With less than two weeks remaining in 2017, Johnson & Johnson (NYSE:JNJ) is on track to have its second-best year of the century so far for stock performance. The healthcare giant's share price is up close to 24% year to date. J&J stock is at an all-time high. Johnson & Johnson shareholders have even more to like about 2017, with the dividend payout also at an all-time high.
Why has 2017 been such a year to remember for Johnson & Johnson. Here are the top three reasons.
Two major acquisitions changed the dynamics for Johnson & Johnson in 2017. The first was J&J's purchase of Abbott Medical Optics from Abbott Labs for $4.3 billion. This deal was completed in February, and brought a lineup of cataract surgery, laser refractive surgery and consumer eye health products into J&J's fold to join the company's successful Acuvue contact lens business. Largely as a result of this acquisition, J&J's medical device segment posted solid sales growth in 2017.
The bigger deal, however, was Johnson & Johnson's buyout of Actelion for $30 billion, which closed in June. Some observers thought that J&J overpaid for the Swiss drugmaker (including me). However, Actelion was expected to give a shot in the arm to J&J's pharmaceutical segment -- and it did.
Thanks to the Actelion buyout, Johnson & Johnson now has a solid pulmonary hypertension franchise. Three pulmonary hypertension drugs picked up from Actelion should generate additional revenue of more than $1.5 billion for J&J in 2017 and even more next year with a full 12 months of sales included.
2. Protecting Remicade
A big question among Johnson & Johnson shareholders for 2017 was how autoimmune disease drug Remicade, would fare against biosimilar competition from Pfizer (NYSE:PFE). With 2017 drawing to a close, we now know the answer to that question: Pretty good. While Remicade sales slipped more than 9% year over year in the first nine months of 2017, it could have been much worse.
Remicade remains a very important component of Johnson & Johnson's lineup. It's J&J's top-selling product by far, generating nearly 10% of the company's total revenue in 2016. Even with the sales decline this year, the drug will still represent close to 9% of total revenue.
Pfizer, however, isn't a happy camper. During the big pharma company's third-quarter conference call, Pfizer CEO Ian Read said that Johnson & Johnson's "exclusionary contracting of Remicade" has unfairly limited the uptake of Pfizer's Remicade biosimilar, Inflectra. As a result, Pfizer sued J&J for alleged violation of antitrust laws.
3. Momentum for key drugs
Several other drugs in addition to Remicade experienced sales declines in 2017. The good news, though, was that strong momentum continued for several key drugs.
Stelara helped offset Remicade's sales drop to a large extent. The psoriasis and psoriatic arthritis drug is on track to generate sales approaching $4 billion this year. Sales continued to grow strongly for Invega Sustenna also. The schizophrenia drug should make around $2.5 billion in 2017.
Johnson & Johnson's strongest sales growth this year, however, came from its oncology lineup. Multiple myeloma drug Darzalex should become a blockbuster in its first full year on the market in 2017. Imbruvica, which won two new FDA approvals this year for treating marginal zone lymphoma and chronic graft versus host disease, is on pace to make close to $2 billion in 2017.
Looking to 2018
Expect these same factors to be important for Johnson & Johnson in 2018 also. The acquisitions of Abbott Medical Optics and Actelion will help fuel growth next year. Corporate tax reform in the U.S. could spur J&J to make even more deals.
The company will continue to face competition for Remicade. But unless the courts force J&J to change its practices, its contracting approaches should help control sales losses to a manageable level. At the same time, Stelara, Invega Sustenna, Darzalex, and Imbruvica should enjoy sustained momentum.
Johnson & Johnson should also get help from new products next year. The company won U.S. regulatory approval in June for psoriasis drug Tremfya. J&J filed for approval in October for promising prostate cancer drug apalutamide.
I wouldn't count on Johnson & Johnson having another year of 24% or higher gains. After all, that has only happened twice this century so far. Still, my view is that 2018 will again be a solid year for J&J.