April 27, 2015

Equity Research
Johnson & Johnson
JNJ: Zytiga Maintained Narrow Market Share Lead In March Outperform
• Summary: We reviewed March 2015 data from AlphaImpactRx (formerly
Symphony Health) survey and IMS for JNJ’s Zytiga and competing prostate Sector: Diversified
cancer drugs. Zytiga’s overall share among sample oncologists fell another point
to 30% in March, slightly below the 4-month average of 31%. Zytiga TRx volume Market Weight
was flat to down in the low-single digit range while NRx volume is down in the
high-single digit year-over-year, the latter was an improvement from low double-
digit decline earlier in the year. We note that there was a growth deceleration Company Note
(albeit to a much lesser degree) in late 2012 when Xtandi was first approved in
2014A 2015E 2016E
post-chemo use, followed by pick up in Zytiga share and growth with its own pre- CASH EPS Curr. Prior Curr. Prior
chemo approval. Zytiga’s share among sample urologists climbed 2points to 27% Q1 (Mar.) $1.63 $1.56 A NC NE
on a rolling three-month basis through March. JNJ reported Q1 U.S. Zytiga sales Q2 (June) 1.78 1.67 NC NE
of $253MM or 11% growth. While we expect price increase and greater OUS Q3 (Sep.) 1.61 1.47 NC NE
(outside of the U.S.) penetration to drive Zytiga growth in 2015, we expect the Q4 (Dec.) 1.37 1.43 NC NE
growth to remain modest due to increased competition. We model Zytiga sales of FY $6.39 $6.14 NC $6.47 NC
$1.1B (+8%) in the U.S. and $2.3B (+3%) globally in 2015. In the near- to CY $6.39 $6.14 $6.47
medium-term, we continue to see the expanded label including final analysis FY P/E 15.7x 16.4x 15.5x
from the pre-chemo study showing Zytiga plus prednisone providing a significant Rev.(MM) $74,331 $70,612 $73,014
Source: Company Data, Wells Fargo Securities, LLC estimates, and Reuters
overall survival benefit as a potential catalyst to stabilize/increase market share. NA = Not Available, NC = No Change, NE = No Estimate, NM = Not Meaningful
V = Volatile, = Company is on the Priority Stock List
Longer term, we expect the new Zytiga patent expiring in 2026 could help to
EPS excludes amortization expense.
bridge JNJ’s prostate cancer franchise to ARN-509 launch estimated in 2018. 2014 excludes $0.42 of amortization.
2015 excludes $0.32 of amortization.
• Zytiga maintained a small overall share advantage over Xtandi in
March. Zytiga share among sample oncologists in the overall CRPC (castration
resistant prostate cancer) market fell a point to 30% in March (Figure 1). This is
consistent with JNJ’s estimate of 30.3% share of the overall U.S. CRPC market in
Q1, down 1.2 points sequentially due to increased competition. Xtandi’s overall Ticker JNJ
share rose 1 point to 28% in March. DNDN/VRX’s Provenge’s share rose to over Price (04/27/2015) $100.50
4% in March from 3% in February while Bayer/Algeta’s Xofigo share rose almost 52-Week Range: $95-110
1 point to 4%. In the pre-chemo segment, Zytiga share fell nearly 4 points to 36% Shares Outstanding: (MM) 2,875.0
in March, representing a 12-month low, and remained the market leader by a Market Cap.: (MM) $288,938.0
small margin. Xtandi’s share rose to 34% in March from 31% in February (Figure
S&P 500: 2,108.05
3). In the post-chemo segment, Zytiga share increased to 19% in March from 16%
Avg. Daily Vol.: 8,163,070
in February, essentially tying Xtandi’s 16% share, which fell from 22% in
Dividend/Yield: $2.28/2.3%
February. Over the past year with increasing use of Zytiga and Xtandi in the pre-
chemo segment, Taxotere has emerged as the post-chemo market leader and held LT Debt: (MM) $18,400.0
38% share in March, down from 39% in February (Figure 4). Xtandi’s usage in LT Debt/Total Cap.: 17.5%
pre-chemo stood 75% in March, about the same as Zytiga’s 76% pre-chemo use ROE: 27.0%
(Figure 5). However, Zytiga’s use in first-line at 68% remains far ahead of 3-5 Yr. Est. Growth Rate: 6.0%
Xtandi’s 40% first-line use during six months through March (Figure 6). CY 2015 Est. P/C. EPS-to-Growth: 2.7x
Last Reporting Date: 04/14/2015
• Continued on the following page.
Before Open
Valuation Range: $128.00 to $130.00 Source: Company Data, Wells Fargo Securities, LLC estimates, and Reuters

