Ukraine war, China's COVID lockdown and more could weigh on J&J's early-year performance—and it may not be alone: analysts

As the world contends with an interminable pandemic and a shocking escalation of tensions in Europe, the pharmaceutical industry is not immune.

World events have prompted Cantor Fitzgerald analysts to dial back their first-quarter sales expectations for Johnson & Johnson—and it’s possible other big pharmas could be affected, too. 

Weighing the ongoing stresses of the war in Ukraine, COVID-19 lockdowns in China and the strengthening of the U.S. dollar, the analysts have lowered their first-quarter sales forecast for the New Jersey drug major from $23 billion to $22.6 billion. 

The Cantor Fitzgerald team stopped short of lowering its full-year predictions for J&J but cautioned that consensus estimates for the company’s 2022 earnings, which are at the “higher end” of J&J’s 2022 financial guidance, “could come down.” 

J&J, for its part, has prophesied full-year sales between $98.9 billion and $100.4 billion. FactSet consensus pegs sales at $99.9 billion for the year, while the Cantor Fitzgerald team says it’s sticking to the “lower end” of J&J’s guidance. The Cantor team estimates the company will turn in $99.4 billion in 2022 revenues. 

In highlighting the trends that “could be a headwind to growth early in the year,” the analysts noted that those same factors could affect other major drugmakers like Pfizer, Merck & Co. and Eli Lilly. 

So, how will the next few months play out for J&J, and potentially the industry at large?

First, Russia’s war in Ukraine will have “some impact” on J&J’s business in the region, the analysts noted. J&J’s exposure there is “somewhat limited” to around 1% of its sales, predominantly in Russia itself, they pointed out. 

There, J&J’s business is more or less evenly split between medical devices and pharmaceutical/consumer products, the Cantor Fitzgerald analysts said. Even among consumer products, most of J&J’s portfolio covers the essential health space of over-the-counter medicines, the analysts added. 

“So when you think about JNJ’s business and exposure, there will be some impact,” they concluded, noting that there’s a healthcare carve-out for the sanctions currently imposed on Russia. 

Moreover, J&J has pledged to suspend supply of its personal care products in Russia, though the company hasn’t said how big its personal care business there is, the Cantor team noted. 

J&J is just one of many pharma companies to step up in response to Russia’s invasion of Ukraine in late February, with most pledging a mix of cash, medical supplies or drugs to the beleagured country. The European Federation of Pharmaceutical Industries and Associations’ ongoing tally includes efforts and contributions from the likes of AbbVie, Amgen, AstraZeneca, Biogen, Bristol Myers Squibb and many more.

Elsewhere, meanwhile, J&J’s business could be squeezed by China’s gung-ho COVID-19 lockdown efforts, the Cantor Fitzgerald team said. 

As of last week, China had extended a citywide lockdown in Shanghai in a bid to test all of its 26 million residents for COVID-19, Reuters has reported. The restrictions have proven massively disruptive to daily life and business operations in the city, Reuters pointed out. 

J&J has previously said China makes up around 5% of its total sales, with the biggest business segment there being medical devices, according to Cantor. Lockdowns in certain provinces are taking a toll on elective procedures, “but we think this could be temporary,” the Cantor Fitzgerald team said. 

The lockdowns in China also put a damper on J&J’s consumer business, “similar to what we saw in 2020 when many countries were on lockdown,” the analysts added. For pharmaceuticals in general, not focused in China, J&J is feeling less of a COVID squeeze, they pointed out. 

Meanwhile, when the U.S. dollar appreciates versus other currencies, pharma companies’ ex-U.S. sales take a hit, the Cantor Fitzgerald team added. Based on J&J’s 2021 results, about 50% of the company’s business was located in the U.S., with the remaining half split across Europe (25%), Asia Pacific/Africa (18%) and the Western Hemisphere sans the U.S. (6%), the analysts said. 

About 55% of J&J’s consumer health sales stem from outside the U.S., versus 46% of pharmaceutical sales and 53% of medical device sales, the Cantor Fitzgerald team added.