Many big pharma stocks have performed surprisingly well thus far in 2022, especially considering the slump that Wall Street is enduring. Case in point, both Bristol-Myers Squibb (BMY 0.11%) and Johnson & Johnson (JNJ -0.13%) have fared significantly better than the broader market and are in positive territory year to date -- despite headwinds that include geopolitical tensions, supply-chain issues, inflation, and interest rate hikes.
Of course, good share price action over the short term doesn't offer anywhere near enough data to let us draw definitive conclusions about the real health of a company. But as it turns out, both of these healthcare giants have plenty to offer long-term investors.
The case for Bristol-Myers Squibb
In the first quarter, Bristol-Myers' revenue grew by a relatively unimpressive 5% year over year to $11.6 billion. Its adjusted earnings jumped by 13% to $1.96 per share. Those financial results weren't bad, but they were hardly great, and one reason for that lack of greatness involved the cancer medicine Revlimid.
While Revlimid remains one of the company's top-selling drugs, it started facing generic competition this year, which resulted, naturally, in a drop in sales. During the first quarter, revenue from Revlimid decreased by 5% year over year to $2.8 billion.
Yet, some of the company's most important medicines are still performing well. For instance, sales of cancer drug Opdivo jumped by 12% year over year in Q1 to $1.9 billion. Opdivo continues to earn additional regulatory approvals, too. Still, Revlimid's loss of patent exclusivity is a blow for Bristol-Myers.
However, the steps the company took to deal with this (and other upcoming) patent expirations show why it is an excellent pharma stock to consider. The company boasts a rich pipeline of candidate treatments, some of which will replenish its lineup and compensate for the declining sales of older products like Revlimid.
It recently earned approval from the Food and Drug Administration for Camzyos, a treatment for symptomatic obstructive hypertrophic cardiomyopathy, a disease that involves a thickening of the heart muscle. Then there is deucravacitinib, a plaque psoriasis treatment candidate that could earn regulatory approval this year. Bristol-Myers' new product portfolio also includes the likes of Reblozyl, an anemia treatment that first earned the regulatory nod in 2019. The company expects between $10 billion and $13 billion in revenue from its newer products by 2025.
Bristol-Myers Squibb's ability to continually replenish its lineup speaks volumes. Pharmaceutical companies often thrive because their products benefit from patent protection, which gives them a degree of pricing power. Once key treatments lose patent exclusivity, replacing their lost revenue with sales of newer, patented treatments is critical.
This drugmaker continues to do just that. That's one reason it has remained successful for more than 100 years. And based on its pipeline as well as recent additions to its portfolio of approved products, it should have many more years of excellent stock market performances to offer investors.
The case for Johnson & Johnson
Johnson & Johnson displays many of the same strengths as its peer, including a deep pipeline that routinely produces new treatments and an R&D division that regularly earns label expansions for established medications. Right now, J&J has no less than 94 clinical trials underway or in registration. And as for its current lineup, the healthcare giant reported total sales of $23.4 billion in Q1, 5% higher than the prior-year quarter.
The company currently operates in three segments: consumer health, pharmaceuticals, and medtech (medical devices). Of these, the pharmaceutical segment grew revenue fastest in Q1 with sales rising 6.3% to $12.9 billion. Expanding its lineup of medicines will work wonders for Johnson & Johnson's top line, considering that its pharmaceutical segment also provides more than half of its sales.
There is one more reason to be optimistic about the company's future. Johnson & Johnson is in the process of spinning off its consumer health segment. It owns an array of famous and popular over-the-counter brands. Despite that fact, the business unit has been a drag on J&J's top-line growth rates in recent years. During the first quarter, revenue from the consumer health segment decreased 1.5% year over year to $3.6 billion.
Completing the spin-off -- which the company expects to do by the end of the year -- will allow Johnson & Johnson to focus fully on its medtech and pharma segments, and boost its revenue growth rate in the process. It will also decrease the company's exposure to dozens of lawsuits related to some of its consumer health products.
Of course, there are other reasons to consider investing in this pharma giant. Johnson & Johnson has raised its dividend payouts annually for 59 consecutive years, earning it a spot on the exclusive list of the Dividend Kings. At its recent share price, the stock offers an above-average yield of 2.56% -- and given its cash payout ratio of 56%, investors can be confident that it has the financial muscle to keep increasing those payouts.
Conservative investors looking for stability and income will find just what they are looking for with Johnson & Johnson.