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Is J&J’s (JNJ) Pharma Segment Likely to Drive Q1 Earnings?


Johnson & Johnson JNJ has one of the most diverse revenue streams in the industry within the pharmaceutical division that accounts for almost half of its revenues. The company has several multi-million dollar drugs covering a broad range of areas such as neuroscience, cardiovascular and metabolism; immunology; oncology; pulmonary hypertension; and infectious diseases/vaccines. However, several products in this segment are facing generic competition.

J&J’s stock has depreciated 6.1% this year so far, comparing unfavorably with a decline of 1.7% recorded by the industry.

J&J’s domestic Pharma segment sales witnessed a positive trend in the second half of 2017 after being soft in the first half of the year. We are likely to see the positive impact of the trend in first-quarter results.

The Zacks Consensus Estimate for the Pharmaceutical segment is $9.51 billion. Last quarter, the segment’s sales beat the consensus estimate.

We believe that new products, continued share gains of some key products, label expansion of drugs like Imbruvica, Xarelto, Stelara and Darzalex, and meaningful contribution from Swiss biotech Actelion that J&J bought in June, will support the top line.

Continued share gains should drive sales of Imbruvica (cancer indications), Xarelto (blood thinner), Zytiga (prostate cancer) and Stelara (psoriasis). Meanwhile, strong adoption for the newer indication of Crohn's disease should continue contributing to Stelara growth. J&J also gained FDA approval for Zytiga in first-line setting in February, which can drive sales of the drug higher in the first quarter. Please note that J&J markets Imbruvica in partnership with AbbVie, Inc. ABBV.

Also, strong adoption in outside U.S. markets and accelerated adoption in the United States across all lines of therapy should drive sales of Darzalex. These positives will likely offset the loss of sales of some drugs like Invokana due to higher managed care discounting. Meanwhile, biosimilar competition is expected to continue hurting key arthritis drug Remicade’s sales outside the United States. J&J markets Remicade in partnership with Merck MRK.

Regarding newly launched Tremfya, J&J said at the fourth-quarter conference call that the uptake of the product has been decent. The drug recorded sales of $47 million in the last quarter, which are expected to be higher in the to-be reported quarter. Also, J&J should discuss the initial sales uptake of Juluca at the call — the first dual treatment for HIV developed in partnership with GlaxoSmithKline GSK — that gained FDA approval in last November. Juluca is under review in the EU.

Meanwhile, we expect J&J to discuss commercialization plans for Erleada, its newly approved prostate cancer drug, at the first-quarter conference call.

Overall, in2018, J&J expects the Pharmaceutical segment to remain strong while the Consumer and Medical Device segments will continue to improve. (Read More: J&J to Begin Pharma Q1 Earnings: What’s in Store?)

J&J carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Johnson & Johnson Price and EPS Surprise

Johnson & Johnson Price and EPS Surprise | Johnson & Johnson Quote

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