What Are Johnson & Johnson’s Key Sources of Revenue?

Johnson & Johnson’s (NYSE:JNJ) key sources of revenues are Pharmaceuticals, Medical Devices, and Healthcare. While the company’s Pharmaceuticals segment accounts for over 45% of the company’s overall revenues, it accounts for close to 60% of the company’s value, according to our estimates. This can be attributed to higher expected proportion of revenues and profits from Pharmaceuticals in the coming years. Within Pharmaceuticals, Immunology and Oncology are the largest divisions, which together account for over a quarter of the company’s overall revenues. We have created an interactive dashboard analysis that shows Johnson & Johnson’s key revenue sources, and the expected 2018 performance. You can adjust the revenue drivers to see the impact on the overall revenues, EPS, and price estimate.

Expect Pharmaceuticals To Drive Growth Led By Oncology Drugs

We expect Oncology segment revenues to grow at a CAGR of 10.90% in the coming years led by Darzalex and Imbruvica.  Darzalex was approved by the FDA in late 2015. The company plans to expand the label, and it is testing the drug for 6 line extensions in phase 3 trials. Some of these are likely to make it through the FDA approval process and will aid the drug’s revenue growth. Imbruvica, which is used for the treatment of chronic lymphocytic leukemia and mantle cell lymphoma, was launched in 2014, and it generated revenues of $1.9 billion in 2017. The drug’s marketing rights are shared between J&J and Abbvie, and the expected peak sales are touted to be over $7 billion for Abbvie. This would translate into J&J’s share of peak sales reaching $4-$5 billion. Expansion to additional indications will aid the drug sales. Currently, the drug was being tested for 7 line extensions in phase 3.

Apart from these two drugs, J&J also received the approval for Erleada in Feb 2018. Erleada is used for the treatment of non-metastatic castration-resistant prostate cancer. The drug’s peaks sales are estimated to be north of $1 billion, and it is also being tested for different prostate cancer types. One of the combination of Zytiga was also approved earlier this year for the treatment of earlier form of metastatic prostate cancer.

Among other pharmaceutical divisions, Immunology is the largest revenue contributor. This can be attributed to its blockbuster drug Remicade, along with Stelara. Remicade generated over $6 billion in annual revenues for J&J over the past six years. However, it lost patent exclusivity in 2016, and now competes with biosimilars, especially Pfizer’s Inflectra, which has already gained a couple of FDA approvals. As such, we expect the drug revenues to decline in the coming years. However, other immunology drugs, Stelara and Simponi, may continue to grow in the near term. Also, Tremfya was approved last year for the treatment of moderate to severe plaque psoriasis. The company is testing these three drugs for line extension in phase 3.

Looking beyond Pharmaceuticals, we expect both Medical Devices, and Consumer Healthcare to see steady growth in the coming years, led by new products, and continued growth in the Skin Care division. We currently have a $154 price estimate for Johnson & Johnson, which is more than 25% ahead of the current market price.

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