Johnson & Johnson shares tumbled after the company said profit margins in its medical device and technology unit fell last quarter and drug sales will be lower in the second half of the year than the first.
Medical technology margins declined due to costs of an acquisition, commodity inflation and an unfavorable product mix, executives said on an earnings call, and second-half pharma sales will slip as top-selling drug Stelara faces competition in Europe. The company affirmed its annual financial forecast, and said a US regulatory panel will look into a study of Carvykti, its Car-T treatment for multiple myeloma.
The shares fell as much as 3.4% as of 11:23 a.m. in New York, their biggest intraday drop since August.
J&J has narrowed its focus on its pharma and devices businesses after spinning off its less-profitable consumer unit as Kenvue Inc. While the pharma unit was helped by quarterly Stelara sales of $2.75 billion, the psoriasis treatment along with blood thinner Xarelto have been selected for Medicare price negotiations under the Inflation Reduction Act, which augurs for declining sales in the coming years.
Those trends point to the “need for further augmentation of the pharma business,” Mizuho’s Jared Holz said in a note.
J&J is considering pharma deals in immunology and neuroscience and cardiovascular deals in the medtech space, among others, Chief Financial Officer Joe Wolk said in an interview. While the company tends to do smaller deals, a large one “does not scare us,” he said, adding later in the conference call that the company is positioned to entertain many types of deals.
Even as Stelara loses sales to competition from biosimilar copies, the company’s pipeline will allow it to grow without the need for an acquisition, Wolk said in an interview with Bloomberg TV.
Sales of hip equipment were $398 million, while knee devices sold $387 million, both beating analysts’ estimates. Revenue from the products signals whether a recent uptick in procedures will continue driving growth in the sector, and Wolk said in an interview on CNBC that the company expects strong sales to persist.
The beat “bodes well for Medtech across the board,” Evercore ISI analyst Vijay Kumar said in a note, including companies such as Boston Scientific Corp. and Abbott Laboratories. Abbott is scheduled to report results Wednesday before US markets open; Boston Scientific is expected to report Jan. 31.
Talc Litigation
J&J is battling thousands of claimants who say its talc-based baby powder causes cancer. It’s vowed to resolve the cases, and is seeking to move a unit to Texas as it prepares for a potential third bankruptcy court filing to resolve more than 50,000 lawsuits, Bloomberg reported earlier.
Wolk confirmed Bloomberg’s earlier report that the company reached a deal in principle for $700 million to settle US states’ talc cases. J&J maintains that its talc-based products don’t cause cancer and that it has marketed its baby powder appropriately for more than a century.
Overall sales for the quarter were $21.4 billion, while analysts had estimated $21.1 billion, and adjusted profit was $2.29 a share, the New Brunswick, New Jersey-based company said Tuesday in a statement. Analysts had estimated $2.28. J&J’s med-tech revenue reached $7.67 billion.
