Dive Brief:
- Johnson & Johnson beat expectations in the third quarter. The multi-national drug company reported sales for the period of $19.7 billion, up 10.3%, including $3.4 billion from its consumer unit and $6.6 billion from medical devices.
- Revenues beat analysts’ expectations by 2%, driven by sales in the pharmaceutical division, which brought in $9.7 billion, above the $9.3 billion expected by analysts.
- Despite facing biosimilar competition, blockbuster rheumatoid arthritis drug Remicade beat analysts’ consensus expectations by 6%, raking in global sales of $1.65 billion.
Dive Insight:
Immunology is the largest therapeutic area under Johnson & Johnson’s pharmaceutical umbrella, with $3.6 billion in sales this quarter. But a recent strategic decision could hurt the future of the portfolio.
J&J announced in its earnings statement Tuesday morning its decision to discontinue development of sirukumab in rheumatoid arthritis.
The drug was knocked down by an advisory panel in August due to safety concerns and then outright rejected by the Food and Drug Administration in late September. J&J considered sirukumab one of 10 drugs in its late-stage pipeline that could have a launch of more than $1 billion.
"When it comes to immunology, we are the company with more assets in this area, with four approvals, including Remicade, Simponi, Stelara and Tremfya," said J&J’s Worldwide Chairman of Pharmaceuticals Joaquin Duato on a Tuesday morning call with analysts.
"Are we disappointed with sirukumab? We are. We stand by sirukumab, but the additional data requests that were in the CRL would have delayed the drug significantly, and based on the competition that exists there in the anti-IL-6 market, we thought it best to focus on other priorities," he added.
While the setback could put a cramp in the future of the unit, sales of the sector grew 5.3%, bolstered by Crohn’s disease drug Stelara (ustekinumab), which brought in $1.1 billion worldwide representing a 37% increase year-over-year.
Yet, Remicade (still the largest product in the portfolio) declined a little more than 1% in the U.S. and 8% overall as it continues to face biosimilar competition. There are now two Remicade biosimilars available in the U.S., although the company noted during the call that two-thirds of the biosimilar competition comes from products in Europe, where Remicade is sold by Merck & Co. J&J said that part of the decline in Europe was due to the timing of shipments by Merck.
"What we have seen is that physicians are very reluctant to switch stable patients to biosimilars," Duato said.
Another program the company decided to discontinue was talacotuzumab in acute myeloid leukemia. The decision hinged on recommendations from an independent data safety monitoring board that suggested the safety profile was not ideal. Talacotuzumab was another one of the 10 late-stage candidates that the company had been emphasizing as a potential blockbuster.
Thoughts on tax reform
Switching gears, Chief Financial Officer Dominic Caruso noted that he is often asked about tax reform, being a CFO of one of the largest U.S.-based companies. While J&J hasn’t built tax reform into its guidance, Caruso said it firmly believes that corporate tax reform could take shape, expressing support for "leaders in Washington."
"It is a topic I've been actively engaged in for more than 10 years, with legislators, as well as my peers across many industries," he said on the call.
"I do believe we now have momentum to achieve meaningful and beneficial tax reform in the near future," Caruso added. "We see the united framework as a thoughtful framework to jump-starting the U.S. economoy, fueling U.S. investment, and one that will improve the ability of U.S. multi-nationals to compete more effectively."
Caruso also expressed interest in seeing a lower corporate tax rate for the U.S., as well as a global tax structure that would allow companies to use their cash freely and provide greater incentives to invest in their U.S. businesses.
J&J had a tax rate of 19.5% in the third quarter. Last year, Jefferies analyst Jeffrey Holford said in a note to clients that J&J keeps 100% of its cash outside the U.S. The company had about $12.6 billion in cash and equivalents as of July 1.