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Jan 26, 2021

J&J forecast tops views, even excluding vaccine; shares gain

Bryden Teich discusses Johnson & Johnson


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Johnson & Johnson issued a stronger-than-expected earnings forecast for this year, but its outlook didn’t say how its COVID-19 vaccine, which could be cleared for use in the U.S. soon, would affect its performance.

The health-care giant expects 2021 adjusted earnings per share of US$9.49 to US$9.60, compared with an average analyst estimate of US$8.99.

Strong sales for blockbuster immunology and cancer drugs, as well as consumer-health products such as Tylenol and Listerine, have buoyed the company in recent quarters even as the pandemic hurt sales of medical devices.

J&J will likely adjust its guidance in April, when it reports first-quarter earnings, to account for its COVID-19 vaccine, Chief Financial Officer Joseph Wolk said in an interview. He said the company expects to report clinical-trial data on the still-expiremental shot’s efficacy by early next week.

“Our outlook is solid, just based on our core business, irrespective of the vaccine,” Wolk said. “Our guidance doesn’t include any distribution of vaccines at this point, and again, we’re going to be offering it on a not-for-profit basis, so you’re not gonna get the same type of margins on any sales of it.”

Shares of Johnson & Johnson rose 3 per cent to US$170.92 at 10:48 in New York on Tuesday. Through the close Monday, the stock had gained 5.46 per cent so far this year.

Vaccine Prospects

J&J’s progress is being closely watched by top infectious-disease experts because its vaccine would be the first to protect people after one shot, which is expected to make mass-vaccination campaigns easier. The vaccine generated a lasting immune response in an early study. According to the company’s top scientist, U.S. regulators could authorize it for emergency use in March.

The shot will be priced on a not-for-profit basis, defined by a Gates Foundation model and determined in conjunction with independent auditors, Wolk said. The price per shot will not exceed US$10 dollars.

Wolk said J&J aims to have a total of seven manufacturing facilities, many of which are contract manufacturers, up and running by the end of the second quarter to ramp up supply. The company told Bloomberg earlier this month that it remains on track to hit the goal of producing 1 billion doses before year-end.

Surging Sales

The New Brunswick, New Jersey-based company’s fourth-quarter revenue was US$22.5 billion, surpassing the US$21.67 billion analysts expected, on average.

Pharmaceutical sales surged 16 per cent in the fourth quarter from a year earlier, topping US$12.3 billion. The gains were driven by three blockbusters: Stelara, used to treat Crohn’s disease and psoriasis, and cancer treatments Imbruvica and Darzalex. Drug sales rose 8 per cent for the full year.

“We think this trend will continue,” Wolk said, “and we’re going to supplement the existing portfolio that exists today with new products. We’ve got a couple of new launches in the oncology space that we feel really good about.”

The consumer unit saw more modest 1.4 per cent growth in the fourth quarter, bringing in US$3.6 billion. Throughout the year, demand for J&J’s beauty and baby-care products was hurt by COVID-19, though that was offset by pandemic stockpiling for products like Tylenol and Listerine.

The pandemic continued to restrain J&J’s medical-device sales in the fourth quarter, with sales down 0.7 per cent to US$6.6 billion compared with a year earlier. For the full year, device sales dropped 10.5 per cent.

Wolk said he expects some of the pandemic’s effects on hospitals to “spill over into the first month or so of 2021.” But as the year progresses and more people in the U.S. are vaccinated against COVID-19, elective surgeries will continue rebound, he said. At that point, J&J will benefit from the pent-up demand for its medical devices.

“2020 was obviously a bumpy year, but we never took our focus off the long-term,” Wolk said. J&J spent a record US$12 billion on research and development amid the pandemic.