J&J Falls as Cheaper Rival for Blockbuster Remicade Looms

  • Concern over arthritis drug clouds better-than-expected profit
  • Pfizer plans to introduce lower-priced biosimilar in November

J&J Raises Forecast as Profit Beats on Drug Sales

Johnson & Johnson shares fell on concerns about the looming introduction of cheaper versions of the drugmaker’s blockbuster arthritis treatment Remicade.

The shares dropped 2.6 percent on Tuesday, their biggest decline in more than eight months, as Remicade’s outlook overshadowed better-than-expected results for the third quarter and a raised profit forecast for 2016.

Revenue from top-selling Remicade jumped 11 percent to $1.78 billion last quarter, accounting for 21 percent of J&J’s pharmaceuticals sales and topping the $1.68 billion average of analysts’ predictions. But the treatment will soon face cheaper copies known as biosimilars, starting with one from Pfizer Inc. next month. Pfizer announced its biosimilar, Inflectra, on Monday after the close, saying it will cost 15 percent less than Remicade.

“This is all about the future,” said Tony Butler, an analyst at Guggenheim Securities LLC, who rates the stock as neutral. “The one thing that can possibly create some angst is the biosimilar entry against Remicade.”

The shares declined to $115.41 at the New York close and have fallen 8 percent from their all-time high of $125.40 on Aug. 1, mirroring an industrywide slide as political scrutiny over U.S. drug prices has intensified.

J&J plans to defend the remaining Remicade patents that don’t expire until 2018, Chief Financial Officer Dominic Caruso said on Bloomberg TV. The company is prepared to battle against Pfizer’s biosimilar, which is expected to have a “modest” effect on sales, he said on a conference call with analysts. Remicade already is competitively priced against other treatments, he said.

“So, the amount of discounting and competitive atmosphere we’re very well accustomed to, and we are competing very well there,” he said on television. 

Third-quarter earnings excluding some items were $1.68 a share, the company said Tuesday in a statement. That compared with the $1.65 average of 19 predictions compiled by Bloomberg.

Pharmaceuticals overtook medical equipment as J&J’s biggest unit two years ago, and the New Brunswick, New Jersey-based company is counting on its drug pipeline to offset the impact from biosimilars on Remicade. They include blood cancer treatment Imbruvica, which beat estimates last quarter. Other products, like diabetes medicine Invokana and blood thinner Xarelto, came in lower than anticipated.

Xarelto and Invokana likely missed estimates because of products from competitors, said Vamil Divan, an analyst at Credit Suisse Group AG, who rates the stock as neutral. Xarelto also faced pricing pressures, he said.

The drugmaker narrowed its 2016 earnings-per-share guidance to $6.68 to $6.73 from a previous range of $6.63 to $6.73. Analysts anticipated $6.70. The company maintained its revenue guidance of $71.5 billion to $72.2 billion.

As pharmaceuticals continue to be the strongest unit, the division’s five therapeutic areas represent “logical” targets for potential acquisitions, Caruso said. They are infectious, immunology, neuroscience, oncology and cardiovascular. Medical-devices sales, which rose by 1.1 percent to $6.16 billion, show that the division is “coming back,” the CFO also said. Potential areas for expansion include cardiovascular products.

“We are wide open to do good transactions at the right price at the right time,” Caruso said.

Divan said the company has indicated it’s searching for another large deal to continue building its pharmaceutical unit, even by expanding into new therapeutic areas. “The sense from investors is that they are looking to do a little more,” Divan said.

Here are the highlights for the third quarter:

  • Sales were in line at $17.8 billion. Analysts anticipated $17.7 billion.
  • Net income rose 27 percent to $4.27 billion, or $1.53 a share, from $3.36 billion, or $1.20 a share.
  • Stelara sales totaled $814 million versus estimate of $764 million
  • Zytiga $582 million versus estimate of $559 million
  • Xarelto $529 million versus estimate of $564 million
  • Simponi $481 million versus estimate of $428 million
  • Invokana $328 million versus estimate of $404 million
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