Billionaire investor Warren Buffet would probably classify Johnson & Johnson (JNJ) as a company with a "wide economic moat", which means the company has many of the ingredients that will allow it to grow while keeping competition at bay. JNJ has a rather large and diversified product portfolio. The firm is a market-leader in many of the health-care segments in which it operates, has a strong pipeline of new products that are expected to be approved shortly, and has a relatively low (compared to some of its competitors) patent expiry exposure. All of these factors put together act as extremely favorable catalysts for JNJ's future.
Aging populations (across the world), especially the Baby Boomer generation, will provide even more demand for JNJ's products in the coming decade. Demographic studies indicate that health care needs are likely to increase due to hip and knee replacement requirements and other health care challenges such as cardio-related (Xarelto), oncology-based (Zytiga) and other non-invasive surgical procedures. The company is well positioned to take full advantage of these trends.
JNJ's new drug Stelara is considered a potential blockbuster. The European Medicines Agency, in their European Public Assessment Report (EPAR), confirmed that Stelara’s benefits are greater than its risks and recommended that it be given marketing authorization. Such endorsements are likely to play favorably when other jurisdictions around the world evaluate Stelara for broader public use in the coming months.
Unfortunately, like some of its industry peers, JNJ has had its share of missteps. Earlier this year, the company was ordered to pay over $8.3M in damages to a Montana-based patient for a faulty artificial hip manufactured by a JNJ subsidiary/affiliate. Had that been the last of such legal troubles, investors may have heaved a sigh of relief. However, that is not the case. The more than 10,000 pending lawsuits on similar grounds could act as a negative catalyst, not only for the company's reputation, but also as a drag on revenue in the coming years.
While demand for global health care rises with aging populations, governments and corporate clients are pushing health care service providers hard to reduce costs. Large corporate and government clients are looking for cheaper alternatives to existing health care options, as well as forcing companies like JNJ to reduce prices for current products and services. Governments in developing economies, such as South Africa, Brazil and India, are moving fast to switch to generic drugs in order to reduce health care costs for their masses. This trend could also be a catalyst for reducing growth prospects of the company.