Health

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.

Anyone in biopharma hoping for Johnson & Johnson's fourth-quarter earnings to dispel their Trump-related gloom was disappointed Tuesday morning. 

J&J's revenue missed expectations, and its 2017 profit guidance fell short. It's no time to panic; J&J's CFO chalked the guidance disappointment up to foreign-exchange issues. But the warning highlights how hard it is for a company of J&J's size to generate growth and why it is considering a big, complicated deal for Swiss biotech Actelion Ltd.

J&J declined to give an update on that deal -- which has been tottering short of the finish line for weeks -- during its earnings call Tuesday. Actelion shares fell 3.5 percent. But J&J's quarterly results suggest the deal will ultimately get done, if for no other reason than that J&J needs the growth.

Out Front
Johnson & Johnson's conglomerate model has served it well in a rocky year for the pharma industry
Source: Bloomberg

Despite already generating more than $8 billion in revenue per quarter, J&J's pharma business typically grows sales faster than its largest peers, only two of which generate more pharma revenue. It grew 6.5 percent for the full year. 

But the pharma unit's fourth quarter was the worst of the year in terms of growth; sales grew just 2.1 percent from a year earlier and fell sequentially for the second consecutive quarter. J&J acknowledged Tuesday that the unit's growth is likely to remain slow in 2017.

Sales of Remicade, J&J's best-selling drug, fell 3.3 percent in the quarter from a year ago. A biosimilar competitor entered the U.S. market for the first time in November, and analysts expect its sales to decline from almost $7 billion in 2016 to $4.5 billion in 2020. Headwinds are set to grow for other mature drugs, such as Concerta and Invega. 

J&J's consumer and device units are important sources of diversification, making up a combined 53.5 percent of 2016 revenue. But consumer revenue fell and device sales were flat in 2016. And J&J announced Tuesday it is considering selling its diabetes-care businesses. The company expects better from its other units in 2017, but pharma is the crown jewel. 

Ahead
Johnson & Johnson may have a tough time outgrowing the rest of its biggest peers in 2017. Year-over-year pharmaceutical unit sales growth
Source: Bloomberg

J&J has some potential growth engines in medicines such as the recently approved Darzalex and Imbruvica, which recently had its approval expanded. It also has one of the healthiest pipelines in the business, with potential blockbusters guselkumab and sirukumab expected to launch this year. But these newer drugs will take time to gain traction.

Until then, J&J faces an unappealing period of softer growth. One potential fix? Get Actelion, with its $2.4 billion worth of rare-disease drug sales, to sign on the dotted line. 

It won't be easy. The deal's delays have been driven partly by its size and complicated structure. But J&J has the motivation to get it done. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Max Nisen in New York at mnisen@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net