The Johnson & Johnson COVID-19 Vaccine Thesis

If you were only allowed to invest your money in one stock, you wouldn’t be criticized by many for choosing Johnson & Johnson (JNJ). No matter what happens, we’ll always need healthcare products and services. The company’s revenues are diversified by geography and business line, providing the sort of consistency that’s led them to 36 consecutive years of earnings growth. Many consumers might associate the company with baby care products, but fast-moving consumer goods are just a fraction of what the company actually dabbles in:

JNJ 2019 Revenues – Credit: JNJ

If you happen to be a dividend growth investor, you’ll love that JNJ has managed to not only pay, but increase their dividend, every year for the past 57 years. That’s why they’re one of the top-three dividend growth investing (DGI) stocks according to the Quantigence methodology:

Credit: Quantigence Dividend Growth Investing Report

We’ve been long JNJ for close to a decade now, and sleep well at night knowing that every year we get a raise and our quality of life increases. That’s why we weren’t surprised to see JNJ lauded in yesterday’s news regarding their efforts to bring a coronavirus vaccine to market. The world’s biggest healthcare company by market cap has some irons in the fire here, and they made sure all their ducks were in a row before letting the public know what they’ve been up to.

The JNJ Coronavirus Vaccine

Johnson & Johnson began efforts in January 2020, as soon as the novel coronavirus (COVID-19) sequence became available, to research potential vaccine candidates. They have now identified a lead COVID-19 vaccine candidate (along with two back-ups), which will “progress into the first manufacturing steps.” In other words, they’re ramping up to produce a vaccine at scale – over a billion doses – before it’s even been approved. This is clearly a risk, but shows a strong vote of confidence, especially when you consider who they’ve partnered with.

JNJ has been working on how to address pandemics well before coronavirus hit the news. What they announced yesterday is a “significant expansion of the existing partnership between the Janssen Pharmaceutical Companies of Johnson & Johnson and the Biomedical Advanced Research and Development Authority (BARDA).” (More on BARDA in a bit.) An article by Forbes details the financial components underlying the announcement which include a $606 million investment by BARDA (two payments of $456 million and $150 million) along with a $500 million commitment by JNJ. The money will be spent on ramping up manufacturing and moving the vaccine candidate(s) through clinical trials.

As for a timeline, they’re looking at clinical trials in the fall and emergency use (whatever that means) by early 2021. According to yesterday’s press release by JNJ:

We are moving on an accelerated timeline toward Phase 1 human clinical trials at the latest by September 2020 and, supported by the global production capability that we are scaling up in parallel to this testing, we expect a vaccine could be ready for emergency use in early 2021.”

JNJ Press Release March 30, 2020

The share price popped inexplicably on the news, especially when considering the below statement by JNJ.

The Company plans to begin production at risk imminently and is committed to bringing an affordable vaccine to the public on a not-for-profit basis for emergency pandemic use.

JNJ Press Release March 30, 2020

Clearly, investors think that JNJ’s not-for-profit coronavirus vaccine venture stands to benefit them in some way. Then again, maybe it’s just a vote of confidence from all the ESG types, or a knee-jerk reaction from the panicked herd. As long-time holders of JNJ, we want to understand the whole thing a bit better from the perspective of someone who counts on their dividend income for retirement.

The Financial Strength of JNJ

In our previous piece on Moderna and the Coronavirus Vaccine Thesis, we noted that developing a coronavirus vaccine is risky business for Moderna. In order to understand the sort of capabilities that JNJ has to follow through on their stated objective, look no further than their 2019 results which generated profits in excess of $15 billion, around $10 billion of which was paid to shareholders in the form of dividends. In the same year, over $11 billion was spent on R&D. Having to pony up a mere $500 million to ramp up their ability to produce vaccines isn’t going to break the bank. (Contrast that with a company like Moderna that doesn’t even have that much cash on their books.) Infectious diseases and vaccines are also something that JNJ has been focused on for quite some time.

