It's not likely that anyone who was living when Johnson & Johnson (NYSE:JNJ) was founded back in 1886 had any inkling of the healthcare giant the company would become. Throughout much of the 20th century and the 21st century, J&J ranked among the bluest of blue chip stocks.
Many investors are counting on Johnson & Johnson to keep up its winning ways for a long time to come. But attempting to predict where the company will be in just 10 years presents a tough challenge.
Lots of variables
The problem in trying to figure out where J&J will be down the road is that there are so many variables that can impact the company's future. Perhaps the biggest question mark right now relates to what might happen with the U.S. healthcare system.
Both Democrats and Republicans have prioritized controlling high drug prices. Jennifer Taubert, J&J's executive vice president and worldwide chairman for its pharmaceuticals business, was on the hot seat before a Senate committee in February along with the top executives of other drugmakers. The message was clear that the status quo of the past where pharma companies could raise prices by double-digit percentages each year won't be tolerated from now on.
Sen. Bernie Sanders' (I-Vt.) Medicare for All proposal would be an even more disruptive change. It calls for a single-payer U.S. healthcare system with the federal government driving nearly every aspect of healthcare.
There are uncertainties related to new drugs that competitors could launch over the next 10 years that threaten J&J's top drugs. For that matter, Johnson & Johnson's own pipeline has plenty of its own uncertainties.
On the other hand, several variables could work in J&J's favor. The company's new products could be enormously successful. J&J could make strategic acquisitions that make it even more competitive in the future than it is now. Key rivals could stumble along the way.
A pessimistic view
What's the worst outlook for Johnson & Johnson? Let's start with Medicare for All. Should the current version of the legislation proposed by Sen. Sanders become law, J&J would be negatively impacted in a couple of key ways.
First, it's likely that the healthcare giant's pharmaceuticals revenue would be cut significantly. One analyst estimates that U.S. drug prices could fall by at least 30% under Medicare for All. Nearly 29% of J&J's total revenue currently stems from selling prescription drugs in the U.S.
Second, J&J's medical devices business would probably be hurt as hospitals have less money to spend. With this segment generating only meager year-over-year growth now, a single-payer U.S. healthcare system could even mean that the multibillion-dollar business is smaller 10 years from now.
It's a foregone conclusion that J&J's current top-selling drug, Remicade, will continue to lose market share due to biosimilar competition. A nightmare scenario would include the company's other blockbuster drugs also losing ground to new rivals. AbbVie's newly approved Skyrizi and upadacitinib, which awaits regulatory approval, could be especially formidable competition for J&J's immunology franchise. Patent expirations for other key drugs, including Stelara and Zytiga, could also open the door for major sales erosion.
At the present level of sales for the pulmonary hypertension drugs picked up from Actelion, J&J still won't have recovered its $30 billion investment in the acquisition of the Swiss drugmaker 10 years from now. If the company makes more deals that don't have quick payoffs, it will move in the wrong direction between now and 2029.
All that's needed to really paint a horrible picture of the future for J&J would be several major pipeline setbacks. If all of these negatives became reality, it's very possible that Johnson & Johnson would have a smaller market cap 10 years from now than it does today.
An optimistic view
Now for a much better prediction of the future. Let's take wholesale healthcare system changes like Medicare for All off the table. Instead, let's assume that incremental changes happen that expand access to healthcare while preserving a robust private system that strengthens the financial positions of hospitals. Such an environment would be great for all of J&J's business segments.
Even in a wildly optimistic 2029, Remicade and some of J&J's older drugs will lose market share. However, if all goes well, the company could have plenty of newer drugs step up to fill their shoes. Tremfya is already gaining tremendous momentum in immunology. J&J recently won approval for its potential blockbuster depression drug Spravato. Darzalex could become a much bigger winner over the next few years in treating multiple myeloma.
Johnson & Johnson typically features its late-stage drug pipeline. However, the company has an even larger early and mid-stage pipeline that could produce huge winners within the next decade.
While the pharmaceuticals segment is likely to remain J&J's strongest growth driver, don't discount the possibility that its other two segments could make solid contributions to growth as well. In particular, J&J's medical devices segment appears to be poised to make inroads into robotic surgery in the near future thanks to its recent acquisition of Auris Health.
It's not too much of a stretch to envision Johnson & Johnson making multiple game-changing acquisitions over the next few years that bolster any or all of its businesses. The company had a cash stockpile of more than $18 billion at the end of 2018. It could easily afford to make more deals.
So what's the most likely scenario for Johnson & Johnson 10 years from now? The best bet is somewhere in the middle of the pessimistic and optimistic futures discussed above.
At this point, the odds of Medicare for All becoming law appear to be relatively small, although not insignificant. However, it seems likely that regulatory changes could be made that negatively impact J&J's ability to set its drug prices at high levels.
I don't look for the company's newer drugs and pipeline candidates to propel J&J to dizzying levels of growth. But I do expect Johnson & Johnson to deliver single-digit growth over the long run. In addition, I think J&J will maintain its commitment to the dividend program. With the solid dividend and modest growth, the stock should be able to keep up with the overall market -- but probably not beat it by much, if any.
The bottom line is that Johnson & Johnson should still be a blue chip stock 10 years from now and beyond. Maybe it will be kind of boring, but boring isn't necessarily all that bad.