J&J Posts Solid Q4 and Issues Favorable 2021 Guidance

Johnson & Johnson JNJ reported solid fourth-quarter results with 2021 guidance ahead of our expectations. We plan to moderately increase our fair value estimate based on the improving outlook. Overall, strong innovation across the portfolio continues to reinforce the company's wide moat. Additionally, the firm expects to release phase 3 data on its COVID-19 vaccine during the first week of February. We estimate a 50% chance that the vaccine will gain approval based on early-stage data. If it's successful, we don't expect any major impact to our fair value estimate, as the firm is committed to a nonprofit strategy with the vaccine. Nevertheless, we expect a successful vaccine would engender positive goodwill that the company can utilize with governments around the world. In the quarter, strong drug sales (up 15% operationally) helped drive overall sales growth of 7%, offsetting depressed device sales due to pandemic-related pressures. We expect the drug division will continue to post strong gains driven by immunology drugs Tremfya (armed with leading efficacy in psoriasis) and Stelara (supported by solid data in Crohn's disease and ulcerative colitis) along with cancer drugs Darzalex and Imbruvica, both of which hold strong first-mover advantages. Also, with relatively modest generic pressures over the next five years, the drug group is well positioned for growth. Adding to growth, several new pipeline drugs look well positioned, including a multiple myeloma CAR-T cell therapy and amivantamab for EGFR-mutated lung cancer. On the device front, pandemic pressures continue to weigh on elective procedures, causing overall device sales to fall 2%. Orthopedic and vision care devices were hit the hardest, likely because of the more elective nature of these products. However, we expect a strong recovery in these segments as the COVID-19 vaccines open the market later in 2021.

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