Please ensure Javascript is enabled for purposes of website accessibility

A Closer Look At Johnson & Johnson's Pharmaceuticals Business

By Leo Sun - Sep 27, 2013 at 1:15PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Should investors take a closer look at J&J’s fastest growing business, its pharmaceuticals division?

When many investors think of Johnson & Johnson (JNJ -0.40%), they tend to think of a slow growth company that draws in income investors with its 5-year average dividend yield of 3.3%. Yet shares of J&J have climbed 26% over the past 12 months -- handily outperforming the S&P 500's 16% gain.

J&J has emerged as a major force in all three of its business divisions -- consumer health care, medical devices, and pharmaceuticals -- which all contributed to its 172% jump in earnings and 8.5% revenue growth last quarter. J&J's pharmaceuticals business was its fastest growing division, reporting 11.7% year-over-year sales growth compared to 9.6% and 1.1% growth at its medical devices and consumer health care businesses, respectively.

In addition, its pharmaceuticals segment grew at a faster rate than its comparable peers Merck, Pfizer, and GlaxoSmithKline, as seen in the following chart.


Pharma Segment Qty. Revenue

Year-over-year growth

Percentage of total sales


$7.0 billion




$12.1 billion




$9.3 billion




$7.2 billion



Sources: Quarterly reports and author's calculations.

Why is J&J's pharmaceuticals business outgrowing its rivals? Let's take a closer look at the key factors.

A closer look at J&J's nine fastest-growing drugs
J&J's pharmaceutical business is as diversified as a mutual fund, but its immunology and neuroscience treatments have the most weight, respectively accounting for 31% and 26% of the division's total sales in 2012.

Here are the nine fastest growing drugs in J&J's portfolio, which together accounted for 58% of the segment's sales last quarter.


Primary application(s)

Year-over-year growth

Percentage of total pharma sales


rheumatoid/psoriatic arthritis, Crohn's disease




rheumatoid/psoriatic arthritis







Invega Sustenna/






multiple myeloma








prostate cancer




hepatitis C




blood clot prevention



Sources: Company report on sales of key franchises, author's calculations.

From this chart, we can see that Remicade, which now nearly accounts for a fourth of the division's revenue, is the backbone of J&J's pharmaceutical sales. J&J has a marketing partnership with Merck to sell Remicade worldwide, but J&J retains the larger portion of global sales.

Two top sellers could face threats
The top concern for J&J investors is the upcoming European patent expiration of Remicade in February 2015.

On Sept. 10, the European Commission approved Hospira (NYSE: HSP) and Celltrion's biosimilar version of Remicade, Inflectra. In addition, Hospira's phase 3 study showed that 73.4% of patients on Inflectra showed a 20% or more improvement in rheumatoid arthritis symptoms, compared to a 69.7% improvement rate in patients on Remicade.

Although the eventual market price of Inflectra is unknown, generic biosimilar products are usually sold at lower prices than their branded equivalents. Therefore, Inflectra's higher efficacy rate and a possibly lower price threaten Remicade's future in the European market.

Meanwhile, J&J's prostate cancer treatment Zytiga, which grew sales by 70% last quarter, could become the company's second most important drug. Zytiga has grown at the expense of Dendreon (NASDAQ: DNDN)'s Provenge, a cheaper treatment with a lower median extension of a patient's life. Patients on Zytiga showed a median increased survival rate of 4.6 months, compared to 4.1 months for Provenge.

However, both Zytiga and Provenge are threatened by a newer treatment, Medivation and Astellas' Xtandi, which increases the median survival rate by 4.8 months for a cheaper price than both treatments. Zytiga could also face generic competition as early as 2016.

To stave off these two threats, J&J acquired Aragon Pharmaceuticals in June for its pipeline of experimental prostate cancer treatments.

A closer look at the worst performing drugs
Yet J&J also has some major laggards in its drug portfolio. Here are four of the worst performing ones last quarter.


Primary treatment(s)

Year-over-year growth

Percentage of total pharma sales










ADHD, narcolepsy



Risperdal Consta




Sources: Company report on sales of key franchises, author's calculations

Two of these -- Risperdal Consta and Concerta -- deserve a closer look.

J&J announced two recalls of Risperdal Consta in June and September, bringing a lot of unwanted attention to its quality control problems, which have also been plaguing its consumer health care division. In June, Risperdal was recalled due to "odor problems" caused by trace amounts of a chemical preservative. In September, more vials were recalled for mold. Those two events definitely won't help turn around Risperdal's fading sales.

Concerta, on the other hand, faces major competition from Shire's (NASDAQ: SHPG) Vyvanse, the successor to its best-selling ADHD treatment, Adderall. While Concerta is an sustained release version of Novartis' Ritalin, Vyvanse is a newer treatment that is considered less habit-forming than previous ADHD treatments. Doctors and patients went with the newer treatment, and sales of Vyvanse rose 13% year-over-year to $300 million as Concerta slumped 20% to $215 million.

The Foolish takeaway
J&J's pharmaceuticals business is a rapidly shifting one, but just as a portfolio manager carefully manages rising and falling stocks, J&J has a strong grasp of which drugs to introduce and which ones to phase out.

Generic Remicade remains a major threat to the segment's future growth, but new products -- like Aragon's new prostate cancer treatment and Invokana, a new diabetes treatment that was approved by the FDA in March -- should keep the division growing at a faster clip than J&J's other businesses as well as the pharmaceutical divisions of J&J's primary rivals.

Leo Sun has no position in any stocks mentioned. The Motley Fool recommends Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Johnson & Johnson Stock Quote
Johnson & Johnson
$171.11 (-0.40%) $0.68

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/07/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.