Johnson and Johnson (NYSE:JNJ) shares dropped almost 2.6% on Tuesday, despite reporting better-than-expected overall third quarter results. The “solid” results, as termed by most analysts, were offset by an announcement by rival drugmaker Pfizer Inc. (NYSE:PFE) Monday night, that it will begin shipping its biosimilar version of JNJ’s blockbuster rheumatoid arthritis drug, Remicade, by late November in the US.
JNJ delivered earnings per share (EPS) outperformance in the quarter, reporting an adjusted EPS of $1.68 that beat the consensus by $0.03 and grew by 13% year-over-year. Revenue increased by 4 % YoY to $17.82 billion, well ahead of the Street’s estimate of $17.55 billion. The upside was driven by the conglomerate’s Pharma and Devices businesses and was partially offset by a modest shortfall in Consumer Healthcare related to temporary inventory destocking and prior year comps. Management ended up raising its full-year EPS guidance by $0.03 at the midpoint of the range.
The point of contention for JNJ investors was the sooner-than-expected launch of Remicade’s US biosimilar. The drug is JNJ’s top-selling medicine, with US sales of some $5 billion-a-year, making up almost 8% of the company’s total revenue. However, most analysts have shrugged off the threat. Leerink Partners’ Danielle Antalffy recommended buying JNJ shares on the current weakness, saying that the company is “well-equipped” to handle the Remicade headwind given its strong growth across core Pharma drugs (including Invokana, Xarelto, and the non-Remicade Immunology drugs – a combined 10% of total sales), strong double-digit growth of recent new products (including Imbruvica and Darzalex, already a combined ~3% of total sales) and a continued turnaround in both Consumer and Medical Devices, with
sales growth expected to accelerate in 2017. They reiterated an Outperform rating on the “safe haven” stock, with a price target of $140.
UBS analysts wrote in a research note, “The potential impact of biosimilar competition and patent expirations equates to ~$8/share NPV, which is more than offset by the value of the company's robust pharma pipeline (~$12/share NPV), which remains under-appreciated and under-modelled by the Street.” They maintained a Buy on the stock and raised the price target from $137 to $144.
Argus analysts wrote, “Given the lack of interchangeability between Remicade and Pfizer’s new biosimilar version of the drug, we do not expect the biosimilar to have a significant impact on Remicade’s market share.” Merrill Lynch analysts admit Pfizer’s announcement has created “some uncertainty” around JNJ stock, but it continues to be the most likely to outperform through the volatility of pharma growth.