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J&J beats 3Q net views, hikes 2020 forecast, but shares fall

Linda A. Johnson | Hagadone News Network | UPDATED 4 years, 1 month AGO
by Linda A. Johnson
| October 14, 2020 12:03 AM

Despite the coronavirus pandemic hurting sales of most of its products, Johnson & Johnson boosted revenue slightly and doubled its third-quarter profit, mainly due to a huge litigation charge in the year-ago quarter.

The world’s biggest maker of health care products blew past Wall Street expectations, saying its sales were recovering sooner than expected as people started getting delayed care. It raised its financial forecast for the year.

But its stock price still tumbled Tuesday, amid a decline in broader markets and news that J&J had to temporarily pause all its COVID vaccine studies, including the huge, late-stage study pivotal to approval of its vaccine, “due to an unexplained illness in a study participant.”

Such pauses are not unusual in big studies, and it's unknown whether the participant — one of up to 60,000 planned for the global “ENSEMBLE” study — got J&J's shot or a placebo. J&J executives told analysts on a conference call that the independent monitoring board overseeing the safety of study participants is investigating the case and it will be a few days before J&J knows more, but the company is still on track to complete enrollment in that study in two or three months.

J&Js on Tuesday reported net income of $3.55 billion, or $1.33 per share, up 103% from $1.75 billion, or 66 cents per share, in 2019's third quarter. Adjusted net income was $5.87 billion, or $2.20 per share. Analysts were expecting $1.99 per share.

J&J took a $4.2 billion charge a year ago, with $4 billion of that going toward a tentative settlement with states and cities for its role in contributing to the U.S. opioid addiction epidemic. This quarter, it took another $1 billion charge meant to end its liability in the huge litigation, which stemmed from sales of its now-generic fentanyl pain patch, Duragesic.

Johnson & Johnson posted revenue of $21.08 billion in the quarter. Analysts expected $20.53 billion.

Despite the strong results, shares were down $3.63, or 2.4%, to $148.21 in mid-afternoon trading, likely a reaction to the vaccine study pause.

“We remain confident heading into 2021,” Chief Financial Office Joe Wolk told analysts on a conference call to discuss the results.

J&J reported that sales of its prescription drugs jumped 5% to $11.42 billion — just over half its entire revenue and the second quarter in a row for that business to top $11 billion in revenue. Sales were led by autoimmune disorder treatment Stelara, which brought in $1.95 billion, up 15% from a year ago.

"Most of our brands are back to or above pre-COVID rates," said Jennifer Taubert, head of J&J's pharmaceutical business, adding that J&J's customers — hospitals, clinics and doctor practices — are “learning how to use a combination of teleheath and in-person visits.”

Sales of consumer health products like Tylenol and Band-Aids edged up 1.3% to $3.51 billion, boosted by consumers' increased focus on health and hygiene.

But sales of medical devices and diagnostic equipment such as surgical tools and hip replacements fell 3.6% to $6.15 billion.

Sales of that equipment often indicates how busy hospitals are. From the beginning of the pandemic, hospitals in hotspots canceled scheduled surgeries and many patients postponed care and avoided hospitals for fear of catching the virus.

Citi Research analyst Joanne Wuensch wrote to investors that the vaccine study pause should not overshadow the better-than-expected results, particularly in medical devices.

“By many measures, this was a good quarter, reflecting strength across the franchise,” Wuensch wrote.

Edward Jones analyst Ashtyn Evans kept her “Buy” rating on J&J shares, noting that she likes the company’s "diversification and the defensive nature of its product portfolio."

J&J noted it completed its $6.5 billion purchase of Momenta Pharmaceuticals on Oct. 1. That deal is expected to help the company expand its position in creating drugs that treat autoimmune diseases in which the immune system attacks cells and body tissue, including common chronic disorders such as rheumatoid arthritis and colitis.

J&J said it expects adjusted full-year earnings in the range of $7.95 to $8.05 per share, up from its July forecast for $7.75 to $7.95. The company forecast revenue in the range of $81.2 billion to $82 billion, up from $79.9 billion to $81.4 billion.

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Follow Linda A. Johnson at https://twitter.com/LindaJ_onPharma

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