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Johnson & Johnson: Pharmaceuticals in 2Q17

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Pharmaceutical segment

Johnson & Johnson’s (JNJ) pharmaceutical segment comprises its immunology, infectious disease, neuroscience, oncology, cardiovascular and metabolic, and pulmonary hypertension franchises.

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Immunology franchise

The major blockbuster drugs under the immunology franchise are Remicade, Stelara, and Simponi/Simponi Aria. The immunology franchise reported revenue of $3 billion in 2Q17, including an operational decrease of ~1.9% and a 0.7% impact of foreign exchange. The fall was driven by adjustments of rebates in US markets of ~$170 million. However, the drug Stelara reported strong sales in US markets, and international markets reported growth across major regions, though this was partly offset by lower Remicade sales due to the loss of market share to biosimilars.

Infectious disease franchise

The infectious disease franchise consists mainly of HIV products and hepatitis C products. HIV products include Prezista, Prezcobix, and new drug Odefsey, while hepatitis C products include Olysio, Sovraid, and Invico. Revenue for infectious diseases fell 4.5% to $792 million in 2Q17, including an operational decline of 3.4% due to lower sales of hepatitis C products. In 2Q17, the company reported strong sales of Prezcobix and its new HIV drug, Odefsey.

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Neuroscience franchise

The neuroscience franchise consists of drugs such as Concerta, Invega Sustenna, and Xeplion. The franchise’s revenue fell 8.4% to $1.5 billion in 2Q17, including an operational decrease of 7.0%. Invega Trinza and Xeplion were the growth drivers for long-acting injectable products. However, US sales were affected by lower sales of Concerta due to competitive products and the divestiture of Noramco, the API (active pharmaceutical ingredient) business.

Oncology franchise

The oncology franchise grew 17.2% to $1.7 billion in 2Q17, including an operational increase of 19.2%. The growth was driven by strong performance by Darzalex and Imbruvica and partially offset by lower Zytiga sales.

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Cardiovascular and metabolic franchise

The cardiovascular and metabolic franchise reported a fall in revenue of 6.5% to $1.6 billion in 2Q17, mainly a result of lower sales of Invokana due to contacting discounts and higher utilizations in Medicaid. These lower sales were partially offset by increased sales of Xarelto, a blood thinner.

Pulmonary hypertension

The pulmonary hypertension franchise was added to Johnson & Johnson’s portfolio as a result of its Actelion acquisition, which was completed in June 2017. To divest risk, investors could consider the iShares US Pharmaceuticals ETF (IHE) which has a 9.4% exposure to Johnson & Johnson. IHE also has an 8.0% exposure to Pfizer (PFE), a 6.1% exposure to Eli Lilly and Company (LLY), and a 3.6% exposure to Mylan (MYL).

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