Johnson & Johnson (JNJ): Three Things You Need to Watch

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Sales in the division’s surgical care, diagnostics, and diabetes care businesses declined last year, while cardiovascular device sales slumped more than 13%. Cardiovascular device sales — particularly in the cardiac rhythm management, or CRM, industry — have been on the decline lately industrywide; Medtronic, Inc. (NYSE:MDT), one of J&J’s largest device competitors, has seen its CRM revenue fall 3% over the last nine months, and it’s done far better than worse-off rivals in the industry. Don’t expect this business to turn around quickly for J&J.

Even growing businesses outside of orthopedics failed to inspire: Vision care and specialty surgery device sales, which together made up nearly 13% of total medical device revenue, gained less than 5% each.

Going forward, don’t expect the medical device business to deliver any miracles. Once the Synthes acquisition sinks in, orthopedics sales should return to more modest growth. Investors will have to hope that’s enough to keep this division moving in the right direction, because for now J&J’s other medical device units aren’t keeping up with growth.

Power in the pipeline
It’s thus doubly important that J&J’s pharmaceutical pipeline delivers blockbusters of the future — and investors will need to keep an eye on the company’s most promising drug candidates. Invokana’s approval is the first step toward J&J’s brighter pharmaceutical future, but the company will need more than that despite not facing major losses via patent expirations for some time.

Look for two promising therapies to light up Wall Street’s eyes. The first, phase 3 candidate simeprevir, is vying to make an impact in the growing hepatitis C market. Although many other hepatitis C therapies exist already or are in development from rival firms, industry analysts still predict the market could reach $25 billion in worldwide sales by 2020. That’s more than enough incentive for J&J to surge ahead with simeprevir in the hopes of adding another blockbuster to its arsenal.

The most promising drug in development is sirukumab, however. Keep your eyes on this rheumatoid arthritis drug looking to make its mark in an area that J&J has earned plenty of experience in with Remicade’s success. The rheumatoid arthritis market alone is a massive and lucrative opportunity despite the presence of several competing blockbusters, including Remicade. If sirukumab proves a success, this drug could add another blockbuster to J&J’s portfolio.

Change awaits as J&J evolves
Investors walked away from Johnson & Johnson (NYSE:JNJ)’s earnings satisfied on Tuesday, but now’s not the time to take your eyes off this company. While J&J’s still at the pinnacle of the health care industry, developments such as the Synthes purchase and its growing pharmaceutical pipeline are keeping shareholders on their toes. Keep watching this company’s future: J&J can’t afford to slow down now.

The article 3 Things You Need to Watch at Johnson & Johnson originally appeared on Fool.com.

Fool contributor Dan Carroll has no position in any stocks mentioned. The Motley Fool recommends Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson and Medtronic.

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