J&J's Weak First-Quarter Sales Show Why It Made a Megadeal

  • Remicade revenue down 6%; three key drugs miss estimates
  • Shares drop as much as 3.7% after Q1 results released

Johnson & Johnson’s disappointing first-quarter sales highlighted why the world’s largest health-care company made its biggest-ever deal earlier this year.

Three key drugs fell short of analysts’ estimates. And while the blockbuster arthritis treatment Remicade avoided a major slump, sales still dropped 6 percent from a year earlier during the first full quarter in which the treatment faced competition from a copycat version of a drug known as a biosimilar. J&J’s stock declined as much as 3.7 percent, the biggest drop in more than a year.

One quarter is still early to assess how big an impact the Remicade copycat will have on J&J’s biggest drug in the coming years, but analysts anticipate it will make a major dent in 2019 and 2020. With other medicines slowing down, J&J made a bold bet in January with the $30 billion purchase of Swiss drugmaker Actelion, a leader in treatments for a rare type of high blood pressure that fulfills its goal of gaining a new drug category.

J&J shares were down 3.4 percent to $121.42 at 11:48 a.m. in New York Tuesday. They had gained 9.1 percent this year through Monday’s close.

Cowen & Co. analyst Joshua Jennings called the results an “underwhelming performance,” in a note to investors. The Actelion deal is “more timely than we had previously thought,” said the analyst, who rates the stock outperform.

While biosimilars have long been approved in Europe, they’re still new in the U.S. Pfizer Inc.’s Inflectra -- Remicade’s copycat -- was only the second biosimilar in the U.S. when it was introduced last November. The impact on the brand-name treatment isn’t immediate because a biosimilar must go through extra steps before being swapped for the original. The U.S. Food and Drug Administration is working on interchangeability guidelines, but they’re not ready yet.

That helps explain why Remicade’s first-quarter sales, while dropping, still did better than the 8.7 percent slump analysts predicted on average. Chief Financial Officer Dominic Caruso said J&J anticipated that Remicade would hold its ground against the competition from Inflectra.

“We did not anticipate we would see much of an impact, and we didn’t,” he said in an interview. “It’ll take time for physicians to get comfortable prescribing a biosimilar to new patients."

Sales of blood thinner Xarelto, diabetes medicine Invokana and cancer drug Zytiga -- which are among J&J’s 10 top-selling treatments -- disappointed last quarter. Invokana was hurt by price pressure, Caruso said.

Raising Forecast

J&J also increased its annual sales forecast Tuesday to reflect the Actelion purchase, to $75.4 billion to $76.1 billion. The New Brunswick, New Jersey-based company also raised its earnings outlook to $7 to $7.15 per share, excluding some items. Analysts anticipated $7.05.

In the first quarter, earnings of $1.83 a share, excluding some items, beat the average estimate of $1.77.

The company continues to explore the possibility of selling or finding a partner for its diabetes-care business, CFO Caruso said, adding there’s no timetable for a potential deal. The $2 billion business drew interest from private equity firms, people familiar with the matter said in March.

Drugmakers are under intense pressure to reduce prices amid an outcry from members of Congress and U.S. customers. President Donald Trump has said drug prices need to come down, and in January he accused the industry of “getting away with murder.” In February, the company released its first-ever "transparency report" showing that its U.S. prices rose 3.5 percent in 2016 after discounts.

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