J&J reaps the spoils from recent price hikes

Big Pharma’s price hikes don’t always translate into better sales, thanks to rebates and discounts demanded by payers. But the strategy seems to be paying off for Johnson & Johnson ($JNJ), according to one analyst.

Price increases for top-selling meds helped drive J&J to a Q1 win, Leerink analyst Geoffrey Porges said in a note to investors. At least 70-80% of the list price increases over the last 12 months “seem to be flowing through to reported sales,” Porges said. And for some meds, “the realized price was in the range of 70-90%, with some products benefiting from most or all of their list price increases,” he said.

The trend was especially apparent for J&J’s immunology franchise. The company recently hiked the price for bestseller Remicade, RA drug Simponi and psoriasis med Stelara, and that translated into higher sales of the drugs in Q1.

J&J's standout oncology med Imbruvica also made out well thanks to price increases. In that case, “virtually 100% of price is flowing through,” Porges said, “suggesting very modest gross to net discounts.”

But not all meds reflected the trend. “Certain products in specific categories” such as HIV “had less benefit from pricing,” Porges pointed out. J&J’s prostate cancer drug Zytiga didn’t show the same increases in sales, most likely due to higher co-pays, Porges said. And diabetes med Invokana did not chart the same benefits from price increases, which isn't surprising, given the formulary competition in that field.

Leerink analysts got their numbers by looking at quarterly demand for J&J’s top products and comparing it to revenue changes and the price increases year-over-year and quarter-over-quarter.

J&J is not the only company reaping the spoils from price increases. “To the surprise of many investors, it now appears these price increases are likely to flow through to actual sales growth, with such growth more than offsetting any volume weakness in 1Q, and resulting in significant positive revenue surprises for these companies when they report 1Q results,” Porges said. Companies such as Amgen ($AMGN), Biogen ($BIIB) and Gilead ($GILD) are set to benefit from the trend, he added.

Other companies may not fare as well with their price increases, however. A recent report from the IMS Institute for Healthcare Informatics found that net price increases--retail hikes after rebates and discounts--amounted to less than 3%, on average, last year.

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