Here's What You Need to Know Ahead Of Johnson & Johnson's Earnings Report

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Johnson & Johnson (NYSE: JNJ) has been on a roll. Thanks to a steady string of successful new drug launches, the company has beat analysts' earnings estimates in each of the past four quarters. When Johnson reports earnings on July 15th, investors will learn whether fast growth continued for key drugs including Zytiga, Xarelto, and Olysio. In the following slideshow, you'll see what has been driving Johnson's success this past year and what you should be looking for in Johnson's release.

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Here's What You Need to Know Ahead Of Johnson & Johnson's Earnings Report

  1. 1. Here’s What You Need To Know Ahead of Johnson & Johnson’s Earnings Report
  2. 2. Johnson & Johnson’s growth 1. Johnson’s pharma business is growing quickly. 1. Sales of Johnson’s drugs grew 10% year-over-year in Q1, far faster than sales in consumer care and medical devices. • Infectious disease sales grew 47% from a year ago in the first quarter. • Oncology sales rose 28.7% from last year in the first quarter. • Immunology revenue improved 6.3% in Q1 versus a year ago. 2. Consumer segment sales fell -3.2% year-over-year in Q1. 3. Medical devices and diagnostics revenue was unchanged in the first quarter versus last year. Driving Johnson’s success:
  3. 3. Johnson’s revenue Despite patent expiration headwinds, Johnson & Johnson’s revenue has been growing steadily since 2011. In the trailing 12 months ending March, total revenue was $71.9 billion. First quarter sales were $18.1 billion, up 3.5% from last year. If you remove the negative impact from currency conversion, operational sales improved 5.3%. Pharmaceuticals, which account for 41% of Johnson’s first quarter sales, are driving that growth. First, let’s consider Johnson’s revenue sources
  4. 4. Infectious disease Johnson’s share price strength is tied to a slate of fast growing drugs that are offsetting sluggish results in the company’s other segments. If investors are to see shares continue higher, Johnson will need to put up similarly strong results for these top sellers in Q2. 1. Infectious disease revenue rose 47% year-over-year to $1.2 billion in the first quarter. 1. Edurant sales jumped 88% to $81 million. 1. Approved in 2011 for use in HIV patients beginning antiretroviral therapy for the first time. 2. Marketplace enrollment and Medicaid expansion are driving access to HIV drugs. 2. Prezista sales rose 21% to $445 million. 1. Approved in 2006 to be used alongside other HIV medications. 2. Marketplace enrollment and Medicaid expansion are driving access to HIV drugs. 3. Olysio produced sales of $354 million. 1. Approved in 2013 for the treatment of hepatitis C. 2. The majority of Olysio’s sales are for use alongside Gilead’s hepatitis C drug. 1. The potential approval of additional hepatitis C drugs from AbbVie and Bristol-Myers later this year may weigh on future Olysio sales.
  5. 5. Infectious disease continued There are two major drivers supporting Johnson’s revenue growth in infectious disease. 1. Insurance supporting adherence rates and volume growth. 1. Elimination of pre-existing condition clauses from insurers’ plans. 2. The cost of HIV testing is now covered entirely as a preventative service. 3. Medicaid expansion to include higher income earners and single adults without children. • HIV was the biggest category for drug claims in exchange plans during Q1, representing 55% of all specialty drug claims, far more than the 21% rate for non-exchange plans. 2. Unleashing warehoused demand for hepatitis C treatment. 1. Doctors held off on treatment ahead of approval for Olysio and Gilead’s Sovaldi. 1. Oral treatment rather than injection therapy. 2. Shorter treatment periods. 3. Less reliance on side effect laden peg interferon and ribavirin.
  6. 6. Oncology The major drivers supporting Johnson’s revenue growth in oncology: 1. Oncology revenue rose 28.7% year-over-year to $1.02 billion in the first quarter. 1. Zytiga sales grew 48.8% to $512 million. 1. Zytiga won approval for use in post-chemo prostate cancer in 2011. 2. Zytiga’s label was expanded to include pre-chemo use in 2012. 1. Sales will face a new competitor later this year if Medivation and Astellas’ Xtandi receives a label expansion to include the pre-chemo indication. 2. Velcade sales increased by 15.6% to $408 million. 1. Approved for mantle cell lymphoma in 2006. 2. Approved for multiple myeloma in 2008. 3. Improving market share and subcutaneous formulation contributed to sales growth. 3. Watch for insight into Imbruvica. 1. Developed with Pharmacyclics. 1. Approved to treat mantle cell lymphoma in November 2013. 2. Approved to treat chronic lymphocytic leukemia in February 2014.
  7. 7. Immunology The major drivers supporting Johnson’s revenue growth in immunology. 1. Immunology revenue rose 6.3% year-over-year to $2.34 billion in the first quarter. 1. Stelara sales expanded by 31.8% year-over-year to $456 million in Q1. 1. Approved to treat psoriasis and psoriatic arthritis. 2. Increased market share contributed to first quarter growth. 3. Watch to see if the approval of Celgene’s Otezla slows growth. 1. Otezla approved in March for psoriatic arthritis. 2. Otezla potential future label expansion to include psoriasis. 2. Simponi sales grew 9.3% to $259 million in the first quarter from a year ago. 1. Approved in 2009 as a treatment for rheumatoid arthritis and psoriatic arthritis. 2. Label expanded to include ulcerative colitis in May 2013. 3. Simponia Aria approved for moderate to severe rheumatoid arthritis in July 2013. 1. Comparison’s become tougher as those additional approvals are annualized. » Watch to see if growth rates slow.
  8. 8. Other drugs of interest  Xarelto – Factor Xa drug approved as an anticoagulant alternative to the widely used warfarin. – Competes against Boehringer’s Pradaxa and Bristol-Myers & Pfizer’s Eliquis. – Xarelto sales grew from $158 million in Q1 2013 to $319 million in Q1 2014. • Watch to see if the faster growing Eliquis begins to weigh down Xarelto’s growth.  Invokana – The first SGLT2 inhibitor approved for type 2 diabetes in March 2013. – Express Scripts expects spending on diabetes treatment will grow 11% in 2014, 12% in 2015, and 10% in 2016. – J&J doesn't break out sales of Invokana; however, the company's "other" drug sales, within includes Invokana, grew about 15% to nearly $300 million in Q1. • Watch to see if AstraZeneca’s newly approved SGLT2 drug Farxiga slows Invokana sales. 2 more intriguing drugs that could post significant growth in Q2.
  9. 9. Earnings outlook Johnson has beat analyst expectations in each of the past four quarters. Earnings strength has come in part thanks to rebounding operating margin. Investors should watch to see if operating margin continues to improve or stalls. Analysts expect Johnson’s EPS will reach $7.18 in 2017. In the past 90 days, analysts have increased EPS forecasts for this year from $5.83 to $5.89, and increased expectations for Q2 from $1.51 to $1.54.
  10. 10. Fool-worthy thoughts Johnson has been one of the most prolific makers of new drugs and has arguably weathered the patent cliff storm better than other large competitors. As a result, investors have made Johnson a key holding in dividend portfolios. Given a cash dividend payout ratio less than 50% and a solid 2.64% yield, investors could find dividends increase next year if pharmaceutical sales growth continues and consumer and medical device segment results pick-up.
  11. 11. . The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That’s beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor’s portfolio. To see our free report on these stocks, just click here now.

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