Robust Drug Sales Lift Johnson & Johnson's 3rd Quarter

While the drug group posted solid 7% operational growth (15% including acquisitions), we expect headwinds will emerge in 2018. Immunology drug Remicade is facing two biosimilars in the U.S. and despite a successful bundling and pricing strategy by J&J, we expect aggressive price discounts by the biosimilars will lead to over a 15% decline in Remicade sales in 2018. Additionally, generic competition to cancer drug Zytiga and HIV drug Prezista will likely begin in 2018, and combined with other generic competition, this should lead to a loss of over $10 billion of current sales over the next five years. However, we expect these losses will be offset by continued strong growth from cancer drugs Darzalex (up 92% in the quarter) and Imbruvica (up 45%) along with new pipeline drugs. While these new drugs will mitigate generic pressures, we expect the drug group’s growth will moderate from its current level.

On the consumer and device side, growth is stagnating. The consumer group is facing increased pressure from online distribution. We expect the increased investment in the consumer brands will help the segment to achieve 3% annual growth by 2018. In devices, diabetes weakness continues and we expect a divestment of this unit in 2018. Overall restructuring efforts across the device group and new product launches should drive growth toward 3% annually by 2018.

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