Steady 3rd Quarter for Johnson & Johnson

While

In the drug group, broad strength across most drugs supported the divisional growth, but immunology drug Remicade (6% of total sales) continues to lose pricing power due to biosimilar pressures. While Remicade has held on to over 90% of the volume in the U.S., the continued sales declines suggest close to 20% annualized pricing declines. Offsetting the weakness in Remicade, the oncology division continues to post strong gains led by Imbruvica, Darzalex, and Zytiga. However, we expect generics to pressure Zytiga (5% of sales) later in the year. Despite the patent loss pressures, we expect the drug group will post close to 4% annualized growth from 2018 to 2021.

Outside of the drug group, the consumer growth was solid while the medical device group continues to lag. We expect some of the strength in consumer was tied to stocking as well as aggressive discounting based on the negative margin trend in the group. However, we need to see more consistency before increasing our long-term growth rate for the division of 3%. On the device side, price pressures and a lack of innovation is creating a headwind for the group. Longer term, the introduction of robotics and more data within the device division holds the potential to reaccelerate growth beyond 2020, but limited data on these products tempers our long-term growth rate of 2%.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.