Johnson & Johnson (NYSE:JNJ) will report its Q1 2017 earnings on Tuesday, April 18. We expect the quarter’s year-over-year growth to be higher than what we saw in Q1 2016. We believe that J&J’s immunology, oncology and cardiovascular drugs will see healthy growth, but we expect to see some declines across other therapeutic categories. In addition, we expect the medical devices business to continue on its path of revival, driven by higher sales in orthopedics, surgery and vision care. While we broadly expect the quarter to be good, we will be closely watching two key aspects – Remicade’s sales trend and any sales ramp-up of new cancer drugs.
Our price estimate of $119 for Johnson & Johnson is slightly below the market.
Remicade’s Sales Trend
- Johnson & Johnson’s Pharma Business To See Challenges In The Near Term
- Nearly 10% Of J&J’s Value Is Contingent On The Growth Of These 2 Drugs
- Johnson & Johnson Earnings Preview: Don’t Expect Big Surprises
- After 2015 Hiccup, J&J Was Back On Track In 2016
- Actelion May Not Come Cheap For J&J
- Will J&J Buying Actelion Be Good For Investors?
Remicade has been officially facing biosimilar competition in the U.S. since the launch of Pfizer’s Inflectra. While the market has already priced in this competition, any surprise concerning the extent of competition can make investors cautious. Inflectra was launched by Pfizer in November 2016, and therefore had merely 1 month of sales in Q4 2016. Needless to say, Q1 2017 will offer a better assessment of the competitive threat.
The prevailing opinion is that biosimilar competition thus far has been fairly insignificant. This could be due to the lack of big enough economic incentives to switch patients to the new drug, considering that Inflectra is priced just 15% below Remicade. Also, as biosimilars tend to be injectables and require a physician to administer them, the inertia to change the medication is higher. Remicade accounts for almost 10% of J&J’s revenue, and is arguably its single most important product.
Ramp-Up Of New Cancer Drugs
The cancer drugs that critically matter to J&J are Imbruvica and Darzalex, which have a combined peak sales potential of $10 billion. We expect nearly 60% growth for these drugs in 2017, and believe that the first quarter growth will be along similar lines. Their importance is underscored by the fact that J&J, despite its expected growth acceleration this year, is facing a challenging environment.
The generic competition is likely to increase going forward. Xarelto, a blood thinner that has seen impressive adoption in recent quarters, may also see its growth moderate slightly due to growing competition from Bristol-Myers Squibb and Pfizer’s Eliquis. Other drugs need to pick up the slack, and Imbruvica and Darzalex are the best candidates. Therefore, a slowdown or faster-than-expected growth in the sales of these two drugs could be a stock mover.
Please let us know your views by commenting in the box below.