The U.S. pharmaceutical industry is faced with challenges on pricing and regulation. This had led many companies to underperform.
Despite its diversification and blue chip status, J&J will not be immune to industry-wide decline.
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I believe that, due to headwinds in the immunology business, J&J will underperform the market in 2017.
2016 has been a rough year for the pharmaceutical industry thanks to political headwinds on issues like pricing and ethics. Blue-chip firms like Johnson and Johnson (NYSE:JNJ) may appear to be immune from the problems in the sector, but the headwinds for the firm’s pharmaceutical segment are enough to drag down the entire company.
On top of industry-wide headwinds from the government and pricing concerns, Johnson & Johnson has another problem: Its immunology assets are set to see significant declines in 2017 and 2018, and I believe these declines will be heavy enough to make the firm underperform the market.
Johnson & Johnson is divided into three segments: Consumer, Pharmaceuticals, and Medical Devices. Even though Johnson & Johnson is very large and diversified, its pharmaceutical segment makes up a significant portion of both the revenue and risks of the company.
Within the pharmaceutical segment, the immunology division makes a disproportionate contribution. This revenue comes from only three drugs, two of which – Remicade and Stelara – generate around $8.5 billion annually. The drugs are still in the super growth phase, with Stelara growing an impressive 36% last year.
Challenges to Immunology Business
The Johnson & Johnson immunology division faces significant headwinds going into 2017-2018. I believe that not only will supergrowth end on these drugs, but they may see sales decline in the worst case scenario.
1. Stelara faces competition from Brodalumab. Brodalumab is Valeant’s (NYSE:VRX) psoriasis treatment that should hit the market by early 2017. Even through the drug is from Valeant, it shouldn’t be taken lightly. Its original developer AstraZeneca (NYSE:AZN) predicted its value to hit $1.5 billion in annual sales. Seeing as it is a direct competitor with Stelara, this could cut Stelara sales in half.
Fuente: Seeking Alpha
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