10% Upside If J&J Is Even Partially Successful In Its R&D Plan

+14.83%
Upside
157
Market
180
Trefis
JNJ: Johnson & Johnson logo
JNJ
Johnson & Johnson

In a recent analyst meeting, Johnson & Johnson (NYSE:JNJ) stated that it plans to file at least 10 new drugs for regulatory approval by 2019, each of which has the potential to become a blockbuster product with annual sales of more than $1 billion. The company also announced its plans of 40 line extensions of current and new drugs. The announcement comes at a time when the consensus is that it will be difficult for J&J to sustain growth of its pharmaceutical business, partially because of the fall of hepatitis C drug Olysio, which was earlier expected to be a big growth driver. While we take a cautious view, a string of successful launches can add meaningful value to the company’s stock.

Positive data for pipeline drugs could lead to our forecasts being conservative. For instance, it remains to be seen how Zytiga’s label extension will help it compete against Xtandi. There are additional clinical data that could potentially strengthen Imbruvica’s sales, going forward. Also, the company is likely to file multiple immunology and oncology drugs for FDA review in the next two to three years. More than expected success could add additional $5-$6 billion in annual revenues by 2021. This could lead to an upswing of about 10% in J&J’s stock price.

Our current price estimate for Johnson & Johnson stands at $105, which is at a slight premium to the market price.

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See our complete analysis for Johnson & Johnson

Our current price estimate factors in a reasonably good performance from J&J’s current immunology and oncology drugs. Remicade accounts for roughly 25% of J&J’s pharmaceutical revenues and the new biosimilar launched in Europe will create some competitive pressure. The drug saw an operational (excluding currency effects) decline of more than 6% in the first quarter. However, the U.S. business from Remicade is much bigger for J&J and, considering that the biosimilar will be introduced to new patients, the overall impact can be gradual. So, the decline in Remicade’s revenues will be spread out over the next few years. Other immunology drugs such as Simponi and Stelara are growing fast.  J&J’s oncology division, although small, is doing well. The addition of Imbruvica is likely to help.

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