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Look Past Covid Vaccine to Johnson & Johnson's Drug Portfolio

GuruFocus.com
·3 mins read

- By Barry Cohen

It appears shares of Johnson & Johnson (NYSE:JNJ) were dragged down earlier in the week at least in part over news that the New Jersey-based pharmaceutical giant had to pause trials for its Covid-19 vaccine after a volunteer got sick.

The stock regained some of its luster on Friday in an upmarket. Maybe because investors saw the company managed to exceed Wall Street's expectations on pharma growth in the third quarter. During the first nine months of 2020, the company's drug unit raked in $33.3 billion in global sales, a 5.2% increase from the same period last year. Johnson & Johnson is even more bullish on 2021. Several new drug launches are scheduled and newer meds are pumping up sales, reported FierceBiotech.


Perhaps another factor accounted for the modest recovery. Maybe investors took the time to drill down on the impact a Covid vaccine is likely to have on the company, as well as British multinational AstraZeneca (NASDAQ:AZN), which was forced to halt its vaccine trials last month.

The fact is, vaccines may not be all that profitable for Big Pharma and biotechs, according to an article in CNN Money, which cautioned investors about betting too much on developers in the hope that one of them will be the first to market with a shot that works.

"Larger companies like Pfizer Inc. (NYSE:PFE) and J&J are not looking to make a ton of money from a vaccine," said Kyle Dennis, founder of the Biotech Trader at RagingBull trading site. He told CNN that most of the vaccine makers will wind up having government-negotiated contracts, which will limit revenues and profits.

Look Past Covid Vaccine to Johnson & Johnson's Drug Portfolio
Look Past Covid Vaccine to Johnson & Johnson's Drug Portfolio

Brad Loncar, a biotech investing expert who runs the Loncar Cancer Immunotherapy ETF (NASDAQ:CNCR), advises investors to stay away from Covid stocks, suggesting they're all overvalued, even companies with a good chance of success.

"There are a lot of people who aren't traditional biotech investors that are throwing money at headlines but not doing the homework to figure out the math of what any financial gains will be," he said. Loncar thinks a vaccine or treatment is unlikely to meaningfully boost the developers' sales or earnings.

Dennis said investors should focus more on cancer and other severe illnesses than Covid. Those are exactly the therapeutic areas Johnson & Johnson is concentrating on. Seven of the company's branded pharmaceuticals grew at double-digit percentages in the third quarter. Immunology medications Stelara and Tremfya combined for $3.8 billion in sales.

The company's cancer drugs accounted for more than $3 billion in sales in the third quarter. In the near term, the company is planning to ask for approval of its drug to treat multiple myeloma and another for small cell lung cancer.

On the opposite side of the ledger, six of Johnson & Johnson's branded medications suffered sales declines versus the same period last year. And generic and biosimilar competition continues to eat away at big sellers Remicade and Zytiga.

Analysts rate Johnson & Johnson a buy, with an average target price about $20 higher than the $148.10 it closed at on Friday, with a high estimate of $180 and a low of $158.

Disclosure: The author holds a position in Johnson & Johnson.

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This article first appeared on GuruFocus.