Johnson & Johnson JNJ stock has risen 5.5% this year so far compared with an increase of 3.7% recorded by the industry.
This marks a decent recovery from a decline of 7.3% last year on allegations that its talc products contain asbestos, which causes users to develop ovarian cancer. J&J’s earnings estimates for 2019 have gone up 0.1% in the past 30 days. This New Brunswick, NJ based pharma giant has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
What’s Driving the Shares?
The better performance this year so far has been supported by a series of positive news including promising data from several pivotal studies and rapid progress with its pipeline and line extensions. The positive trend is likely to continue through the rest of the year.
Importantly, this month, J&J gained FDA approval for a key pipeline candidate - its nasal spray, Spravato (esketamine) for treatment-resistant depression (TRD) in adults. With the approval, Spravato, which is thought to work differently from currently approved therapies, will be the first new medicine in 30 years to treat depression, a difficult-to-treat mental disease. It has been seen that while most antidepressants take a couple of weeks or months to show effects, Spravato works in hours.
Among line extensions, a key FDA approval was that of its blockbuster cancer drug Imbruvica in combination with Roche’s RHHBY Gazyva (obinutuzumab) for the first-line treatment of patients with chronic lymphocytic leukemia/small lymphocytic lymphoma (CLL/SLL). Please note that J&J markets Imbruvica in partnership with AbbVie, Inc. ABBV.
In February, J&J announced a definitive agreement to acquire Auris Health, Inc., a privately held developer of robotic technologies focused on lung cancer, for approximately $3.4 billion in cash. Auris Health’s robotic platform will expand J&J’s digital surgery portfolio. J&J also announced a new gene therapy with MeiraGTx to develop gene therapy programs for inherited retinal diseases (IRD)
Factors Likely to Support the Rally Ahead
With several pivotal data readouts and regulatory milestones expected in the rest of the year, the bullish run of the stock is likely to continue.
Importantly, J&J expects FDA decision in another key pipeline candidate, erdafitinib this year as a regulatory application seeking approval for metastatic urothelial cancer is under review in the United States. J&J believes that both Spravato and erdafitinib have the potential for more than $1 billion of peak revenues. J&J could also get approval in United States as well as EU for its key drug Stelara for a new indication – moderately-to-severely active ulcerative colitis this year.
Management is optimistic about the Pharmaceuticals unit as key cancer drugs like Imbruvica and Darzalex and immunology drug, Stelara are likely to witness sales uptake and line extensions. Meanwhile, new products launched in late 2017/2018, Tremfya for plaque psoriasis and Erleada for prostate cancer, should perform well. However, continued biosimilar competition for Remicade and Procrit and generic competition for Velcade, Tracleer and Zytiga in the United States are expected to hurt revenues by $3 billion in 2019. Please note that J&J markets Remicade in partnership with Merck MRK. Other than that, pricing pressure will continue to hurt sales. Nonetheless J&J is confident that its sales and earnings growth will accelerate in 2020 supported by drug launches and successful label expansion of Imbruvica, Darzalex and Stelara.
While the Consumer unit will grow slightly above the market in 2019 supported by innovation and improved go-to-market models, the Medical Devices segment is expected to be driven by improved execution and new product introductions. Meanwhile, share buybacks and restructuring initiatives should provide bottom-line support.
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