Johnson & Johnson’s Solid Q4 Led By Ramp Up In Oncology Drugs
Johnson & Johnson (NYSE:JNJ) recently posted a better than expected Q4 performance with an 11.5% jump in sales, led by a ramp up in Oncology drugs. However, the stock declined over 4% in trading during the day over the news of the company losing an appeal regarding the validity of Remicade’s patent. Remicade is the top selling drug for J&J, with sales of over $6.3 billion in 2017, reflecting a decline of 9% compared to 2016. Of late, the drug is facing increased competition from biosimilars. Remicade’s patent in the U.S. was previously expected to expire in 2018, but a federal judge invalidated the patent in 2016. This prompted Pfizer to launch a biosimilar version of the drug, Inflectra, in November 2016. Inflectra is priced at a discount to Remicade, which is impacting Remicade’s market share.
Q4 Overview
J&J’s Q4 results were largely in line with expectations, with a ramp up in Darzalex and Imbruvica sales. The drugs posted 85% and 50% jumps in Q4 sales, respectively. We believe that oncology drugs will be the key growth driver for J&J in the near term. We currently estimate Darzalex sales to be around $1.8 billion and Imbruvica sales to be roughly $2.4 billion in 2018. The company’s overall outlook for 2018 was on the lower side, with a 2.5% to 3.5% operational sales guidance.
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Beyond oncology, J&J’s immunology drug Stelara continued to perform well, with a 23% jump in Q4 sales. Stelara’s performance was solid in 2017, led by market share gains in the immunology and Crohn’s Disease market. We expect Stelara to continue to perform well in the near term. Looking at other segments, the medical devices and consumer businesses will likely continue to drag along at a modest pace. The medical devices segment hasn’t seen a meaningful growth trigger, while the consumer business is facing strong competition from both big brands and private labels.
On the new tax code, J&J made a provision of $13.6 billion in Q4 as it awaits further guidance from regulatory bodies. The company has guided for a 16.5% to 18% effective tax rate range for 2018. This compares with 17.2% for 2017. The new tax code is positive for pharma companies, as it could allow them to potentially increase R&D investments with the freed up cash, and more projects may become economically viable.
Our price estimate of $125 for Johnson & Johnson is around 10% below the current market price. We will soon update our model to incorporate the recent quarterly earnings.
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