Our valuation range of $128-$130 implies about 20x our 2016E cash EPS of $6.47 Larry Biegelsen, Senior Analyst
and is mainly based on a sum-of-the-parts analysis. Risks include delays to pipeline ( 21 2 ) 2 1 4 -8 0 15
products, additional product recalls and unexpected deterioration in the industry. la w ren c e. b i eg el s en @ w el l sf a rgo . co m
Lei Huang, Associate Analyst
Investment Thesis: ( 21 2 ) 2 1 4 -8 0 3 9
le i. hua n g@ we ll sfa rg o . co m
We believe that JNJ is positioned for solid growth, driven by strength of its
Craig W. Bijou, Senior Analyst
pharmaceuticals business, recovery in the consumer segment and market ( 21 2 ) 2 1 4 -8 0 3 8
stabilization coupled with share gain in MD&D. c ra ig. w. b ijo u @ w el ls f a rgo. c o m

Please see page 8 for rating definitions, important disclosures

and required analyst certifications
All estimates/forecasts are as of 04/27/15 unless otherwise stated.
Wells Fargo Securities, LLC does and seeks to do business with companies
covered in its research reports. As a result, investors should be aware that
the firm may have a conflict of interest that could affect the objectivity of the
report and investors should consider this report as only a single factor in
making their investment decision.
 WELLS FARGO SECURITIES, LLC
Medical Technology EQUITY RESEARCH DEPARTMENT

Continued from the previous page.

• Zytiga share among sample urologists up slightly. Urologists are key prescribers in the pre-chemo
segment of the market. On a rolling 3-month basis through March, Zytiga held a 27% market share, up
from 25% in February but still down from 29% a year ago (Figure 2). Over the same time period, Xtandi’s
share has nearly doubled from 10% to 19% although March share was down sequentially from 24%.
However, hormone therapy (ADT or androgen deprivation therapy) remains the clear market leader
among the sample urologists, with Lupron Depot holding over 50% rolling 3-month share (vs. 60%
average share a year ago). Casodex’s rolling 3-month share was steady at 16% vs. a year ago. The key
caveat we highlight here is the small sample size of on average 50 urologists each month compared to
about 150 oncologists in the survey. As such, AlphaImpactRx provides the urologist share data on a rolling
3-months basis while the oncologist data are shown monthly.

• Zytiga prescription (Rx) volume continued to decline – likely too early to see real benefit
from OS label update. Weekly TRx volume continued to show a decelerating growth trend for Zytiga in
the U.S. (Figure 7-8). For the 4-week period ended 4/17/15, Zytiga TRx totaled 9,011, -2% yr/yr, while 4-
week NRx totaled 2,661, down 8% yr/yr. We note that Zytiga NRx decline actually abated somewhat in the
past four weeks to high single digit, a modest improvement from low-double digit to low teens NRx
volume decline during much of Q1 2015. TRx volume decline remains in the flat to low-single digit, same
as start of the year. With the updated Zytiga label for overall survival (OS) benefit approved by the FDA at
the end of March, it is too early to associate the slower NRx decline with the label expansion. While we
expect to see continued dampening in Zytiga Rx growth, we could see the trend ease with the positive OS
data added to the label and will continue to monitor the Rx trend. Recall that Zytiga growth slowed
significantly in late 2012 when Xtandi was first FDA approved for post-chemo use, and Zytiga growth
picked up again in early 2013 with the approval and roll out of a pre-chemo indication. While IMS data do
not break out pre- vs. post-chemo usage, we note that urologists now account for ~8% of Zytiga NRx.

• Label enhancement could improve Zytiga’s near-term market position while ARN-509
represents long-term growth opportunity. While Zytiga continues to face increased competitive
pressure in the prostate cancer market, we believe the recent label enhancement could help to strengthen
the drug’s near-term outlook. At the end of March, FDA approved adding overall survival (OS) benefit
from the COU-AA-302 study in pre-chemo prostate cancer patients in the Zytiga label while the data was
also published in the February 2015 issue of The Lancet Oncology. The data showed that Zytiga plus
prednisone provides a statistically significant OS benefit vs. prednisone alone (median OS 34.7 vs. 30.3
months; p=0.0033). Previously, MDVN had touted Xtandi as the only new prostate cancer drug with
significant OS and rPFS benefit. Long term, we see ARN-509, currently in Phase 3 development for
potentially broader prostate cancer indications, as an important growth driver with approval/launch
possible in 2018. Although Zytiga’s composition of matter patent expires in December 2016, we expect the
‘438 Zytiga patent to provide bridge to the ARN-509 launch.

