Remicade and Xarelto woes—and Trump pricing threats—haven't stopped Johnson & Johnson hiking its 2018 forecast

J&J
Sales of J&J's top-selling Remicade fell 17% during the quarter as biosimilar competition continued to build. (Wikipedia)

Johnson & Johnson faces a litany of problems, ranging from biosimilar competition to its blockbuster Remicade to a sagging baby-care product line beset by lawsuits claiming its famous talcum powder causes cancer. But executives clearly aren't concerned—at least not about J&J's short-term fortunes.

In fact, the company told investors Tuesday to expect total sales for 2018 somewhere between $81 billion and $81.8 billion, up from the $80.6 billion to $81.4 billion previously forecast. And that was after reporting first-quarter sales up 12.6% year-over-year, to $20 billion, driven largely by 19% growth in its pharmaceutical unit. Adjusted earnings per share rose 12.6% to $2.06.

Still, analysts were quick to point out notable first quarter disappointments, not the least of which was Remicade. Sales dropped 17% year over year to $1.4 billion, missing the consensus estimate of $1.5 billion. During the company's earnings call Tuesday morning, Joaquin Duato, worldwide chairman of pharmaceuticals, acknowledged the sales erosion was greater than expected, but he blamed a one-time adjustment from a major insurer. That's not expected to continue, he said.

But there’s no doubt the entry of biosimilars is ratcheting up pricing pressure for the top-selling Remicade. Last month, J&J reported aggressive Remicade discounting contributed to its average drug price decline of 4.6% in 2017. This despite the fact that it actually raised its list prices by 8%.

Other products came up short in the first quarter, too. Sales of blood-clot preventer Xarelto jumped 13% to $578 million but missed the consensus estimate of $634 million. Duato cited supply issues due to Hurricane Maria, as well as changes in access agreements with insurers at the start of the year. But the product gained 1.6 points of market share overall despite those challenges, he said.

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And then there was Actelion, the company J&J shelled out $30 billion to acquire, expecting blockbusters from its pulmonary arterial hypertension drugs Opsumit and Uptravi. Analysts grilled Duato during the call about shortfalls for both products, which pulled in $271 million and $140 million respectively. Duato maintained the drugs were performing “as expected” and that the company expects demand to grow through this year.

J&J’s more immediate concern is its consumer business, where quarterly sales were up just 5% to $3.4 billion. That's slightly better than expected, but the company acknowledged it has work to do to accelerate growth. Executives promised that they would lay out concrete strategies at a May 16 business review event.

One strategy it won’t be pursuing? A multibillion-dollar acquisition. In January, J&J confirmed it's not in the running to pick up Pfizer’s consumer business.

RELATED: Jury orders J&J and talc supplier to pay $37M in mesothelioma case, with more damages possible

Where J&J is enjoying strong growth is in oncology, thanks largely to prostate cancer drug Zytiga and multiple myeloma drug Darzalex, which were up 62% and 69% respectively during the quarter. But J&J lost a patent challenge on Zytiga in January, leading one analyst to ask CFO Dominic Caruso during the conference call to predict just how much longer that product can continue on its strong trajectory.

“We don’t expect that we’ll see generic competition for Zytiga this year, so we have it in our plans to continue to grow,” he replied. “Much of our guidance increase is related to stronger performance by pharma,” he added, reminding callers that J&J recently launched a Zytiga follow-up, Erleada. (Analysts don't all agree with Caruso's assessment of generics timing, however.)

Pricing trends continue to be a worry for investors, judging from questions analysts tossed out during the conference call. One asked executives about President Donald Trump's plan to address high drug prices in a speech next week. Department of Health and Human Services chair Alex Azar hinted at what might be coming last month, saying in his own speech that the government is “going to be rolling out … a whole slate of other proposals around how we decrease the price of drugs and how we bring discounts that the middlemen right now are getting.”

Duato, for his part, said he expects any government policies to reflect oft-cited priorities from the Trump administration and HHS “to increase competition and to reduce out-of-pocket costs for patients,” he said. J&J is also expecting the government to request information from drug companies about how products are priced, he added. “We are looking forward to participating there.”

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