There is fierce competition for developing a treatment for Alzheimer's, and Johnson & Johnson (JNJ) is one of the many companies trying to lead this race. In the wake of legal issues and the positive results from Baxter International (BAX) and EnVivo Pharmaceuticals, things may not look so good for Johnson & Johnson and its partners, Pfizer (PFE) and Elan Corporation (ELN).
Since Johnson & Johnson is experiencing legal trouble for promoting a drug for Alzheimer's patients when it had not been approved for that, medical professionals may be skeptical of looking to this company for treating patients with Alzheimer's. As other companies start to rise to the top of the field, furthermore, there may be other options to choose from as well. As a result of its developing reputation and the intense competition, I think Johnson & Johnson will struggle in the field of Alzheimer's treatment.
Johnson & Johnson is currently trading under $69, which is near its 52-week high of $69.70. It has risen significantly in price since the beginning of June, but I believe it has reached its peak. It has revenue growth of -0.74%, a profit margin of 8.55%, and an earnings yield of 4.60%. Q3 saw some growth in Johnson's numbers, but nothing to be too excited about.
Recent legal news is troubling on two counts for Johnson & Johnson. It will have to pay up to 2.2 billion to settle a lawsuit, and this is obviously a major financial burden. The actual amount it will owe depends on the number of states that sign on to the settlement. The settlement includes a criminal fine of $400 million. The main charge being settled is that Johnson & Johnson promoted the antipsychotic medication Risperdal for unapproved uses, including the reduction of anxiety for Alzheimer's patients. In addition to the financial consequences, therefore, this will have a poor impact on the company's reputation, especially in relation to the treatment of Alzheimer's.
This is particularly bad news for a company attempting to make a name of itself in the realm of Alzheimer's treatment. It is developing the drug bapineuzumab with collaborators Pfizer and Elan, and they have already been encountering much difficulty. Some patients have been experiencing side-effects like headaches and hallucinations. There is also data that even if the drug shrinks brain plaques like it is supposed to, this is not so effective for improving cognition of the patients. Eli Lilly (LLY) is a major company racing this group to broadly market Alzheimer's treatment. Combining poor results with a poor reputation for Johnson & Johnson, this trio of companies may be in quite a tough spot for this race.
It is worthwhile to quickly look at these stocks to see how they are doing at the moment. Pfizer is currently trading around $24, just barely under its 52-week high of $23.83. It has revenue growth of -6.65%, and I do not think its work in Alzheimer's will aid it much in this respect. Due to its high price and poor developments for its partner, I do not recommend Pfizer stock. Elan is at a much better price, currently trading around $14, and it has revenue growth of 16.71%. I still do not recommend the stock at the moment though, due to the bad news for its collaborator Johnson & Johnson. Eli Lilly might have an edge now, but this is not enough to guarantee its success. Furthermore, it is currently trading around $44, which is just below its 52-week high of $44.27. It has revenue growth of -4.06%. Based purely on the news related to Alzheimer's and its high price, I cannot recommend this stock either.
The competition is really heating up as well, putting even more pressure on companies like Johnson & Johnson that cannot make a strong move to take over the field.
EnVivo Pharmaceuticals is creating a very promising drug to actually improve Alzheimer's symptoms, differentiating it from others looking to prevent the disease from progressing. It has just announced the results of a study, showing that over a six-month period, the drug "improved measures of thinking and memory" for patients with mild to moderate levels of Alzheimer's. This is bad news for companies like Johnson & Johnson, as this drug is special and may offer another alternative to medical professionals avoiding Johnson & Johnson.
Even preventing Alzheimer's from progressing is a big deal, as the number of deaths that could be attributed to Alzheimer's has reached almost 500,000. Near the beginning of June, the CDC provided its final statistics report on 2008, showing that there were roughly 617,000 U.S. deaths from heart disease, 565,000 from cancer, and 82,000 from Alzheimer's. It is a major killer, therefore, so companies looking to prevent the progression of it are doing something incredibly important.
In this area as well, however, competition is getting stronger. Baxter has recently announced positive results for its Alzheimer's drug. After being treated with the drug, four patients saw the disease stabilize for at least three years, showing some sign of hope. This is a small sample size at the moment, however, so not too much can be drawn from this. Baxter is now working on a larger Phase 3 trial, and results should come out by early 2013. This may not be a definite threat to companies like Johnson & Johnson, but it shows more potential competitors that could steal business from them.
Baxter is at a reasonable price, trading around $56, but this news is just too minor for me to recommend this stock. Its revenue growth is 1.02%, and it is much too early to tell if its new drug will truly help it out in this respect. It may do so, but the take-away point is that it is one more possible source of competition for Johnson & Johnson, so it makes things that much tougher. I do not recommend investing in Baxter at the moment though.
Johnson & Johnson is currently making a bad name for itself with its recent legal news related to Alzheimer's. Competition is intensifying, furthermore, even if companies like Baxter are only showing minor results at the moment. For these two reasons, I do not recommend Johnson & Johnson stock. For the same reasons, I do not recommend investing in its partners Pfizer or Elan. Although this clears the way for others like Eli Lilly and Baxter, I do not think this is significant enough, and they still face great competition as well. As a result, I do not recommend either of these stocks at the moment either.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.