Seeking Alpha
Long only, deep value, special situations
Profile| Send Message| ()  

Johnson & Johnson (JNJ) should be a permanent fixture on every investor's watch list. Naturally, your returns will depend on whether you are buying near the highs or the lows so this article is a look at some upcoming catalysts that may drive the future stock price.

Upcoming catalysts

The company will shortly announce its earnings for the second quarter and investors should watch for its recently launched diabetes drug Invokana. If doctors can be persuaded to prescribe, the drug has the potential to capture part of the market from Januvia which is the most popular medication from Merck (MRK). Success in the market should give a nice little fillip to the results. The other drug to keep an eye on is Incivo (known as Incivek in the United States) which Johnson's distributes internationally for the manufacturer Vertex Pharmaceuticals (VRTX). Even though profits have to be shared, doctors in Europe continue to prescribe the drug as they wait for the next generation of Hepatitis C. drugs. Johnson's is also expected to receive FDA approval in the fourth quarter of this year for its own Hepatitis C. drug, Simeprevir, which should compete against Sofosbuvir from Gilead Sciences' (GILD) which is expected to be approved at approximately the same time.

The outlook for Remicade

Towards the end of June, the European Medicines Agency ruled that Hospira (HSP) and South Korean drug manufacturer Celltrion should receive regulatory approval to market their generic version of Remicade to treat the same medical conditions. Remicade is very important to Johnson & Johnson generating over $6 billion in revenues in 2012 and it accounts for over 9% of total revenues. Under the brand name Inflectra, Hospira expects to introduce its generic drug in stages starting in 2013, specifically in markets where Remicade patents do not provide protection such as Eastern Europe and Nordic regions. However, the patent has recently been extended to February 2015 in important European markets such as the UK, France and Germany which gives Johnson's some breathing space. Remicade generates revenues of around $2 billion in Europe and some experts believe that Hospira could take away up to one third of these sales. In the United States, Remicade patent protection is available up to 2018.

The acquisition of Aragon Pharmaceuticals

Johnson & Johnson has recently announced that it is acquiring privately owned Aragon Pharmaceuticals for a consideration that could reach $1 billion in cash if all the milestones are met. The acquisition gives Johnson & Johnson rights to Aragon's ARN-509, a prostate cancer drug which is now in Phase 2 development and enables it to compete with Medivation Inc (MDVN), whose drug Xtandi has become dominant in the treatment of prostate cancer. Aragon has had a problem with funding development for ARN-509 which will be taken care of by the massive financial resources of JNJ. This move should also be seen as protection for Zytiga which is one of its top-selling drugs and has been providing the capability of taking new approaches to the treatment of prostate cancer. There is little doubt that this acquisition will pay dividends in terms of revenue with little impact on JNJ's cash position of over $22 billion.

One out of every six men in America will require treatment for prostate cancer during his lifetime and 29,000 men die every year from the condition. The normal treatment which consists of removing the tumor through radiation therapy or surgery does not work in around 30% of the patients. Metastatic castration-resistant prostate cancer means that the cancer has spread beyond the prostate to the rest of the body ruling out surgery as a treatment. At this point, one treatment option is to stop the production of androgens such as testosterone but the cancer cells themselves may produce enough to encourage cancer growth. Drugs such as Johnson & Johnson's Zytiga stop the cancer cells from producing androgens by blocking the action of an enzyme called CYP17. Market leader Medivation's Xtandi uses a different approach by blocking the signal from the androgen receptor to the cell and ARN-509 is an advanced version which is regarded as best of class treatment.

The bottom line

This is a look at only a small part of the product line from Johnson and Johnson which is an exceptionally well diversified company. Its financial strength and the quality of the management make it a perennial investor favorite and there is the dividend yield of over 3% to sweeten the pie.

Source: Upcoming Catalysts For Johnson & Johnson