Johnson & Johnson Will Likely See A Decline In Sales In 2019 Amid Generic Competition In Pharmaceuticals

by Trefis Team
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Johnson & Johnson (NYSE:JNJ) recently posted its Q4 results, which were slightly below our estimates. The company saw 1% revenue growth and a 13% jump in adjusted earnings to $1.97 per share. While the Pharmaceuticals segment saw 5% revenue gains led by oncology drugs, the Medical Devices segment sales were down in low single digits, given the divestiture of the Diabetes unit.  Looking forward, we forecast the company’s overall revenues to see a modest decline in 2019, as Pharmaceuticals revenues will likely see a low single digit decline, amid an expected double digit decline in Remicade and Zytiga sales, which have now lost patent exclusivity. We have created an interactive dashboard analysis ~ A Quick Snapshot of Johnson & Johnson’s Q4 Performance And Trefis Estimates For The Full Year 2019. You can adjust the various drivers to see the impact on the company’s adjusted  earnings and price estimate. Below we discuss the forecasts in detail.

Expect Revenues To See Modest Decline In 2019

We expect J&J’s Pharmaceuticals’ revenue to decline in low single digits, as growth in Imbruvica, Darzalex, and Tremfya will be more than offset by double digit declines in Remicade and Zytiga sales, following the patent expiry. Note that Remicade is a blockbuster drug for JNJ, with sales of over $5 billion in 2018. Zytiga also generated sales of $3.5 billion in 2018. While the company has taken price cuts to maintain Remicade’s leadership position in the infliximab market, the generic competition will likely have a meaningful impact on the drug sales in the coming quarters. For now, Remicade maintains 93% of the market share. On the way up, we continue to forecast steady growth for Imbruvica and Darzalex, which should aid the overall oncology portfolio growth. These drugs are seeing growth across multiple indications. The company’s new drug ~ Tremfya ~ has been doing well and it has achieved a 7% share of the psoriasis market in the U.S.

Medical Devices segment revenues will likely remain flat (y-o-y) in 2019, as growth in Vision Care and Interventional Solutions will be offset by Diabetes Care, given the divestiture of the LifeScan unit. Looking at Consumer Healthcare, we expect low single digit revenue growth, primarily led by continued growth in Beauty and OTC. Baby Care will also likely see higher revenues in 2019, amid its relaunch in the U.S.

We also forecast close to 80 bps adjusted earnings margin improvement in 2019, which will result in earnings of $8.50 per share, according to our estimates. This reflects a mid-single-digit growth over 2018 earnings. While the margin expansion was much stronger in 2018, the growth is expected to slow in 2019, given the pressure on Pharmaceuticals sales. Note that the company recently announced a $5 billion share buyback program, which will result in lower share count in 2019, and aid the overall bottom line growth. Our current price estimate of $151 for Johnson & Johnson is based on a 18x forward earnings multiple, which is lower than the average consensus estimates for the sector.

 

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