14%

25%

46%

Streaming Content Obligations as % of Revenue

60%

122%

156%

Total Streaming Content Obligations ($ Million)

1,299

3,907

5,634

Notes:
  1. J&J’s SEC Filings [] [] [] [] [] [] [] []
  2. National Diabetes Fact Sheet, 2011, CDC []
  3. The Type 2 Diabetes Drug Market Will Almost Double Over The Next Decade, Increasing From $26 Billion In 2011 To Nearly $50 Billion In 2021, Decision Resources, Oct 15, 2012 []
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