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Johnson & Johnson JNJ

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Economic Moat




Annual Pipeline Review of Leading Big Pharma and Biotech Supports Moats

Damien Conover, CFA Sector Director

Analyst Note

| Damien Conover, CFA |

Most Big Pharma and Big Biotech stocks in our coverage support wide economic moats as a result of their ability to generate new drugs to replace mature ones losing patent protection. Innovation is the central building block for the strong economic moats in the drug and biotechnology industry, supporting drug pricing power and launch trajectories. However, following patent expirations, drug sales fall significantly, making the continuous cycle of new drugs essential to the moats in the industry. In looking at the leading large-cap U.S. and European drug and biotech industries, we expect steady innovation to drive 5% annual sales growth over the next five years, similar to consensus expectations. Overlaying our growth analysis with valuation, we see underappreciated areas: Roche's Tecentriq in several cancer niches; Bristol-Myers Squibb's steady position in immuno-oncology and massive pipeline and cash flow support from Celgene; Merck's oncology portfolio and vaccine and animal health cash flows; and Pfizer's new immunology drugs and strong vaccine positioning.

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Company Profile

Business Description

Johnson & Johnson is the world's largest and most diverse healthcare firm. Three divisions make up the firm: pharmaceutical, medical devices and diagnostics, and consumer. The drug and device groups represent close to 80% of sales and drive the majority of cash flows for the firm. The drug division focuses on the following therapeutic areas: immunology, oncology, neurology, pulmonary, cardiology, and metabolic diseases. The device segment focuses on orthopedics, surgery tools, vision care, and a few smaller areas. The last segment of consumer focuses on baby care, beauty, oral care, over-the-counter drugs, and women’s health. Geographically, just over half of total revenue is generated in the United States.

One Johnson and Johnson Plaza
New Brunswick, NJ, 08933
T +1 732 524-0400
Sector Healthcare
Industry Drug Manufacturers - General
Most Recent Earnings Mar 31, 2020
Fiscal Year End Dec 31, 2020
Stock Type High Yield
Employees 132,200