At a recent meeting with industry analysts, senior leaders from the pharmaceutical business of Johnson & Johnson (JNJ, Financial) said the company plans to file for regulatory approval of more than 10 new products between 2015 and 2019, each with the potential to exceed $1 billion in revenue. In addition they also plan to file more than 40 line extensions of existing and new medicines.
Johnson & Johnson’s pharmaceutical division has launched 14 new products since 2009, seven of which already exceed or are on track to achieve sales in excess of $1 billion during 2015. These new products, coupled with core growth brands, have fueled industry-leading sales growth and contributed significantly to the earnings growth of Johnson & Johnson over the last couple of years. Robust near-term pipeline indicates that this momentum is likely to continue, and the company can sustain above-industry compound annual growth through 2019.
Earlier this month, Barron’s also discussed Johnson & Johnson’s strong pipeline and drugs under development which may be better than expected and help the pharma giant maintain above-average growth.
Johnson & Johnson’s fundamentals looks strong, and the company has delivered 31 consecutive years of adjusted earnings increases and 52 consecutive years of dividend increases to its shareholders. Its products are industry- and segment-leading with 70% of its sales coming from the products with number one or number two market share position, and 25% of sales coming from products it has launched in the past five years. The company also has a very good record in terms of returning cash to shareholders. Johnson and Johnson has returned about 70% of its free cash flow over the past decade, which amounts to about $90 billion.
Going forward, the company is set to benefit from healthcare reform efforts and improving economies which are helping more people access affordable quality care. The governments across the world are increasingly recognizing the need for continued innovation to address healthcare needs and are taking steps to reward innovation through FDA and EMEA designations that are helping to speed product review times. Johnson & Johnson with its deep product pipeline across the entire enterprise will benefit from this trend.
The company's pharmaceutical divison has launched 14 new products since 2009, driving cumulative sales of over $27 billion. This trend is expected to continue going forward and management believes that Johnson and Johnson's drug pipeline is poised to yield 10 potential new product filings between 2015 and 2019. Similarly, the company's medical divison has launched 50 major products since 2012 and have more than 30 new filings pending as of the end of the last year. This divison is also benefiting from growth in the emerging markets where it is capitalizing on the scale, depth and breadth of the portfolio the company can offer to governments and large healthcare systems. The company grew sales in China by nearly 15% on an operational basis last year.
Johnson & Johnson is trading at 15.55x its FY2016 EPS. The company's EPS has grown from $3.86 in fiscal 2012 to $5.70 in fiscal 2014. It is expected to grow another 9% in fiscal 2015. The company has a dividend yield of 2.80% and a payout ratio of 48%. I believe the stock is a good buy at the current levels.