• Modeling modest Zytiga sales growth in 2015 although significant OS benefit added to the
label could help. Zytiga was one of JNJ’s best new drug launches with global sales totaling $2.2B or
26% ex-FX growth in 2014, its fourth year on the market. Q1 US Zytiga sales of $253MM represented
nearly 11% yr/yr growth, a deceleration from growth of 21% in Q4 and 30% in full year 2014. Q1
represented only the second time that US Zytiga sales fell sequentially (first time was in 4Q12 and
reflected adjustments related to the start of a patient assistance program). OUS Zytiga sales of $303MM
represented 26% ex-FX growth, down modestly from +30% in Q4 and +36% in full year 2014. According
to JNJ, the U.S. prostate cancer market grew 12.5% in Q1, vs. +15% in Q4 and +11% in the first 9 months
of 2014. Zytiga held 30% share in Q1, down 1.2 points Q/Q due to increased competition, largely from
Xtandi in the pre-chemo segment. OUS growth was driven by additional country launches with Zytiga now
approved in mover 95 countries. We expect that overall market growth, further pre-chemo penetration,
price increase (JNJ has taken 7-8% price increase per year the last 3 years) and additional OUS uptake to
drive 2015 Zytiga growth, albeit at a more modest pace. We model 2015 Zytiga sales of $2.3B or 11% ex-FX
growth WW and $1.1B or 8% growth in the US. Our market model (Figure 9) reflects aggregate results for
primarily newer agents approved for CRPC (i.e. excludes Lupron Depot, Taxotere, etc) through Q4 2014.

• Caveats about AlphaImpactRx survey: 1) Small physician sample size; 2) post-chemo represents
50%+ of the survey market even though there are 2-3x as many pre-chemo patients--likely due to
concentration of oncologists in the survey, who prescribe more for post-chemo; 3) inclusion of supportive
care products likely understates brand share; 4) overall share trend may show small discrepancy (+/- 1%)
to the pre- and post-chemo share trends due to inclusion of “unknown” chemo status patients in the
overall population.
 WELLS FARGO SECURITIES, LLC
Johnson & Johnson EQUITY RESEARCH DEPARTMENT

Figure 1. Overall Monthly CRPC Market Shares Among Sample ONCOLOGISTS (Mar 2015)

Source: AlphaImpactRx’s BrandImpact.

Figure 2. Overall Monthly CRPC Market Shares Among Sample UROLOGIST (Mar 2015)

Source: AlphaImpactRx’s BrandImpact.

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 WELLS FARGO SECURITIES, LLC
Medical Technology EQUITY RESEARCH DEPARTMENT

Figure 3. Monthly Chemo-Naïve CRPC Mkt Share Among Sample ONCOLOGISTS (Mar 2015)

Source: AlphaImpactRx’s BrandImpact.

Note that Zytiga was approved for pre-chemo naïve use in September 2014.

Figure 4. Monthly Post-Chemo CRPC Market Shares Among Sample ONCOLOGISTS (Mar 2015)

Source: AlphaImpactRx’s BrandImpact.

 WELLS FARGO SECURITIES, LLC
Johnson & Johnson EQUITY RESEARCH DEPARTMENT

Figure 5. Growing Usage in Pre-Chemo CRPC Market Among Sample ONCOLOGISTS

Source: AlphaImpactRx’s BrandImpact.

Figure 6. CRPC Line of Therapy By Brand Among Sample ONCOLOGISTS

R6M March 2015

R4M January 2013

Source for both charts: AlphaImpactRx’s BrandImpact.

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 WELLS FARGO SECURITIES, LLC
Medical Technology EQUITY RESEARCH DEPARTMENT

Figure 7. Weekly TRx and NRx Uptake of Zytiga

3,000

TRx
2,500
NRx
Prescriptions (Rx)

2,000

1,500

1,000

500

0
5/13/11 2/24/12 12/7/12 9/20/13 7/4/14 4/17/15
Source: IMS Health Incorporated, National Prescription Audit; Wells Fargo Securities, LLC

Figure 8. Four-Week Growth Run Rate of Zytiga Rx Demand

100%
TRx

80% NRx
4-week Y/Y Rx growth

60%

40%

20%

0%
5/25/12 12/22/12 7/21/13 2/17/14 9/16/14 4/15/15

-20%
4-week ended
Source: IMS Health Incorporated, National Prescription Audit; Wells Fargo Securities, LLC

Any analysis is independently arrived at by Wells Fargo Securities, LLC, on the basis of the data and other
information, and IMS is not responsible for any reliance by recipients on either the data or any analyses
thereof.
 WELLS FARGO SECURITIES, LLC
Johnson & Johnson EQUITY RESEARCH DEPARTMENT

