Joaquin Duato, the Worldwide Chairman of Pharmaceuticals for Johnson & Johnson (JNJ), spoke to analysts on Tuesday at the Citi 2011 Global Health Care Conference about the company’s current positioning and future opportunities in Pharmaceuticals. For those who are not familiar with JNJ and their corporate structuring, Pharmaceutical is one of the three main business segments (along with Consumer and Medical Devices & Diagnostics). 2010 Pharmaceutical sales were $22.4 billion, equal to 36.4% of the company’s total revenues, with a split of $12.5B from the U.S and the remaining $9.9B coming from international markets. Like most multinationals, the international markets are where the growth is: in 2010, Asia-Pacific, Africa (for the whole business) sales increased 11.69%.
The Pharmaceutical segment brought in more than $7 billion in operating profits, and accounted for nearly 42% of the company’s pre-tax earnings. To say the least, Pharmaceutical is an important part of Johnson & Johnson’s overall success, and will be a key part of the company’s expansion into international markets over the next decade.
In 2010, the global pharmaceutical market was worth roughly $670 billion, and (according to EvalutePharma) is expected to grow 4% per annum over the next five years. In the industry, there are certainly some headwinds: the mix of drugs coming off patent (JNJ has “lowest patent exposure of the major pharmaceutical companies”) and cost containment measures are creating increased competition and fights for market share. However, in the long term view, there are significant medical needs that are unmet around the globe, along with changing demographics (boomers) in the U.S., both of which are favorable for the company and the industry.
The most important segment in Pharmaceuticals for JNJ is immunology, where they are the leading company in the U.S. market. The segment is driven by the major product Remicade, which grew 7% in 2010, along with two products launched in 2009 (Simponi and Stelara) that had combined sales of $600 million. Overall, the immunology segment grew 17% in 2010.
The company was also successful in the “Long Acting Injectable Anti-Psychotics” segment, where they expanded 14% and outpaced the overall growth of the Anti-Psychotic market. The company also saw greater than 40% growth for two HIV products, as well as 16% operation growth in oncology.
JNJ has seen recent success from their innovation: the company was #1 by sales for products launched in 2009 and 2010 ($844.5M), outpacing the nearest competitor by more than 7%
Two of these products are Stelara and Simponi. Stelara, which was launched Q3 2010, treats psoriasis, a chronic autoimmune skin disease. Since the launch, the company has increased their share to 20% over the dermatology market over 15 months, with “constant growth period over period”. According to Mr. Duato, Stelara has had a similar response with dermatologists to Remicade; this is a positive sign considering that Remicade accounted for 7% of Johnson & Johnson’s TOTAL revenue in 2010. Simponi, which is a once a month injective for rheumatoid arthritis, also looks good after the launch; so far, the sales growth has been strong over the first 20 months, and has the opportunity to become an important piece of the bottom line in the coming years.
J&J recently acquired Dutch vaccine maker Crucell for roughly $2.4B in cash, which gives the company better access to emerging markets and to vaccines, which they do not currently have a strong presence in (“building block in entry to vaccine space”). The two companies have been working together since 2009 on an influenza antibody and a flu vaccine, which should dissuade any fears of a misaligned acquisition (at least in a cultural sense).
As noted previously be Paul Stoffels, the global head of J&J's pharmaceutical research and development, "This potential combination would provide us with a new platform for growth and advances our goal to deliver integrated health care solutions, with particular emphasis on prevention." Pharmaceutical already accounts for nearly 65% of the company’s total R&D spend last year, which will expand with the Crucell acquisition; along as the segment keeps driving sales and maintaining strong margins, I’m all for JNJ investing free cash flow in new opportunities.
From listening in to the call and seeing the slides, it is clear that JNJ has some up and coming products in the Pharmaceutical segment that have the potential to significantly add to the top and bottom line over time. In 2007, 50% of sales are products that currently no longer have exclusivity, or were close to losing exclusivity; the remaining 50% was split between core products and regional/legacy products. In 2010, regional/legacy products have grown as a percentage of sales (former “near exclusivity” products from 2007), and recently launched products are a sliver of the pie. The telling graph, which depicts 2014 expectations, shows that two-thirds of sales for the year will come from core products and recently launched products/compounds, suggesting a reinvigorated product portfolio, of which the foundation is being laid today. As noted by Mr. Duato, these changes “depict the transformation that you are going to see [in Pharmaceuticals]”.
