Johnson & Johnson (JNJ) has a new pill on the market for an illness called psoriasis, and Bank of America thinks investors are not paying enough attention to it yet.
In a BofA note shared with me on Sept. 29, the bank almost doubled the highest possible sales figure it expects the drug to reach, raising its price target on the outlook. BofA didn’t come up with this randomly. They made the call after conducting a physician dermatology survey.
Johnson & Johnson is a company that earns its money selling prescription drugs and medical devices. And recently, the drug business has been growing much faster than the medical devices business.
That makes a new drug launch like this matter even more for investors, especially since older bestsellers such as Stelara now have cheaper alternatives, according to Drug Channels.
For me, the biggest signal in this BofA note is the huge change in the peak sales estimate, tied to one particular drug. Another interesting part is that the upgrade came just before J&J reports third-quarter earnings on Tuesday, Oct. 13.
Inside BofA’s new outlook on Johnson & Johnson
Jason Gerberry is the BofA analyst who made the JNJ call. He is well-known in the drug sector and has covered major drugmakers for years. In the note, Gerberry kept his Neutral rating on the stock, but raised his price target to $278.
Also read: Bank of America has strong message for Merck stock investors
Gerberry expects Johnson & Johnson’s third-quarter sales to reach $25.5 billion, matching other analysts’ estimates. But he expects earnings per share of only $2.53, which is below the $2.87 consensus. However, that’s mostly because of one-time research costs tied to J&J’s recent deals.
“We reiterate Neutral on JNJ and increase our price objective to $278 (prior $263),” Gerberry wrote in the note.
What the dermatology survey told us about Icotyde
Icotyde is a pill for moderate to severe plaque psoriasis that patients only need to take once a day. Psoriasis is a long-term skin condition where the immune system makes skin cells grow too fast, which causes red and scaly patches.
There are already ways to treat severe cases, but they are mostly injection treatments, which many people don’t like. So a pill that could work just as well would be a big deal for patients.
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Gerberry’s team also asked dermatologists how they see the drug playing out, and the answers were positive. On average, the doctors said about 25% of new patients starting advanced treatments could lean more toward Icotyde.
BofA lowered that average number from the survey to 18% just to be safer, and even then the peak sales forecast for psoriasis alone almost doubled to $4.5 billion from $2.4 billion.
Gerberry added in the note that “quarterly forecast precision is limited because reported scripts capture only 25%-30% of the volume JNJ sees internally,” which is one reason he thinks early Wall Street predictions could be off.
What all this means for JNJ investors right now
Johnson & Johnson stock closed at $267.57 on Sept. 29, which is already close to its 52-week high of $281.07 and shows that BofA’s $278 target is just a modest upgrade.
The fact that the bank still maintains its Neutral rating on the stock and increased the price target to only about $10 above the recent price suggests BofA doesn’t see much near-term growth for JNJ.
If you already own JNJ stock, BofA’s increased price target is a reason to hold your shares. This is especially true because the survey suggests JNJ’s experimental oral psoriasis pill (Icotyde) could successfully win market share from competitor injectables.
However, if you are considering buying the stock for the first time, keep in mind that upfront In-Process Research and Development (IPR&D) charges from JNJ’s recent acquisitions will heavily dilute corporate earnings through 2027.
In addition, because JNJ’s stock price has already risen close to BofA’s new target, any remaining near-term stock growth is likely to be minimal.
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