Figure 9. Global Prostate Cancer Market (Newer Agents)

($ in millions Approved Indications 2011A 2012A Q1'13A Q2'13A Q3'13A Q4'13A 2013A Q1'14A Q2'14A Q3'14A Q4'14A 2014A Q1'15A

JNJ's Zytiga
WW Rev $301 $961 $344 $395 $464 $495 $1,698 $512 $562 $568 $595 $2,237 $556
US Rev Pre-Chemo (Dec-12); Post-Chemo (Apr-11) $191 $463 $161 $174 $204 $211 $750 $229 $235 $252 $255 $971 $253
OUS Rev Pre- and Post-Chemo $110 $498 $183 $221 $260 $284 $948 $283 $327 $316 $340 $1,266 $303

Astella/MDVN's Xtandi (a)

WW Rev - $71 $75 $86 $122 $162 $445 $172 $227 $301 $356 $1,057
US Rev Post-Chemo (Aug-12); Pre-Chemo (Sep-14) - $71 $75 $82 $109 $126 $392 $125 $144 $181 $230 $680
OUS Rev Post-Chemo (Jun-13); Pre-Chemo (Dec-14) - - - $4 $13 $36 $53 $48 $83 $120 $126 $377

DNDN's Provenge (b)

WW Rev $214 $325 $68 $73 $68 $75 $284 $69 $82 $73 $80 $304
US Rev Pre-Chemo (Apr-10) $214 $325 $68 $73 $68 $75 $284 $69 $82 $73 $80 $304
OUS Rev Pre-Chemo (Sep-13) - launch 4Q14E - - - - - - - - - - - -

Sanofi's Jevtana
WW Rev $263 $302 $69 $71 $78 $90 $307 $90 $91 $89 $92 $362
US Rev Post-Chemo (Jun-10) $182 $140 $26 $29 $28 $31 $114 $27 $30 $31 $32 $121
OUS Rev Post-Chemo (Mar-10) $81 $162 $42 $42 $50 $59 $193 $63 $60 $58 $60 $242

Bayer's Xofigo (c)

WW Rev - - - - $16 $38 $54 $49 $59 $65 $37 $211
US Rev Symptomatic bone metastases (May-13) - - - - $16 $38 $54 $49 $59 $65 $37 $211
OUS Rev Symptomatic bone metastases (Nov-13) - - - - - - - - - - - -

Total Sales
WW Rev $778 $1,660 $556 $625 $748 $860 $2,788 $893 $1,021 $ 1,096 $ 1,161 $4,171
US Rev $587 $1,000 $330 $358 $424 $481 $1,594 $499 $550 $ 602 $ 635 $2,286
OUS Rev $191 $660 $225 $266 $323 $378 $1,193 $394 $471 $ 494 $ 526 $1,884

Y/Y Growth
WW Rev 113% 58% 58% 75% 77% 68% 61% 63% 47% 35% 50%
US Rev 70% 51% 53% 63% 68% 59% 51% 53% 42% 32% 43%
OUS Rev 246% 68% 65% 94% 91% 81% 75% 77% 53% 39% 58%
Source: Company reports, Wells Fargo Securities, LLC
(a) Xtandi 1Q13 sales include $4.4M favorable gross-to-net adjustment relating to prior quarters, 3Q13 sales include $7M of distributor inventory increase and 4Q14 included a favorable gross-
(b) Provenge sales in 4Q12 include $3.8M favorable adjustment to chargeback reserve. Pro forma sales were $82M.
(c) Xofigo 4Q14 sales affected by temporary product shortage.

Company Description:
New Brunswick-based Johnson & Johnson, through its more than 250 operating companies, is the world's
most comprehensive and broadly based manufacturer of health care products, as well as a provider of related
services, for the consumer, pharmaceutical, and medical devices and diagnostics markets. The MD&D segment
consists of products in Cardiovascular Care, DePuy Synthes orthopedics, surgical care, LifeScan blood glucose
monitoring and insulin delivery products, and Vistakon disposable contact lenses. The company reported 2014
sales of $74.3B, up 8% year-over-year constant currency.

