Image Source: Johnson & Johnson – Fourth Quarter of Fiscal 2020 IR Earnings Presentation

By Callum Turcan

Over the past several months, shares of Johnson & Johnson (JNJ) have steadily climbed higher as investors are warming up to its improving outlook and strong financial position. In April 2020, Johnson & Johnson increased its quarterly per share dividend by over 6% sequentially, highlighting its commitment to income seeking investors. Johnson & Johnson is actively working towards developing a safe and viable vaccine to help put an end to the ongoing coronavirus (‘COVID-19’) pandemic. Recent updates indicate the firm’s COVID-19 vaccine candidate is near the finish line.

We include Johnson & Johnson in both the Best Ideas Newsletter and Dividend Growth Newsletter portfolios as we view its capital appreciation and income growth upside quite favorably. The top end of our fair value estimate range sits at $172 per share of Johnson & Johnson. As of this writing, shares of JNJ yield ~2.5% and are currently trading in the upper bound of our fair value estimate range.

Johnson & Johnson, through its Janssen pharmaceutical division, is leading the venture developing its COVID-19 vaccine candidate. Its vaccine candidate is referred to as JNJ-78436735, and its Phase 3 clinical trial, known as the ENSEMBLE study, was launched back in September 2020. Here we would like to stress that we do not expect Johnson & Johnson to generate substantial long-lasting revenues from its COVID-19 vaccine candidate and the firm’s goal has always been to sell the vaccine on a not-for-profit basis. The company would likely benefit from an improved public image worldwide should its vaccine candidate receive regulatory approval and get distributed globally.

COVID-19 Vaccine Update

On January 29, Johnson & Johnson announced favorable interim efficacy and safety data from the Phase 3 clinical trial. The study covered “43,783 participants accruing 468 symptomatic cases of COVID-19” and was “designed to evaluate the efficacy and safety of the Janssen COVID-19 vaccine candidate in protecting moderate to severe COVID-19, with co-primary endpoints of 14 days and 28 days following vaccination.” Johnson & Johnson noted that a single shot of its COVID-19 vaccine candidate had “met all primary and key secondary endpoints” during the clinical trial. Please note that the Phase 3 clinical trial involves a demographically diverse group of participants aged 18 and older who are in the US, Latin America, and South Africa.

Here is what Johnson & Johnson had to say in its January 29 press release (moderately edited, emphasis added):

Among all participants from different geographies and including those infected with an emerging viral variant, Janssen’s COVID-19 vaccine candidate was 66% effective overall in preventing moderate to severe COVID-19, 28 days after vaccination. The onset of protection was observed as early as day 14. The level of protection against moderate to severe COVID-19 infection was 72% in the United States, 66% in Latin America and 57% in South Africa, 28 days post-vaccination…

Protection was generally consistent across race, age groups, including adults over 60 years of age (N= 13,610), and across all variants and regions studied,including South Africa where nearly all cases of COVID-19 (95%) were due to infection with a SARSCoV-2 variant from the B.1.351 lineage…

The vaccine candidate was 85 percent effective in preventing severe disease across all regions studied, 28 days after vaccination in all adults 18 years and older. Efficacy against severe disease increased over time with no cases in vaccinated participants reported after day 49…

In addition, the Janssen vaccine candidate is compatible with standard vaccine distribution channels. If authorized, Janssen’s single-dose vaccine candidate is estimated to remain stable for two years at -20°C (-4°F), at least three months of which can be at temperatures of 2-8°C (36°F–46°F). The Company will ship the vaccine using the same cold chain technologies it uses today to transport other innovative medicines.

Johnson & Johnson “is committed to bringing an affordable COVID-19 vaccine on a not-for-profit basis for emergency pandemic use, pending regulatory authorizations” and is currently seeking regulatory approval for its vaccine. On February 4, Johnson and Johnson announced it had applied for emergency use authorization approval from the US Food and Drug Administration (‘FDA’). A couple weeks later, Johnson & Johnson announced it had applied for regulatory approval from the European Medicines Agency (‘EMA’). The firm is also working towards getting approval from the World Health Organization (‘WHO’).

As only a single shot of the vaccine is required, Johnson & Johnson’s COVID-19 vaccine candidate is appealing as distribution efforts would be much easier compared to other vaccines that require two shots a few weeks apart. For instance, Moderna Inc’s (MRNA) COVID-19 vaccine, which has already been approved for emergency use in the US, requires two shots 28 days apart. Furthermore, Johnson & Johnson notes that its vaccine candidate can be stored for a few months at temperatures in the mid-30s to mid-40s Fahrenheit range, making storage efforts significantly easier as compared to vaccines that need to be kept in special freezers at temperatures well below zero degrees Fahrenheit.

The COVID-19 vaccine developed by Pfizer Inc (PFE) and BioNTech SE (BNTX), which has been approved for emergency use in the US, needs to be stored at very cold temperatures. However, the Pfizer-BioNTech venture recently announced that their vaccine may be able to be stored at “temperatures more commonly found in pharmaceutical freezers and refrigerators” which is a promising sign. The Pfizer-BioNTech venture announced it had submitted additional data to the US FDA that seeks to update the vaccine storage protocols.

If Johnson & Johnson’s single-shot COVID-19 vaccine candidate receives regulatory approval it “expects to have product available to ship immediately following authorization” according to the press release covering its application with the US FDA. This is due to Johnson & Johnson scaling up its vaccine manufacturing capabilities while actively developing its vaccine candidate to speed up the overall process. That strategy seems to have paid off, assuming it receives regulatory approval, as Johnson & Johnson is now in a good position to help global health authorities bring an end to the public health crisis.

According to Reuters, Johnson & Johnson is participating in a South African study that involves the mass inoculation of the country’s health care workers. Please note that Johnson & Johnson’s vaccine candidate has shown to be effective at preventing severe disease caused by COVID-19, including from the B.1.351 variant of the virus (the variant first reported in South Africa), according to interim efficacy and safety data from the ENSEMBLE study.

Concluding Thoughts

We appreciate all the hard work Johnson & Johnson and its partners have put towards developing a safe and viable COVID-19 vaccine candidate. Johnson & Johnson issued favorable guidance for fiscal 2021 when it reported its latest earnings aided by expectations that its medical devices business will recover this fiscal year along with sustained strength in its core pharmaceutical sales according to management commentary given during the related earnings call. Interested members are encouraged to check out our thoughts on the company’s latest earnings report and outlook in this article here. We continue to like exposure to Johnson & Johnson in both our Best Ideas Newsletter and Dividend Growth Newsletter portfolios.

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Health Care Bellwethers Industry - JNJ, WBA, CVS, ISRG, MDT, ZBH, BAX, BDX, BSX, MTD, SYK, BIIB, GILD, ABT, ABBV, LLY, AMGN, BMY, MRK, PFE, VRTX, ZTS, REGN, UNH

Related: BNTX, MRNA, VDC, XLV, EZA

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Callum Turcan does not own shares in any of the securities mentioned above. Johnson & Johnson (JNJ) and the Health Care Select Sector SDPR Fund (XLV) are both included in Valuentum’s simulated Best Ideas Newsletter portfolio and simulated Dividend Growth Newsletter portfolio. Vertex Pharmaceuticals Inc (VRTX) is included in Valuentum’s simulated Best Ideas Newsletter portfolio. UnitedHealth Group Inc (UNH) is included in Valuentum’s simulated Dividend Growth Newsletter portfolio. The Vanguard Consumer Staples ETF (VDC) is included in Valuentum’s simulated High Yield Dividend Newsletter portfolio. Some of the other companies written about in this article may be included in Valuentum's simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.