We expect a strong performance from Johnson & Johnson‘s (NYSE:JNJ) pharmaceutical division as the company releases its Q4 2013 results on January 21st. While immunology sales will continue to be fueled by good performances from Simponi and Stelara, the oncology and diabetes divisions will find support from new approvals and expansion of existing products. Overall, we expect another strong quarter from J&J as it continues to focus on the pharmaceutical business. We expect the growth in medical devices & diagnostics segment to remain low due to persisting pricing pressures and currency fluctuations. The DePuy settlement of $2.5 billion will have no material impact on earnings as the amount was included as part of previously accrued amounts, and there will be no additional charges hitting the income statement. 
Our price estimate for Johnson & Johnson stands at $90, implying a discount of about 5% to the market price.
Diabetes Drug Sales Will Get Support From European Approval Of Invokana
J&J’s pharmaceutical business will get support from continued expansion of its type 2 diabetes drug, Invokana (commonly known as Canagliflozin). The drug was granted FDA approval in early 2013 and was approved in Europe in November for treatment of adults. It has shown great promise by challenging incumbent Januvia and could potentially be a Blockbuster for the company.
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.  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. 
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 risk of developing it (read China’s Diabetes Market Could Become A Big Focus For Pharma Companies). However, J&J recently suffered a setback in China as the country’s government pulled the company’s OneTouch trademark rights, thus allowing competitors to sell diabetes monitoring devices under the same name. Although growing, China still accounts for a small portion of J&J’s revenues and this move will not materially impact the results in the coming quarters.
Immunology & Oncology Sales Will Continue To Surge
In the first nine months of 2013, J&J’s immunology drug sales surged by 15.1% globally and the growth rate remained more or less consistent in each of the quarters.  International markets accounted for the bulk of this growth with Simponi and Stelara registering huge gains. The company’s biggest immunology drug, Remicade, also showed a healthy increase of 7% in its sales.  This presents a strong case for the trend to continue in the fourth quarter as well, especially in the absence of major competitor launches. Besides, the overall immunology drug market is growing, thus lending some support to J&J’s pharmaceutical business.
We expect the cancer drug division to do well too as Zytiga and Velcade continue to register strong volume growth. During the first nine months of 2013, J&J’s global oncology drugs sales grew by 47% to $2.6 billion.  Zytiga, now approved to treat both chemo refractory and chemo naïve metastatic castration resistant prostate cancer, saw its revenues increase by 72.6% globally due to strong market growth and share gain.  The drug has captured 30% share of metastatic castrate resistant prostate cancer market in the U.S.  Velcade, J&J’s biggest cancer drug, saw its sales jump by an impressive 13.8% in the first nine months of 2013.  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. Although the European authorities’ unwillingness to pay for Velcade citing it as an expensive drug may prove to be a short-term hurdle, convincing data around the efficacy of the drug and its advantage over other drugs is likely to convince them.
In addition, J&J recently got FDA approval for a new cancer drug Imbruvica and it is already delivering good results. The drug is currently approved for mantle cell lymphoma. Once it gets the FDA nod for chronic lymphocytic leukemia, it could hit $4.7 billion in annual sales by 2019. Notes:
- DePuy Announces U.S. Settlement Agreement to Compensate ASR™ Hip System Patients Who Had Surgery to Replace Their ASR Hip, J&J Press Release, Nov 19 2013 [↩] [↩] [↩] [↩] [↩]
- National Diabetes Fact Sheet, 2011, CDC [↩]
- 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 [↩]
- J&J’s SEC Filings [↩]
- J&J’s Earnings Transcript [↩]
- J&J, Roche, Novartis tout key cancer-drug data at ASH, FiercePharma, Dec 9 2013 [↩]