Johnson & Johnson Earnings: Record Stock Price Is Legit
(Bloomberg Gadfly) -- Johnson & Johnson has been flirting with share-price records throughout 2017.
It hit a new one Tuesday after it reported third-quarter earnings results that beat Wall Street sales and profit expectations. J&J raised its full-year earnings outlook and reported growth in all three of its business lines. Even the news it was spiking two prominent drug programs wasn't enough to derail its blue-chip momentum.
At some point, J&J's aging blockbuster inflammation drug Remicade will face serious U.S. competition. But, whether due to what Pfizer Inc. says are anti-competitive practices or not, the drug has been remarkably resilient. Sales fell just 1.3 percent in the U.S. from a year earlier, flattering solid growth in total drug sales.
Pharma revenue grew by 6.7 percent from a year ago, excluding divestitures and acquisitions, most notably the nearly $30 billion purchase of Actelion Ltd. earlier this year. J&J's other medicines -- most notably its newer cancer drugs and inflammation drug Stelara -- are growing so rapidly that it should be able to weather any hit Remicade eventually takes.
That growth makes it easier for J&J to cut programs that aren't working, to its long-term benefit. The company decided to no longer seek FDA approval for an arthritis drug after the agency demanded more clinical data, and it gave up on a blood-cancer drug after trial data disappointed. A company more desperate for a success may have thrown more good money after bad.
At times in the past, J&J's drug unit has had to make up for weak performance in its consumer and device businesses. But those are less of a drag lately, thanks partly to some deal-making. J&J has spent more than $7 billion over the past year and a half on consumer-focused Vogue International and Abbot Laboratories Inc.'s medical-optics business. But the consumer and device businesses both managed to grow in the quarter, even excluding the impact of acquisitions and divestitures.
With Merck KGaA and Pfizer putting their consumer businesses on the market, there are plenty of opportunities for J&J to invest even more in these units. And the company's huge cash flows mean it doesn't have to wait, even after splurging on Actelion.
Share-price highs are easy to dismiss in the current market, where records are often hit for no apparent reason. But J&J's is earned.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.
To contact the editor responsible for this story: Mark Gongloff at mgongloff1@bloomberg.net.