Booming Drug Sales Rescue J&J From Gloomy Forecast
(Bloomberg) -- Three months ago, Johnson & Johnson predicted an ugly 2019 as the health-care giant faces thousands of consumer lawsuits and pressure from Washington on drug prices. On Tuesday, the first-quarter results suggested the company may have been too pessimistic.
While sales are still being hurt by difficult foreign exchange rates, J&J’s fast-growing pharmaceutical unit helped offset its weaker consumer and medical device lines. Instead of the 0-to-1 percent annual operational growth the company warned investors about in January, J&J said its first-quarter operating revenue was up 3.9 percent.
The company’s adjusted earnings of $2.10 a share topped the $2.04 average of analysts’ estimates compiled by Bloomberg. Chief Financial Officer Joseph Wolk said that earnings were heavily weighted toward the drug unit. “That gave us greater confidence than we had in January,” Wolk said in an interview on Bloomberg TV.
“We would expect a modest relief rally on the back of today’s results,” said Vamil Divan, an analyst with Credit Suisse Group AG. “Investors were somewhat nervous going into the print given challenges that biopharma companies often face in the first quarter of the year.”
Another bright spot was the launch of J&J’s nasal spray Spravato, a close chemical cousin of the anesthetic ketamine that works quickly to alleviate symptoms of depression. The rollout is “off to a very, very strong start,” Jennifer Taubert, head of the pharmaceutical unit, said on a conference call. Taubert said there are now as many as 800 sites approved to treat patients with the drug.
J&J is the first of the major U.S. drug and medical device makers to report earnings results each quarter, and investors look to it for signs of how broad trends like drug pricing, consumer demand and currency will affect the rest of the industry’s results over the coming weeks. While the company is facing a set of legal and business challenges, the drug unit’s results are likely to give some comfort to investors that the worst-case scenario may not come to pass.
Shares of New Brunswick, New Jersey-based J&J rose as much as 3.1 percent to $140.70 in New York, the biggest intraday gain since December. The stock has lagged broader indexes this year, and is up 8.2 percent year to date, compared with the 16 percent gain in the S&P 500.
The company narrowed its full-year adjusted earnings forecast to $8.53 to $8.63 a share, from the $8.50 to $8.65 prediction the company gave at the start of the year.
There are still obstacles ahead. The company faces thousands of lawsuits in which plaintiffs claim they were given cancer by J&J’s talc-based personal care products, and J&J has settled some of the cases. Those settlements could eventually cost the company as much as $15 billion, according to an estimate by Bloomberg Intelligence. The drugmaker has also been named in hundreds of lawsuits by cities, counties and states over its role in the U.S. opioid epidemic, and is facing more than 10,000 lawsuits in which patients say they were harmed by a J&J artificial joint.
J&J’s drug business is now the largest of the company’s three main segments, and first-quarter sales grew 4.1 percent overall to $10.2 billion. The highlight was psoriasis drug Stelara, sales of which were up 32 percent to $1.4 billion.
Medical devices and consumer health products were weaker. Sales in the consumer business were down 2.4 percent from a year prior, while medical devices sales fell 4.6 percent.
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