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No Joke: Johnson & Johnson Could Grow Sales by 5% (or More) Annually Over the Next Decade

Lab worker holding up and examining a pill.

For many investors, Johnson & Johnson (NYSE: JNJ) is the quintessential set-it-and-forget-it investment in the healthcare arena. It's the largest publicly traded healthcare company by a mile, and its business structure -- J&J is comprised of more than 250 different subsidiaries -- allows the company to divest slower-growing assets and acquire new companies that complement higher-growth businesses with ease. It's no wonder that J&J has generated between $11.4 billion and $15.8 billion in free cash flow in each year over the past decade.

Additionally, Johnson & Johnson is riding a streak that thousands of other companies could only dream of. Assuming it announces another increase to its dividend in April, it'll mark the 55th consecutive year it's increased its payout, placing it among a truly elite class of Dividend Aristocrats (companies that have raised their dividend for at least 25 straight years). J&J is also one of two publicly traded companies to still possess Standard & Poor's highest credit rating, AAA. Mind you, this "AAA" rating is higher than the U.S. government, implying implicit confidence from Standard & Poor's that J&J can repay its debts.

Lab worker holding up and examining a pill.

Image source: Getty Images.

1. Organic pharma growth

J&J will be relying on its organic pharma pipeline. In May 2015, J&J announced that it had plans to file new drug applications with the Food and Drug Administration for 10 drugs that it believed had more than $1 billion in sales potential by 2019. Mind you, between 2009 and mid-2014, J&J brought 14 novel medicines to market, and half of them wound up becoming blockbusters (those with $1 billion or more in annual sales).

The first of those 10 to gain approval was multiple myeloma drug Darzalex, which tallied $200 million in sales during the fourth quarter. That puts the drug on track for $800 million on an extrapolated basis, and perhaps on target for $1 billion in sales as early as this year.

Next in line could be guselkumab, a moderate-to-severe plaque psoriasis drug that mopped the floor with both the placebo and even AbbVie 's(NYSE: ABBV) Humira in phase 3 studies. As a reminder, Humira is the best-selling drug in the world. At the 16- and 48-week mark, guselkumab led to 73% and 81% near-complete skin clearance, respectively, compared to almost 50% and 55% skin clearance for Humira, respectively. Guselkumab would appear to have a good shot at gaining FDA approval.

With a host of blockbusters and label expansion opportunities lined up, J&J would appear to have a pathway to significant growth, even if Remicade struggles.

Businessmen shaking hands, as if representing a deal or collaboration.

Image source: Getty Images.

2. M&A activity (primarily in pharma) and collaborations

Expect Johnson & Johnson to continue to lean on merger and acquisition (M&A) activity to fuel pipeline and product portfolio expansion, especially within its faster-growing pharma segment.

Late last month, J&J announced that it was acquiring Swiss-based specialty drugmaker Actelion (NASDAQOTH: ALIOF) for $30 billion in order to get hold of its two key pulmonary arterial hypertension drugs, Opsumit and Uptravi, each of which are capable of an estimated $2 billion in peak annual sales. J&J has stated that the deal is expected to increase its long-term growth rate by between 1.5% and 2%. Additionally, J&J will get an initial 16% stake in Actelion's pipeline, which will be spun off into a separate entity before the deal closes.

Traditionally, J&J isn't known for making such large purchases. It's best known for acquiring early- and mid-stage assets and developing them.

J&J is also active on the collaboration front. Its partnership with Geron (NASDAQ: GERN) for imetelstat as a treatment for myelofibrosis and myelodysplastic syndromes is part of its aforementioned 10 blockbusters that it hopes to bring to market before the end of the decade. In early-stage studies, before J&J ponied up $35 million up front and $900 million in possible milestone payments, Geron announced that imetelstat had generated partial and complete responses in myelofibrosis patients, becoming the first drug to ever do so in clinical trials.

In other words, J&J has avenues where it can use its cash flow to increase its growth rate.

Heart monitor screen in an operating room.

Image source: Getty Images.

3. Medical devices respond to an aging America

Beginning in the latter half of the decade to come, I would anticipate that growth in medical devices will begin to pick up.

Medical device growth has been somewhat stagnant in recent years, a function of increased competition, and consumers and hospitals cutting back on their spending due to the numerous uncertainties associated with the Affordable Care Act.

Doctor examining hip replacement X-ray.

Image source: Getty Images.

However, as time presses on and America ages, the need for J&J's bread-and-butter devices (i.e., hip and knee replacements) should grow dramatically. According to the U.S. Census Bureau, the U.S. elderly population is expected to grow by more than 40 million between 2012 and 2050, which is a result of improved access to medical care increasing life expectancies. But, as life expectancies rise, the need for maintenance therapies, such as hip and knee replacements, would be expected to rise, too.

As one of the largest device makers in the world, J&J should be able to retain significant pricing power as demand begins to increase.

This isn't to say J&J is risk-free. Leaning so heavily on pharma means shareholders need to be willing to accept the sales hiccups that come with patent expirations. What's more, President Trump has pledged to cut drug prices during his presidency, which is a bit concerning for J&J now that it relies on its pharma segment for most of its growth. Nonetheless, I'd suggest that the building blocks are in place for J&J deliver a surprisingly healthy growth rate for at least the next decade.

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Sean Williams has no position in any stocks mentioned. The Motley Fool recommends Johnson and Johnson. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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