J&J Zooms Ahead of Sales and Earnings Expectations

Drug major reported 3.9% sales growth on the back of new drug launches

Source: J&J
Source: J&J

Johnson & Johnson Inc. (NYSE: JNJ), the world’s biggest maker of healthcare products, announced its Q2 FY16 financial results on July 19th, 2016. Headquartered in New Brunswick, New Jersey, J&J researches, develops, manufactures, and sells healthcare products worldwide. It operates through three segments: Consumer, Pharmaceutical, and Medical Devices.

The Consumer segment offers baby care products under the JOHNSON’S brand name; oral care products under the LISTERINE brand name; skin care products under the AVEENO, CLEAN & CLEAR, DABAO, JOHNSON’S Adult, LE PETITE MARSEILLAIS, LUBRIDERM, NEUTROGENA, and RoC brand names; women’s health products, wound care products, including adhesive bandages under the BAND-AID brand name and first aid products under the NEOSPORIN brand name.

The Pharmaceutical segment offers various products in the areas of immunology, infectious diseases and vaccines, neuroscience, oncology, and cardiovascular and metabolic diseases.

The Medical Devices segment offers orthopedic products; general surgery, biosurgical, endomechanical, and energy products; electrophysiology products to treat cardiovascular disease; sterilization and disinfection products. Read more about J&J’s financial results below.

Q2 FY16 financial highlights

J&J, the first major U.S. drugmaker to announce quarterly earnings, reported Q2 FY16 sales growth of 3.9% to $18.5 billion as compared to the year-ago quarter. Operational sales grew 5.3% and the negative impact of currency during the reporting quarter was 1.4%. Domestic sales increased 7.4%, while international sales inched up 0.4%, reflecting an operational growth of 3.1% and a negative currency impact of 2.7% during Q2 FY16. On an operational basis, excluding the net impact of acquisitions, divestitures, and hepatitis C drug sales, worldwide sales increased 7.9%, domestic sales grew 8.8%, while international sales rose 6.9%. J&J’s Venezuela division was a damper, negatively impacting worldwide operational sales growth by 30 basis points and international sales growth by 70 basis points.

Source: Company's Presentation
Source: Company’s Presentation

The pharma bellwether’s worldwide Consumer sales decreased 1.8% to $3.4 billion during Q2 FY16 as compared to the year-ago quarter, consisting of an operational increase of 1.5% and a negative impact from currency of 3.3%. While domestic sales grew 2.1%, international sales fell 4.4%, reflecting an operational increase of 1.0% and a negative currency impact of 5.4%. On an operational basis, excluding the net impact of acquisitions and divestitures, worldwide sales grew 3.9%, domestic sales jumped 6.8% and international sales rose 2.0%. The Company’s Venezuela operations negatively impacted worldwide Consumer operational sales growth by 120 basis points, and international sales growth by 200 basis points. The Consumer segment’s results were driven by NEUTROGENA and AVEENO skin care products; over-the-counter products, including TYLENOL and MOTRIN analgesics, digestive health products and international anti-smoking aids; and LISTERINE oral care products.

Source: Company's Presentation
Source: Company’s Presentation

The Company’s worldwide Pharmaceutical sales grew 8.9% to $8.7 billion during Q2 FY16 as compared to the year-ago quarter, reflecting an operational increase of 9.7% and a negative impact from currency of 0.8%. Domestic sales jumped 13.2% and international sales increased 3.1%, reflecting an operational increase of 4.9% and a negative currency impact of 1.8%. On an operational basis, excluding the net impact of acquisitions, divestitures and hepatitis C sales, worldwide sales grew 12.8%, domestic sales increased 13.9%, and international sales rose 11.2% during the reporting quarter. Sales of autoimmune drug Remicade, J&J’s biggest product, rose 6.7% to $1.78 billion during Q2 FY16. Strong demand for the Company’s Imbruvica cancer drug and Xarelto blood thinner also boosted pharmaceutical sales.

Source: Company's Presentation
Source: Company’s Presentation

The Company’s worldwide Medical Devices sales inched up 0.8% to $6.4 billion during Q2 FY16 as compared to the year-ago quarter, reflecting an operational increase of 1.8% and a negative currency impact of 1.0%. Domestic sales and international sales increased by 1.0% and 0.6%, respectively, reflecting an operational increase of 2.6% and a negative currency impact of 2.0%. On an operational basis, excluding the net impact of acquisitions and divestitures, worldwide sales increased 3.9%, domestic sales grew 1.9%, and international sales rose 5.8% during Q2 FY16. The Company’s Venezuela operations negatively impacted worldwide Medical Devices operational sales growth by 30 basis points, and international sales growth by 50 basis points during the reporting quarter.

