J&J’s Drug Pipeline Not Strong Enough to Accelerate Growth

In the quarter, after adjusting for several factors (acquisitions, divestitures, foreign exchange rates, and the hepatitis C sales declines), J&J posted 5% year-over-year growth led by drug sales. While we believe the 5% growth number is the best representation of underlying growth, the multiple adjustments to sales and earnings slightly reduces the quality of the reported growth rate. Going forward, we expect the growth rate of J&J to slow as pipeline products lack enough potential to offset increasing generic and branded competition. In particular, we expect increased generic and biosimilar pressure on hard to make drugs Risperdal Consta, Invega Sustenna, Procrit and Remicade (14% of sales in aggregate). Despite these pressures, several recently launched drugs, including diabheadwindsetes drug Invokana and cardiovascular drug Xarelto, should help mitigate .

Outside of the drug space, we expect the strength in J&J's consumer business to continue to offset slower growth in the medical device segment. J&J's improvement in manufacturing quality and stronger pricing power in vision care products should continue to improve consumer sales, which were up 3% year over year. However, we remain less optimistic regarding the slow growing medical device group (up only 1% in the quarter), which seems to lack innovative product development.

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