CAN J&J WIN THE CORONAVIRUS VACCINE RACE?

Who will get to the Coronavirus vaccine first? Today’s investor must evaluate each company on their ability to move through the phases of development as quickly and efficiently as possible, because ultimately, the company that brings a reliable vaccine to the market the quickest will end up being the company or organization that brings in the most revenue for its shareholders.  Johnson & Johnson  ($JNJ) will be a fierce competitor in this race. 

By Juliette Duguid, Healthcare Analyst 

The question that seems to be weighing on the collective population’s mind at this moment in time is that of the development of a coronavirus vaccine–and rightfully so, as a vaccine would bring the world one step closer to achieving herd immunity and life would slowly ease back into its normal rhythm. There has been circulating news of several biotech giants in various phases of developing a vaccine–for instance, Moderno, Inovio, as well as international researchers at the University of Oxford in England and University of Queensland in Australia. Even pharmaceutical companies have jumped on the bandwagon, such as Pfizer and Johnson & Johnson.

Johnson & Johnson is an American based multinational company that specializes in the development of medical devices, pharmaceutical, and consumer packaged goods. Its ability to diversify production to cater to a variety of different sectors is unmatched. The company’s pharmaceutical sector is its most profitable and drives the highest level of growth, with drugs such as Opsumit and Uptravi, medications known to treat hypertension. 

That being said, the company has experienced quite a tumultuous year with a plethora of ups and downs, and the root of their problems can actually be dated back to 2018, when 22 women came forward and claimed that the company’s talcum-based baby powder gave them ovarian cancer due to trace amounts of asbestos. Johnson & Johnson was to pay $4.7 billion in damages to the 22 women, which was just one lawsuit of the 9,000 some cases they were dealing with in relation to their baby powder. Later investigations into the composition of the talcum used by Johnson & Johnson and the FDA found no traces of asbestos, and the company managed to win most of the other lawsuits, often on technical terms. Regardless, the company recently announced that they are removing their baby powder from shelves in the United States. According to the New York Times, defense lawyer Nathan A. Schachtman said that it was a smart move on Johnson & Johnson’s part because there comes a point where “…shareholders don’t care whether the science is on your side….Companies have to make very practical and hard decisions about withdrawing products that they don’t think are bad products, or dropping cases because…it is expensive to defend them”. Although baby products, including powder, shampoos and lotions, generated $361 million dollars in sales during the first quarter of 2020, less spending on talc-based baby powder research and development, coupled with less money going to pay outs and lawsuits means more money for coronavirus vaccine and drug development, which has quickly become the focus of every major biotech company.

Despite these setbacks, Johnson & Johnson managed to make a comeback from the depressive lull it was experiencing up until March–since then, it has outperformed the market. The stock has gone up 32% while the S&P 500 has only gone up 26% percent in the same time frame. The stock even jumped up higher than fellow biotech giants Merck (17%) and Pfizer (30%) (Forbes).  Analysts are expecting this growth to remain sustained throughout the coming months, especially with the promising development of the coronavirus vaccine on the horizon. Not to mention that this stock has a dividend yield of 2.81% (as of May 22, 2020), and this number has been consistently increasing on a year to year basis. This is greater than the approximate 1.97% dividend yield that the S&P 500 has maintained fairly consistently for the past 10 years. 

Operation Warp Speed was an initiative of the Trump Administration to grant money to companies that showed promise in their coronavirus vaccine development in an effort to support the ultimate production of 300 million tests by early 2021. Johnson & Johnson was among the 5 groups to receive funding, and although no details were given as to the reason for the companies’ selection (others included Merck and Moderna), it seems that the niche methods these companies are using to produce treatments and vaccines piqued the interest of the selection board to select them for funding support. Funding from Operation Warp Speed indicates that experts and officials expect Johnson & Johnson’s coronavirus vaccine development venture to be most likely to succeed, which is a big plus for the company. 

In late March, the stock took a jump after CEO Gorsky announced that they were on track to developing a vaccine by early 2021. The company partnered with the Biomedical Advanced Research and Development Authority in an effort to begin Covid-19 treatment drugs, and is investing $1 billion dollars into not only the development of the vaccine, but also making sure that methods of production are in place for when the vaccine is ultimately released to the market. In this way, Johnson & Johnson is one step ahead of its fellow biotech companies. The company is on track to be through to advanced trials in September–in fact, according to the company website, they are “…aiming to initiate a Phase I clinical study in September 2020, with clinical data on safety and efficacy expected to be available by the end of the year”. Typically, this process takes around 5 to 7 years, but Johnson & Johnson has managed to successfully expedite the process. 

All in all, Johnson & Johnson has long been an investor favorite due to its ability to provide an extremely wide array of products, ranging from common household products like band aids to hip and knee replacements. Admittedly, the stock could continue to suffer from potential lawsuits, but this seems to be a storm the company is strong enough to weather. Its commitment to research and development, as well as its massive development infrastructure will continue to make this stock a buy. Although the company will undoubtedly undergo inevitable drops, an investment in this company today will likely pay off greatly for years to come.