The Medical Devices segment’s results were driven by endocutters, energy and biosurgical products in the Advanced Surgery business; electrophysiology products in the Cardiovascular business; joint reconstruction and U.S. trauma products in the Orthopaedics business; and ACUVUE contact lenses in the Vision Care business.

Sales of J&J’s newest prescription drugs buoyed worldwide operational sales growth and minimized the effects of unfavorable exchange rates. Strong growth in new products include IMBRUVICA (ibrutinib), an oral therapy for B-cell malignancies; XARELTO (rivaroxaban), an oral anti-coagulant; DARZALEX (daratumumab), used for the treatment multiple myeloma; INVOKANA/INVOKAMET (canagliflozin), used for the treatment of type 2 diabetes; and ZYTIGA (abiraterone acetate), an oral medication for prostate cancer. New product sales growth was negatively impacted by lower sales of OLYSIO/SOVRIAD (simeprevir).

Lastly, J&J’s Q2 FY16 net income fell to $4 billion, or $1.43 per share, from $4.62 billion, or $1.63 per share, in the year-ago quarter when the Company had a gain of $931 million, mainly from the sale of pain drug Nucynta. Earnings, adjusted for non-recurring costs and amortization costs, came in higher at $1.74 per share during the reporting quarter.

Drug approvals

During the quarter under review, the FDA approved an additional indication for INVOKAMET (canagliflozin/metformin HCl) for first-line treatment of adults with type 2 diabetes and an expanded label for IMBRUVICA (ibrutinib) to include overall survival and combination data in chronic lymphocytic leukemia/small lymphocytic lymphoma (CLL/SLL). Another plus point for J&J was that the European Commission (EC) granted conditional approval to DARZALEX (daratumumab) for monotherapy of adult patients with relapsed and refractory multiple myeloma. The EC also approved IMBRUVICA (ibrutinib) for the treatment of adult patients with previously untreated chronic lymphocytic leukemia, TREVICTA (paliperidone palmitate injection) for the maintenance treatment of schizophrenia in adult patients, and SIMPONI (golimumab) for the treatment of polyarticular juvenile idiopathic arthritis.

Other highlights

J&J has been continuously increasing R&D spending as a percentage of sales for new drug products versus that of its competitors, while increasing margins.

Source: Company's Presentation
Source: Company’s Presentation

In addition, J&J completed the divestiture of its controlled substance raw material and active pharmaceutical ingredient business to SK Capital Partners, a private equity company, during the reporting quarter.

Acquisitions

During Q2 FY16, J&J acquired NeoStrata, a leader in dermocosmetics, and the HIPOGLÓS diaper rash cream brand in Brazil. Subsequent to the quarter, the Company acquired Vogue International LLC, a privately held company focused on the marketing, development and distribution of salon-influenced hair care and other personal care products, for $3.3 billion.

The drug major also completed the acquisition of privately-held BioMedical Enterprises Inc., a leading manufacturer of Nitinol orthopaedic implants for small bone fixation, during Q2 FY16.

Outlook for FY16

J&J raised its full-year adjusted earnings forecast to a range of $6.63 to $6.73 per share, higher than its April 2016 forecast of $6.53 to $6.68 per share. It now expects revenue in the range of $71.5 billion to $72.2 billion, up from $71.2 billion to $71.9 billion predicted earlier. J&J expects sales to grow at a faster clip than the global healthcare market, which is expected to grow by 3% to 5% annually over the next five years.

J&J is faced with potential competition for its autoimmune medicine Remicade, a blockbuster drug with sales of $1.78 billion, during Q2 FY16, after U.S regulators approved Inflectra, a cheaper version developed by Celltrion Inc. and Pfizer Inc. (NYSE: PFE), earlier this year. However, J&J and Celltrion are locked in a patent battle, which has delayed the launch of Inflectra. J&J said its sales outlook assumes no new U.S. competition for Remicade in FY16.

Stock Performance

J6Johnson & Johnson’s stock stood at $125.14, falling 0.09%, at the close on Wednesday, July 20th, 2016, having vacillated between an intraday high of $126.07 and a low of $125.04 during the session. The stock’s trading volume was at 7,333,831 for the day. The Company’s market cap was at $344.72 billion as of Wednesday’s close.

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