Johnson & Johnson (NYSE:JNJ) is a healthcare Goliath that operates consumer healthcare, pharmaceuticals, and medical device businesses. Management recently reported second-quarter financials, and after reviewing results and listening to management's conference call, I have some key takeaways for investors.
1. Oncology sales growth continues, but slows
One of the biggest success stories in cancer treatment in the past couple years has been the approval of Imbruvica, which is sold by Johnson & Johnson and AbbVie Inc. (NYSE:ABBV). It is so successful at treating chronic lymphocytic leukemia that its sales are soaring.
Thanks to label expansions that are allowing Imbruvica's use earlier in patient treatment, sales momentum has carried forward into 2016; however, the pace of that growth is slowing. For the first six months, Johnson & Johnson reports Imbruvica sales of $556 million, up from $270 million last year. That's impressive, but now that Imbruvica has become a top treatment option, growth is starting to slip. In Q2, Imbruvica sales grew 91%, a slowing from the 125% growth it registered in Q1.
2. Immunology sales aren't backing off
Thanks in large part to rising demand for Stelara, an injection therapy for psoriasis, Johnson & Johnson continues to improve its position as a leader in treating autoimmune diseases.
Last quarter, Stelara sales were up 41% and reached $804 million, putting the drug on an annualized sales pace of $3.2 billion. For comparison, Stelara's sales grew 36% year over year in Q1 to $735 million. Clearly, momentum for Stelara isn't waning.
Stelara's success is especially good news for investors because of the upcoming threat to sales of Remicade, Johnson & Johnson's megablockbluster immunology drug. The FDA approved Pfizer, Inc.'s (NYSE:PFE) Remicade biosimilar earlier this year and Pfizer has plans to launch that drug before the end of 2016. When Pfizer rolls out its generic alternative to Remicade, it could pose a big headwind to Remicade revenue. In Q2, Remicade sales totaled $1.8 billion, including $1.2 billion that came from the United States.
3. Demand for cardiovascular drugs is strong
Two of Johnson & Johnson's biggest wins in the past few years have been Xarelto, an anticoagulant, and Invokana, a new therapy addressing type 2 diabetes.
In Q2, Xarelto sales jumped 26% year over year to $594 million. That performance will likely keep it as the second-best-selling drug in a class of next-generation anticoagulants known as factor Xa inhibitors. Factor Xa's like Xarelto are ripping away market share from warfarin, which has been the dominant anticoagulant over the past fifty years.
While Xarelto's growth remains strong, sales growth did slide slightly from 29% in Q1; that may suggest the factor Xa from Pfizer and Bristol-Myers Squibb, Eliquis, continues to win share more quickly than Xarelto. In Q1, Eliquis sales more than doubled year-over-year to $734 million.
Despite the impact of Eliquis on Xarelto, Johnson & Johnson investors might not need to worry too much about Xarelto's sales run rate in the coming months. In August, Portola Pharmaceuticals expects FDA approval of the first antidote to factor Xa anticoagulants and if that happens, the addressable market for factor Xa drugs could expand markedly.
Invokana is also rapidly winning support from patients and doctors. The drug blocks the reabsorption of glucose by the kidney, and its ability to help control blood sugar means it's increasingly being prescribed alongside metformin, the most widely used first-line diabetes treatment. In Q2, Invokana's sales improved 20% to $383 million.
Invokana's sales could climb even further in the second half of 2016 following the FDA's recent label expansion for Invokamet, a single-tablet combination of Invokana and metformin. Previously, Invokamet was approved for use in patients who failed to respond to Invokana or metformin monotherapy. Following this approval, Invokamet can be prescribed prior to prescribing those two drugs individually.
Overall, Johnson & Johnson delivered a solid quarter, but it was mostly unremarkable. Total sales grew 3.9% year over year to $18.5 billion, as strong pharmaceuticals sales were offset by tepid results in consumer goods and medical devices. Earnings growth wasn't overly impressive either; non-GAAP EPS improved by only 1.8%.
Nevertheless, Johnson & Johnson remains one of the biggest and most innovative companies in healthcare. While low-single-digit growth won't excite investors hunting growth stocks, J&J turned in a solid performance that reinforces why this stock can be a core holding in retiree portfolios. Given sales growth in oncology, immunology, and cardiovascular, Johnson & Johnson's record for returning money to investors doesn't appear to be in jeopardy. The company has a 50-year track record of dividend-friendly increases and at 2.6%, its current dividend yield is respectable enough to own shares.