Amid inflation spike, execs at J&J, Bayer, GSK and more talk higher costs—and what it means for profits

While inflation is top of consumers' minds right now, pharma companies are also feeling the pain of higher prices when it comes to profit margins. During recent discussions with analysts, execs with Johnson & Johnson, Bayer, GlaxoSmithKline and more talked about the higher prices facing their businesses.

At Viatris, the effect of higher costs appears clear-cut, as inflation played a role in lower-than-expected profits for 2022. This week, CEO Michael Goettler said it was "not an easy decision" to publish earnings guidance lower than analysts and investors had anticipated.

In 2022, the company expects $5.8 billion to $6.2 billion in earnings before interest, taxes, depreciation, and amortization. Previously, Viatris had expected the "floor" to be $6.2 billion, Goettler said.

"What really has triggered is the incremental additional inflation that we saw," Goettler said at the Raymond James investor conference this week. He went on to add that exchange rates played a role, as well.

Viatris isn't alone in feeling the pinch. During recent investor calls, execs with GlaxoSmithKline, Bayer, Johnson & Johnson and more talked about the higher costs they're seeing.

At the same Raymond James conference, J&J chief financial officer Joe Wolk said the global healthcare conglomerate built a "very healthy level of inflation or cost increases" into its 2022 plan.

"That’s probably gotten a little steeper over the last couple days," he added. "If you think about some of the factors such as oil production, titanium has spiked in the last couple days, some of those products go directly into the products that we have. And so I think it’s manageable at this point, but I say that again guardedly given that we don’t know where the conflict will resolve itself or when it will resolve itself."

Meanwhile, on Bayer's fourth-quarter conference call last week, CEO Werner Baumann said the company is noticing "increasing inflationary pressure and volatility of global supply chains across industries."

Bayer expects "inflationary cost pressures to persist and supply chains to remain stretched, resulting in a very volatile supply situation across industries," the CEO told analysts. "Also, our plans assumed a stable geopolitical environment in Eastern Europe, which meanwhile changed dramatically."

Still, the German healthcare giant is in a "strong position when it comes to pricing due to the inflationary tendencies that we see over the place, and we will roll that over very aggressively," Baumann said.

At GlaxoSmithKline, CFO Iain Mackay last month said the company was "incredibly successful in driving productivity to offset some of that inflationary pressures" in 2021, signaling freight as one area where his company saw higher costs. And consumer healthcare head Brian McNamara said his unit has been able to grow margins—despite inflation—thanks to "operational efficiencies." 

Consumers, meanwhile, continue to feel the pinch of inflation—in part through higher drug prices. The Bureau of Labor Statistics this week published a 7.9% year-over-year consumer price index increase for February, the highest such figure in four decades.

And earlier this year, GoodRx tracked 791 branded drug price hikes across the pharma industry for an average list price increase of 4.9%. That compared with 832 increases last January at an average list price jump of 4.6%.