HCG Research Associates (HCGRA) www.hcgra.com May 10, 2017 Equity Fundamentals

Johnson and Johnson (JNJ) Oncology Overview Organized as an investment holding company with an enterprise value of $300B and nearly 100 medical and pharmacy products, Johnson and Johnson is focused on three core business divisions: pharmaceuticals, medical devices and consumer products. The majority of Johnson and Johnson’s business is related to well known consumer goods like Tylenol, Lubriderm and Listerine and the rest derives from prescriptions and activity centered directly on pharmaceutical sales and development. Within the pharmaceutical unit lies a diverse range of therapies which Johnson and Johnson has cleverly centered on immunology, infectious diseases, neuroscience, oncology and cardiovascular / metabolics. All of these segments are experiencing a golden age of R&D and a surge in demand to a degree, but none are as promising as the oncology practice. Johnson and Johnson may have the most diverse and comprehensive therapy pipeline in the US when it comes to oncology, and all of their offerings are forecasted to grow significantly. Johnson and Johnson have positioned their offerings to be in the center of the spectrum for oncology related cancer therapies. This makes for excellent market penetration and sets the enterprise up for early identification of trends and market leading M&A to continue to compliment the oncology foundation. Johnson and Johnson’s oncology line includes: Velcade which is used for myeloma and lymphoma; Imbruvica which is a therapy for Leukemia, Zytiga for prostate cancer and Darzalex for myeloma. Zytiga and Imbruvica have a strong market base in the US and both are slated to experience continued growth and development. Imbruvica has been growing despite the worthwhile competition from Gilead product Zydelig. These therapies also have cross-pollination abilities for other therapies, some of which are coming out of clinicals and experiencing further development. Janssen Biotech - a Johnson and Johnson subsidiary since 1999 - is at the forefront of new boundaries and therapies and is active in the entire drug spectrum. It serves as a huge reservoir of wealth for JNJ’s pharmacy line. From the 4/18/2017 earnings call, it is important to note that therapy Daralez “continued its strong performance with worldwide sales of $255 million” and it has showed early success in international markets. Monthly units continue to grow and show a positive trend, hovering at 45,000 units per month for U.S. sales. The drug still holds first place in some myeloma treatments with future expectations for more breakthroughs inside multiple myeloma. Darzalex is also expected to have continued growth and has proven to be a good asset from day one. That is just for oncology. The total extended pipeline of drugs cover immunology (including immuno-oncology), infectious diseases, neuroscience, cardiovascular drugs. That said, their pharmaceutical line is set to grow at 5-10% over the next five years which is very conservative. Rounding out Johnson and Johnson’s business you have the medical devices unit. Johnson and Johnson medical devices division is growing and developing new markets at record speed,

HCG Research Associates (HCGRA) www.hcgra.com May 10, 2017 Equity Fundamentals

covering a ton of surgical procedures and critical care devices. This division only adds to the power of Johnson and Johnson’s aggregate portfolio and helps boost JNJ’s bottom line, though future estimates peg this division with small increases in sales thru 2020. Add on the culture of innovation, joint-ventures and corporate investment and you have a serious contender. With a current price-to-book ratio at 4.72, ROE at 23.13% and last year's pharmacy sales topping $33 billion - if you are looking for a safe bet with tremendous upside - Johnson and Johnson is the stock to pick.