Johnson & Johnson (JNJ 0.39%) ranks as the world's largest healthcare company. However, the healthcare giant has been under fire somewhat so far in 2018. J&J stock is down nearly 10% year to date. Last week, a St. Louis jury ruled that the company must pay nearly $4.7 billion in damages related to allegations that asbestos in J&J's talcum powder caused ovarian cancer.
Do these woes mean that investors should steer clear of Johnson & Johnson? Or do they present a great buying opportunity for the stock?
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Problem areas
How worrisome is the recent lawsuit result? Even for a huge company like Johnson & Johnson, $4.7 billion is a substantial amount. It remains to be seen if the damages will have to be paid, though.
Johnson & Johnson issued a statement regarding the trial verdict, saying that the company "remains confident that its products do not contain asbestos and do not cause ovarian cancer and intends to pursue all available appellate remedies." The statement noted that "every verdict against Johnson & Johnson in this court that has gone through the appeals process has been reversed."
Still, the verdict gives Johnson & Johnson negative publicity at a time when its U.S. consumer sales are only barely growing. In the first quarter of 2018, J&J's consumer unit was the worst performer of its three business segments, with anemic U.S. sales growth weighing on the segment's overall results.
J&J also has another problem on its hands that is already costing the company. Sales for its top-selling product, Remicade, are sinking due to competition from biosimilars. The impact of lost market share could easily reduce J&J's top line by more than $1 billion this year.
Remicade isn't the only drug facing headwinds. Sales for ADHD medication Concerta are falling in the wake of generic competition. Type 2 diabetes drug Invokana is losing market share to other branded rivals.
Strengths and opportunities
This bad news might make you think that Johnson & Johnson is in trouble. That's not really the case at all.
Although Johnson & Johnson does have some challenges with Remicade and a few other drugs, the company has a strategy for growing its pharmaceuticals business. One key way it plans to grow is by expanding in the immunology market. Sales gains for immunology drugs Simponi and Stelara are more than offsetting the sales declines for Remicade. Johnson & Johnson's new immunology drug, Tremfya, already claims a market share of 18%.
J&J's oncology drugs are performing especially well. In the first quarter, sales for multiple myeloma drug Darzalex soared more than 69% year over year. First-quarter sales for prostate cancer drug Zytiga jumped nearly 62% higher than in the prior-year period. Imbruvica, which treats multiple types of cancer, produced year-over-year sales growth of more than 43% in Q1.
Acquisitions have also improved Johnson & Johnson's fortunes. The 2017 buyout of Actelion brought pulmonary hypertension drugs Opsumit, Tracleer, and Uptravi into J&J's lineup. The company's purchase of Abbott Medical Optics from Abbott Labs helped boost medical device segment sales in the first quarter.
Johnson & Johnson remains committed to developing new products as well. The company claims a deep late-stage pipeline with a strong focus on expanding indications for already approved drugs like Darzalex, Imbruvica, and anticoagulant Xarelto. In addition, J&J has several new drugs in its pipeline with considerable potential, notably including experimental depression drug esketamine.
Buy J&J stock?
Johnson & Johnson isn't going to generate dizzying levels of growth. However, Wall Street expects that the company will deliver stronger growth over the next five years than it did during the previous five years.
And we haven't talked about J&J's solid dividend yet. Its yield currently stands close to 2.9%. Johnson & Johnson has increased its dividend payment for 56 consecutive years -- one of the best track records around.
Even blue-chip stocks like Johnson & Johnson encounter rough patches. In my view, Johnson & Johnson stock is still a smart pick, with the recent problems allowing long-term investors a chance to buy the stock at a discount.
