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Will J&J’s (JNJ) Pharma Segment Strength Drive Q2 Earnings?

Zacks

Johnson & Johnson JNJ has one of the most diverse revenue streams in the industry within the pharmaceutical division, which 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, like many of its peers, J&J is facing generic competition and pricing pressure for some of the products in its pharmaceutical segment.

J&J’s stock has depreciated 8.5% this year so far, comparing unfavorably with a decline of 2.4% recorded by the industry.

J&J’s Pharma segment sales picked up from the second half of 2017 after being soft in the first half of 2017. We are likely to see the positive impact of the trend in second-quarter results. The Zacks Consensus Estimate for the J&J’s Pharma segment sales is $9.93 billion.


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 acquisitions will support the top line.

Continued share gains will drive sales of Imbruvica (cancer indications), Xarelto (blood thinner), Zytiga (prostate cancer) and Stelara (psoriasis). Please note that J&J markets Imbruvica in partnership with AbbVie ABBV. The Zacks Consensus Estimates for total Imbruvica sales is $608 million.

Strong adoption witnessed for the newer indication of Crohn's disease will continue to contribute to Stelara growth. Zytiga was approved in the first-line setting in February, which contributed to the strong performance of the drug in the first quarter, a trend we expect will continue in the second quarter. Also, strong adoption in outside U.S. markets and accelerated adoption in the United States across all lines of therapy are likely to drive sales of Darzalex. Importantly, Darzalex was approved in the first-line setting this May, which can add significantly to sales in the second quarter.

These positives will offset the loss of sales of some drugs like Invokana due to higher managed care discounting and market share decline due to competitive pressure. Meanwhile, biosimilar competition is expected to hurt sales of key arthritis drug, Remicade outside the United States. Please note that J&J markets Remicade in partnership with Merck MRK. The Zacks Consensus Estimates for total Remicade sales is $1.33 billion.

We note that some inventory build and seasonality issues hurt sales of Xarelto in the first quarter. It remains to be seen if the issues persist in the second quarter as well.

Regarding newly launched Tremfya, J&J said on the first quarter conference call that the uptake of the product has been strong. The drug recorded sales of $72 million in the first quarter, which is expected to be higher in the to-be reported quarter. Meanwhile, we expect J&J to discuss initial sales numbers for Erleada, its newly approved next-generation oral androgen receptor (“AR”) inhibitor for prostate cancer on the second-quarter conference call.

Overall, in the second quarter, sales in the Pharmaceutical segment are expected to remain strong while the Consumer and Medical Device segments will continue to improve (Read more: J&J to Set Pharma Q2 Earnings in Motion: What’s Up?)

J&J currently carries a Zacks Rank #3 (Hold). A better-ranked large-cap pharma stock is H. Lundbeck A/S HLUYY, which sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

While shares of H. Lundbeck have gained 38% this year so far, earnings estimates for 2018 have gone up by 11.6% in the past 60 days.

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