Infectious Diseases and Vaccines

Back in May of 2019, JNJ held their day-long Pharmaceutical Business Review during which their “Janssen Infectious Diseases & Vaccines” division discussed some of the work they’re doing in the areas of infectious diseases and vaccines. The presentation – which even includes mention of a bacteriophage therapy – lists three primary areas of focus: HIV, HBV, and Respiratory Infections.

Credit: JNJ Pharmaceutical Business Review

JNJ’s press release mentions several platforms they’re using to develop vaccines that have already been tried and tested in other real-world scenarios like Ebola.

  • PER.C6 Technology – provides a cost-effective manufacturing system for high-yield, faster, and large-scale production of vaccines and monoclonal antibodies. Especially useful for vaccine manufacturing that requires the production of hard-to-grow viruses and could help make vaccines affordable for the whole world.
  • AdVac Technology – based on the development and production of adenovirus vectors (gene carriers). Used together with PER.C6® technology to develop recombinant vaccines against life-threatening infectious diseases.

For evidence of how the platform works, look no further than the Ebola crisis. Back in October 2014, JNJ committed $200 million to develop an Ebola vaccine. They were able to initiate multiple clinical trials across three continents in just one years’ time. In 2017, BARDA – the same entity they’ve partnered with to develop a coronavirus vaccine – provided additional funding for the project. Today, JNJ has built a stockpile of up to 1.5 million investigational Ebola vaccine regimens for potential use in public health emergencies.

JNJ and BARDA have already been collaborating on a wide range of infectious diseases with pandemic potential, including Zika, Influenza, HIV, and TB. And BARDA also happens to be the same entity that’s helping Moderna accelerate their vaccine clinical trials. Could JNJ’s manufacturing platform be used to produce any vaccine that’s developed? While we don’t know the answer to that question, we do come away with a few key takeaways for investors.

JNJ is a company with deep pockets that’s choosing to collaborate rather than compete when it comes to a coronavirus vaccine. Even if some other company solves the problem, they’ll likely gravitate towards JNJ and BARDA. While planning to sell a coronavirus at cost might not benefit investors today, the amount of leverage JNJ might have after solving such a large-scale problem would be of value in the future. They can afford to sink billions into solving this problem without losing any focus on their larger portfolio of businesses. (JNJ’s share buyback program just ended so billions in free cash flow can now be put to other uses.) Even if the whole project is an utter failure and billions of dollars are spent achieving nothing, JNJ still remains in a great position to keep increasing those dividends over time. If anything, now might be the time to pick up some shares at bargain prices.

Buying the Dip

One way to value a dividend growth stock over time is by looking at the yield instead of the share price. As of right now, JNJ’s yield sits at 2.9%. A cursory look at some historical data shows that the best yield you could ever purchase JNJ shares at was around 3.63% at several points in the past fifty years or so.

Credit:, data from Zacks Investment Research

Just last week, JNJ’s yield reached 3.43% when shares dipped to $110.52. If shares continued to fall to $104.50, then you’d be at a yield of 3.63%. Historically, investors have never let that yield increase beyond 3.63% so that would be considered what technical analysts call “support.” When the world’s best companies see their share prices decimated by market events, there will always be shrewd investors on the sidelines ready to step in and pick up shares at the rare point at which they’re being offered at bargain prices.

For retail investors considering a position in JNJ, don’t try to time these volatile markets. Don’t buy JNJ because they’re dedicating a small fraction of their resources to manufacturing a coronavirus vaccine. Instead, use dollar-cost-averaging to purchase one of the best dividend growth companies out there, one that will provide you with predictable income streams in a market where everything is unpredictable at the moment.


If you were inclined to speculate on which industries might come out as “winners” based on what’s happening around the globe today, healthcare companies would probably be at the top of the list. Sure, they might be required to produce things at cost, or make sacrifices as various governments and the general public demand, but there’s always a quid pro quo in mind. Maybe some restrictions are eased, maybe some tax breaks get put into effect, or maybe a company like JNJ will end up with a billion-dollar vaccine manufacturing platform that could be used in the future for vaccines that will be sold at a profit.

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