Health-Care Giants Signal Worst Virus Hits May Have Passed

(Bloomberg) -- Johnson & Johnson and Abbott Laboratories, two health-care bellwethers who are helping lead the fight against coronavirus, say they have emerged from the worst of the pandemic even as it continues to rage.

Both companies beat analysts’ tepid expectations for the second quarter. J&J also raised its adjusted earnings forecast for the year and Abbott issued a forecast for 2020 after demurring three months ago. They each say the damage wrought by canceled surgeries early in the outbreak, which decimated sales of the medical devices, has begun to ease.

“We believe the second quarter for both J&J and Abbott will be the most negatively impacted by the coronavirus,” particularly as the number of medical procedures continue to increase throughout the year, said Ashtyn Evans, an analyst with Edward Jones.

Both companies sell a range of health-care products. Abbott was buoyed by its early effort to launch a handful of coronavirus tests in the spring, an initiative that brought in $615 million in sales in the quarter. Meanwhile, J&J’s pharmaceutical unit saw sales increase 2.1% from a year earlier to $10.75 billion. While more moderate than typical, but providing a cushion as sales from its medical-device and consumer-health units lagged.

Wall Street analysts believe the second-quarter -- during which New York and Italy faced the most dire outbreaks, and stringent stay-at-home orders were put in place around the world -- will prove to be the most difficult period for earnings this year. Both J&J and Abbott saw sales decline in the quarter from year-earlier levels.

New Brunswick, New Jersey-based J&J is developing a vaccine for Covid-19, a process that takes longer and produces products that are used later in an outbreak. The company expects to begin human trials on July 22 in Belgium, Chief Financial Officer Joseph Wolk said.

Wolk said J&J, which has received U.S. funding for its experimental vaccine, is in talks with the European Union, Japan and the Bill & Melinda Gates Foundation about locking up supply.

“We’re still trying to determine the volumes,” Wolk said. J&J will price the vaccine on a not-for-profit basis and will be transparent about how it determines a “universal, global price” based on its manufacturing costs, among other factors. An external accounting firm has been hired to be a part of that process, he said.

Better Prepared

As J&J revisited its financial guidance for the second time this year, Wolk said the company looked at “eclectic” sources of information across countries, regions, states, cities and even individual care providers. It used external expert assessments on the macroeconomics of Covid-19 and negative impact it would have on the health-care system. It also reviewed hospital trends, including the risk of maxing out capacity, drug-utilization data and polls on how likely individuals are to seek out preventive care.

“Our best information is talking to our customer,” such as health-care systems and drugstore chains, Wolk said in an interview. “Where we’ve come as a society in the last three months, we’re much better prepared.”

Abbott’s newly installed Chief Executive Officer Robert Ford suggested the company has almost fully adjusted to the new world order.

“We saw a nice recovery in the second quarter” in the company’s base business, Ford said on a conference call Thursday. “There is probably still some uncertainty. We exited June at about 90% of pre-Covid levels, on average. There were some parts of our portfolio that we saw growth in the month of June.”

Meanwhile, Abbott expects that demand for testing will persist, even when vaccines eventually start to hit the market.

“This Covid testing opportunity could definitely be something that sticks around – could be something more durable,” Ford said. “Not everybody may be willing to sign up for a Covid vaccine. Even when you have a vaccine, I can see patients going into a physician’s office with a fever. Is it influenza? Is it Covid? Not only will there be high demand during the next 12, 18, 24 months here, but we think a steady state will continue to be there.”

Shares of J&J declined 0.6% to $147.42 at 11:22 a.m. in New York. Abbott shares were down 0.8% at $95.93.

Better Situation

J&J’s Wolk said he is encouraged that many once-deferred procedures are now approaching pre-pandemic levels, doctors’ office visits are improving and lockdowns are now taking place mostly at a local level.

“I don’t want to sound like I’m being too optimistic here,” Wolk said. “We’re certainly looking at the rising case rates in certain geographies, certain states.”

While J&J has accounted for the evolution of the pandemic in China, it’s now concerned by outbreaks across South America. In the U.S., the northeast has improved, but the company is monitoring the south.

Still, “we’re in a much better situation than we were,” Wolk said, pointing to an increase in access to Covid-19 tests and personal protective equipment. “They’re in a much better position to handle the shut down.”

J&J’s consumer business, with a blend of over-the-counter medicines and health and beauty products, was a mixed bag. Consumers stocked up on things like Tylenol, but found less need for skincare. Abbott, with a large nutrition business, found surging demand for products such as Ensure and Pedialyte.

©2020 Bloomberg L.P.