J&J Stock Up This Year So Far: Will The Momentum Continue?

Johnson & Johnson (NYSE:JNJ) stock has risen 7.6% this year so far compared with an increase of 0.8% recorded by the industry.

This marks a decent recovery from a decline of 7.3% last year on allegations that its talc products contain asbestos, which causes users to develop ovarian cancer. J&J’s earnings estimates for 2019 have gone up from $8.58 to $8.60 in the past 60 days. This New Brunswick, NJ based pharma giant has a Zacks Rank #3 (Hold)). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The better performance this year so far has been supported by a series of positive news including promising data from several pivotal studies and rapid progress with its pipeline and line extensions. The positive trend is likely to continue through the rest of the year.

J&J has already gained FDA approval for two new drugs in 2019 — Spravato (esketamine) for treatment-resistant depression and Balversa (erdafitinib) for metastatic urothelial cancer. J&J believes that both Spravato and Balversa have the potential for more than $1 billion of peak revenues.

Among line extensions, a key FDA approval was that of its blockbuster cancer drug Imbruvica in combination with Roche’s (OTC:RHHBY) Gazyva (obinutuzumab) for the first-line treatment of patients with chronic lymphocytic leukemia/small lymphocytic lymphoma (CLL/SLL). Please note that J&J markets Imbruvica in partnership with AbbVie, Inc. (NYSE:ABBV) .

In February, J&J announced a definitive agreement to acquire Auris Health, Inc., a privately held developer of robotic technologies focused on lung cancer, for approximately $3.4 billion in cash. Auris Health’s robotic platform will expand J&J’s digital surgery portfolio. J&J closed the Auris Health acquisition on Apr 1. J&J also announced a new gene therapy with MeiraGTx to develop gene therapy programs for inherited retinal diseases (IRD).

Recently, at a meeting with industry analysts, J&J gave a rather bullish outlook for its Janssen pharmaceutical unit. It expects the segment to deliver above-market growth through 2023. J&J expects to launch or file for approval of more than 10 new products with blockbuster potential between 2019 and 2023. The company is targeting more than 40 line extensions of existing and new drugs through 2023, 10 of which have more than half a billion dollars of opportunity.

Management is optimistic about the Pharmaceuticals unit as key cancer drugs like Imbruvica and Darzalex and immunology drug, Stelara are likely to witness sales uptake and line extensions. Meanwhile, new products launched in late 2017/2018, Tremfya for plaque psoriasis and Erleada for prostate cancer, should perform well. However, this year, J&J is expected to witness significant generic/biosimilar headwinds in the Pharma unit. Continued biosimilar competition for Remicade and Procrit and generic competition for Velcade, Tracleer and Zytiga in the United States will hurt revenues by $3 billion in 2019.

Nevertheless, J&J’s sales and earnings growth is expected to accelerate in 2020 supported by contribution from new drugs like Tremfya, Erleada and Spravato and successful label expansion of Imbruvica, Darzalex and Stelara. Please note that J&J markets Remicade in partnership with Merck (NYSE:MRK) .

Meanwhile, the Medical Devices segment is expected to continue to improve driven by improved execution and product introductions. Also, share buybacks and restructuring initiatives should provide bottom-line support.

With several pivotal data readouts and regulatory milestones expected in the rest of the year, the bullish run of the stock is likely to continue.

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