Johnson & Johnson (JNJ -0.37%) is a leader in several pharmaceutical areas of research, including oncology and immunological disease. The company's portfolio of drugs in these two fields generates billions of dollars in revenue every quarter. It is currently looking to increase its market share in the coronavirus vaccine space.
This year, Johnson & Johnson expects to record $2.5 billion in sales from its COVID-19 vaccine, which falls well short of the $33.5 billion and $20 billion in revenue, respectively, that Pfizer and Moderna expect. Fortunately, some recent developments bode well for Johnson & Johnson's ambitions in this lucrative market.
Notching another win
Most COVID vaccines currently available in the U.S. are administered in two doses given about a month apart. Johnson & Johnson's vaccine, Ad26.COV2.S, is administered in only one dose. Based on real-world data and a phase 3 clinical trial, the company believes a single dose of Ad26.COV2.S is 75% effective against severe cases of COVID at least 28 days post-vaccination.
This efficacy compares unfavorably to that offered by the vaccines marketed by Pfizer and Moderna, and the one developed by Novavax, which has yet to earn Emergency Use Authorization (EUA) in the U.S. All three proved at least 90% effective at preventing COVID in clinical studies.
However, Johnson & Johnson recently released data showing that a booster dose (or a second dose) of its vaccine given two months after the first helps increase its efficacy to 94% against critical COVID illness. On Oct. 5, the company applied for an EUA to the Food and Drug Administration (FDA) for a booster dose of its vaccine.
Then, on Oct. 15, a panel of experts convened by the FDA unanimously voted in favor of the agency granting the company an EUA. On Oct. 20, the FDA granted the company this much-anticipated authorization.
What does this mean for investors?
Besides earning the regulatory green light a bit later than some of its competitors, Johnson & Johnson's COVID vaccine has encountered its share of headwinds. In mid-April, health authorities decided to pause the rollout of the vaccine after it was suspected of causing blood clots in some patients (it had originally earned an EUA in late February).
Regulators lifted this pause roughly a week and a half later, arguing that the known benefits outweigh the known risks, and required a new label warning on the vaccine moving forward. Indeed, this adverse event was known to have affected six patients out of more than 6.8 million who had been vaccinated. This episode is in the rearview mirror now, and with the pandemic still not over, mainly due to the more-contagious delta variant of the virus, there is still a need for vaccines.
Since a second dose of Ad26.COV2.S seems to boost its efficacy, that can only be good for its sales. That's especially the case given that the FDA did not put any health-related (or similar) restrictions on who can receive a booster dose of Johnson & Johnson's vaccine. But here's the catch: The company vowed not to profit from this product for the duration of the pandemic. In other words, increased sales of Ad26.COV2.S in the near term will have no meaningful impact on its bottom line.
In the future, the company may profit from Ad26.COV2.S once the pandemic subsides and if COVID becomes a seasonal disease like the flu, as some have predicted. But even then, considering how competitive this market is, Ad26.COV2.S will only have a very modest impact on a company that typically generates more than $10 billion in profit every year.
In other words, it is not the best idea to invest in Johnson & Johnson because of its COVID vaccine. Fortunately, there are plenty of other reasons to do so. Consider the company's diversified operations. Its pharmaceutical business, the largest by revenue, includes quite a few blockbuster products that continue to grow their sales.
To pick a couple out of the bunch, the immunosuppressant Stelara racked up $2.4 billion in revenue in the third quarter (ending Sept. 30), 22.2% higher than the prior-year quarter. Cancer medicine Darzalex grew its sales by 43.7% year over year to $1.6 billion. Those are just the tip of the iceberg for the company, and it has several dozen programs in its late-stage pipeline.
Label expansions and new drug approvals are routine for Johnson & Johnson. And its consumer health segment sells over-the-counter products with strong name recognition, including Listerine, Neutrogena, Aveeno, and Tylenol. The company's medical devices business adds to its revenue base.
Here's one more reason to invest in the company: It has raised its dividend annually for more than 50 consecutive years, making it a Dividend King.
It currently offers a yield of 2.53%, higher than the S&P 500's 1.38%, and it's maintained a conservative cash payout ratio of 47%. That makes it an attractive option for income-seeking investors. In short, Johnson & Johnson may not be the best COVID vaccine stock to buy, but it remains a solid pharma company to invest in.