Johnson & Johnson’s EPS Will Rise, But Here Are The Risks

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Johnson & Johnson

Johnson & Johnson‘s (NYSE:JNJ) earnings per share (EPS) will increase next year, but there are certain risks involved. We expect the company’s non-GAAP diluted EPS to be $6.14 which is at the lower end of the consensus range. Although Johnson & Johnson has been selling off low growth businesses and its pharmaceutical segment has done well, emerging competitive risks and adverse currency effects compel us to have a conservative view. Let’s take a quick look at these risks.

Our current price estimate for Johnson & Johnson stands at $101, which is at par with the market price.

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See our complete analysis for Johnson & Johnson

Incremental Growth For Hepatitis C Drug May Slowdown

Increased competition for Olysio, Johnson & Johnson’s Hepatitis C drug, has reduced our growth expectations for the company’s business in 2015. J&J received the approval for Olyisio in the U.S. in November 2013 and in Europe in May 2014. [1] The drug’s sales jumped more than 100% sequentially in the second quarter of 2014, amounting to $831 million. However the figure was down a little bit in the third quarter. In Q4 2014, Olysio’s sales dropped substantially amounting to just $321 million. Gilead Sciences’ Sovaldi’s success has created a strong incentive for big pharmaceutical companies to enter this arena. Merck is conducting phase 3 trials for its own drug and may launch it over the course of next year or two.

Biosimilar Competition For Remicade, Competition For Other Drugs

J&J’s biggest drug Remicade has lost patent protection in Europe, and generic drug makers such as Hospira have already got biosimilar versions approved. Remicade accounts for roughly 25% of J&J’s pharmaceutical revenues and there is no doubt that this percentage will decline meaningfully this year. The competition from biosimilars will only intensify considering the recent approval of Novartis’ biosimilar in the U.S. Furthermore, Zytiga, an oncology drug, is seeing strong growth but its rival Xtandi, which was approved for the treatment of chemo-naive patients suffering from prostate cancer in September 2014, is gaining ground. However, potential label extension for Zytiga may help it maintain a strong position.

Economic Slowdown And Currency Impact

Johnson & Johnson’s international business may see its revenues suffer due to the slowdown in Europe. The company’s international sales declined by 6.7% in the fourth quarter of 2014 reflecting the impact of divestitures in the medical devices business and the strengthening of U.S. dollar against most currencies. This may continue to be the case for the full year and weigh on Johnson & Johnson’s sales. Additionally, the possibility of austerity measures could further hamper pharmaceutical sales growth.

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Notes:
  1. Johnson & Johnson’s R&D Pipeline []