The Pharmaceutical segment brought in more than $7 billion in operating profits, and accounted for nearly 42% of the company’s pre-tax earnings. To say the least, Pharmaceutical is an important part of Johnson & Johnson’s overall success, and will be a key part of the company’s expansion into international markets over the next decade.
In 2010, the global pharmaceutical market was worth roughly $670 billion, and (according to EvalutePharma) is expected to grow 4% per annum over the next five years. In the industry, there are certainly some headwinds: the mix of drugs coming off patent (JNJ has “lowest patent exposure of the major pharmaceutical companies”) and cost containment measures are creating increased competition and fights for market share. However, in the long term view, there are significant medical needs that are unmet around the globe, along with changing demographics (boomers) in the U.S., both of which are favorable for the company and the industry.
The most important segment in Pharmaceuticals for JNJ is immunology, where they are the leading company in the U.S. market. The segment is driven by the major product Remicade, which grew 7% in 2010, along with two products launched in 2009 (Simponi and Stelara) that had combined sales of $600 million. Overall, the immunology segment grew 17% in 2010.
The company was also successful in the “Long Acting Injectable Anti-Psychotics” segment, where they expanded 14% and outpaced the overall growth of the Anti-Psychotic market. The company also saw greater than 40% growth for two HIV products, as well as 16% operation growth in oncology.
JNJ has seen recent success from their innovation: the company was #1 by sales for products launched in 2009 and 2010 ($844.5M), outpacing the nearest competitor by more than 7%
Two of these products are Stelara and Simponi. Stelara, which was launched Q3 2010, treats psoriasis, a chronic autoimmune skin disease. Since the launch, the company has increased their share to 20% over the dermatology market over 15 months, with “constant growth period over period”. According to Mr. Duato, Stelara has had a similar response with dermatologists to Remicade; this is a positive sign considering that Remicade accounted for 7% of Johnson & Johnson’s TOTAL revenue in 2010. Simponi, which is a once a month injective for rheumatoid arthritis, also looks good after the launch; so far, the sales growth has been strong over the first 20 months, and has the opportunity to become an important piece of the bottom line in the coming years.
J&J recently acquired Dutch vaccine maker Crucell for roughly $2.4B in cash, which gives the company better access to emerging markets and to vaccines, which they do not currently have a strong presence in (“building block in entry to vaccine space”). The two companies have been working together since 2009 on an influenza antibody and a flu vaccine, which should dissuade any fears of a misaligned acquisition (at least in a cultural sense).
As noted previously be Paul Stoffels, the global head of J&J's pharmaceutical research and development, "This potential combination would provide us with a new platform for growth and advances our goal to deliver integrated health care solutions, with particular emphasis on prevention." Pharmaceutical already accounts for nearly 65% of the company’s total R&D spend last year, which will expand with the Crucell acquisition; along as the segment keeps driving sales and maintaining strong margins, I’m all for JNJ investing free cash flow in new opportunities.
From listening in to the call and seeing the slides, it is clear that JNJ has some up and coming products in the Pharmaceutical segment that have the potential to significantly add to the top and bottom line over time. In 2007, 50% of sales are products that currently no longer have exclusivity, or were close to losing exclusivity; the remaining 50% was split between core products and regional/legacy products. In 2010, regional/legacy products have grown as a percentage of sales (former “near exclusivity” products from 2007), and recently launched products are a sliver of the pie. The telling graph, which depicts 2014 expectations, shows that two-thirds of sales for the year will come from core products and recently launched products/compounds, suggesting a reinvigorated product portfolio, of which the foundation is being laid today. As noted by Mr. Duato, these changes “depict the transformation that you are going to see [in Pharmaceuticals]”.