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 WELLS FARGO SECURITIES, LLC
Medical Technology EQUITY RESEARCH DEPARTMENT

Required Disclosures

Jo
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so rf o rm a
annce
$1 2 5. 00

$1 1 5. 00

$1 0 5. 00

$9 5 .0 0

$8 5 .0 0
Secu rit y Price

$7 5 .0 0

$6 5 .0 0

$5 5 .0 0
4/5/12

6 /2 8/12

8/23/12

1 1/ 14/13

12/12 /1 3

2/6/14

3/6/14

4/3/14

5/1/14
5/29/14

6/ 26/ 14
7/24/14

9/18/14

12/11/14
5/3/12

5/31/ 12

7/ 26/ 12

9/ 20 /12

10/18/ 12
11 /1 5/12

1/ 10 /1 3

2/ 7/ 13
3/7/13

4/ 4/ 13
5/2/13

5/ 30/13

6/27/ 13
7/ 25/13

8/ 22/ 13

9/19/13

10/ 17/13

1 /9 /1 4

8/ 21/ 14

10/16/14

11/13/ 14

1/8/15
2/5/ 15

3/5/15
12/13/ 12

4/2/ 15
Da t e

D ate P u bl i cati o n Pr ic e ($) R ati n g C od e V al. R ng . Lo w V al. R ng . H i g h C l os e P ric e ($ )

4/ 5/2 012 B i egel sen
4/ 5/2 012 NA 1 7 1.0 0 72. 00 65. 34
z 4/ 17/ 2012 64. 22 1 7 0.0 0 71. 00 64. 22
z 7/ 6/2 012 67. 64 1 7 2.0 0 73. 00 67. 64
z 7/ 17/ 2012 69. 00 1 7 6.0 0 77. 00 69. 00
z 10/ 16 /201 2 69. 55 1 7 8.0 0 79. 00 69. 55
z 1/ 22/ 2013 72. 69 1 7 8.0 0 80. 00 72. 69
z 3/ 1/2 013 76. 70 1 8 5.0 0 87. 00 76. 70
z 4/ 1/2 013 81. 53 1 9 0.0 0 91. 00 81. 93
z 4/ 16/ 2013 83. 44 1 9 1.0 0 93. 00 83. 44
z 5/ 17/ 2013 87. 45 1 9 5.0 0 96. 00 88. 09
z 7/ 16/ 2013 90. 40 1 9 8.0 0 99. 00 90. 40
z 7/ 29/ 2013 92. 83 1 104 . 00 105. 00 93. 21
z 12 /3/ 2013 94. 28 1 112 . 00 113. 00 93. 97
z 4/ 15/ 2014 99. 20 1 114 . 00 115. 00 99. 20
z 9/ 26/ 2014 10 7.10 1 119 . 00 120. 00 10 7.10
z 10/ 14 /201 4 97. 01 1 110 . 00 111. 00 97. 01
z 10/ 27 /201 4 10 3.13 1 116 . 00 117. 00 10 4.07
z 10/ 31 /201 4 10 7.78 1 120 . 00 121. 00 10 7.78
z 1/ 5/2 015 10 4.52 1 127 . 00 128. 00 10 3.79

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Additional Information Available Upon Request

I certify that:
1) All views expressed in this research report accurately reflect my personal views about any and all of the subject securities or
issuers discussed; and
2) No part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed
by me in this research report.

ƒ Wells Fargo Securities, LLC maintains a market in the common stock of Johnson & Johnson.
ƒ Wells Fargo Securities, LLC or its affiliates has a significant financial interest in Johnson & Johnson.

JNJ: Risks include delays to pipeline products, additional product recalls and unexpected deterioration in the industry.

Wells Fargo Securities, LLC does not compensate its research analysts based on specific investment banking transactions.
Wells Fargo Securities, LLC’s research analysts receive compensation that is based upon and impacted by the overall profitability
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 WELLS FARGO SECURITIES, LLC
Johnson & Johnson EQUITY RESEARCH DEPARTMENT

STOCK RATING
1=Outperform: The stock appears attractively valued, and we believe the stock's total return will exceed that of the market over the
next 12 months. BUY
2=Market Perform: The stock appears appropriately valued, and we believe the stock's total return will be in line with the market
over the next 12 months. HOLD
3=Underperform: The stock appears overvalued, and we believe the stock's total return will be below the market over the next 12
months. SELL

SECTOR RATING
O=Overweight: Industry expected to outperform the relevant broad market benchmark over the next 12 months.
M=Market Weight: Industry expected to perform in-line with the relevant broad market benchmark over the next 12 months.
U=Underweight: Industry expected to underperform the relevant broad market benchmark over the next 12 months.

VOLATILITY RATING
V = A stock is defined as volatile if the stock price has fluctuated by +/-20% or greater in at least 8 of the past 24 months or if the
analyst expects significant volatility. All IPO stocks are automatically rated volatile within the first 24 months of trading.

As of: April 27, 2015

43% of companies covered by Wells Fargo Securities, LLC
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 WELLS FARGO SECURITIES, LLC
Medical Technology EQUITY RESEARCH DEPARTMENT

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