We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Is J&J's Pharma Sales Slowdown a Warning for Other Players?
Read MoreHide Full Article
Johnson & Johnson (JNJ - Free Report) reported mixed first-quarter 2017 earnings results on Tuesday. While earnings beat the Zacks Consensus Estimate, sales missed due to a slowdown in pharmaceutical product sales.
For the first quarter, J&J’s earnings of $1.83 per share beat the Zacks Consensus Estimate of $1.77. Quarterly revenues were $17.8 billion, which missed the consensus mark of $18.0 billion. (Read More: J&J Q1 Earnings Beat Estimates, Pharma Sales Slow Down).
This was the second consecutive sales miss for the Zacks Rank #3 (Hold) company. Shares of the drug and consumer products giant declined 3% in response.
This year so far, J&J’s share price is up 6.4%. However, this compares unfavorably with the 6.9% increase witnessed by the Zacks classified Large-Cap Pharma industry.
The impact of J&J earnings caused the NYSE ARCA Pharmaceutical Index to decline 1.32% on Tuesday.
About the Pharmaceutical Division
Johnson & Johnson has several multi-million dollar drugs within its pharmaceutical division covering a broad range of therapeutic areas such as neuroscience; cardiovascular and metabolism; immunology; oncology and infectious diseases/vaccines. Pharmaceutical sales account for more than 45% of J&J’s total revenue. However, several products in this segment are facing generic competition.
How Did the Segment Perform in Q1?
J&J’s Pharmaceutical segment sales grew only 0.8% year over year in the first quarter of 2017 due to weaker sales in the domestic markets. Sales in the U.S. market declined 1.3% in the quarter.
New products like Imbruvica (cancer) and Darzalex (multiple myeloma) continued to perform well. Other growth drivers were Stelara, Invega Sustenna and Simponi.
However, Concerta declined 9.5% due to generic competition while Zytiga sales fell 6.3% due to higher utilization of independent patient assistance foundations.
In the cardiovascular metabolic space, pricing pressure and competitive payer dynamics hurt sales of Invokana and Xarelto. Sales of Xarelto declined 9.5% due to the timing of Medicare Part D costs and higher drug access discounts while Invokana/Invokamet sales declined 12.6% due to lower price. Some analysts fear these issues are not isolated for J&J and other pharma/biotech companies may also feel the impact of these pricing/payer issues this year.
Importantly, sales of the blockbuster rheumatoid arthritis drug Remicade, marketed in partnership with Merck & Co., Inc. (MRK - Free Report) , declined 6% in the quarter with U.S. sales declining 2.4% and international sales declining 3% due to biosimilar competition in Europe.
In this regard, we would like to mention that Pfizer Inc. (PFE - Free Report) launched its Inflectra injection, a biosimilar version of Remicade in the U.S. late last November at-risk, which did not have any significant impact on Remicade sales in the first quarter of 2017. Nonetheless, we believe that though the rate of penetration of a biosimilar entrant may be modest, the launch brings a certain element of uncertainty to the Pharma segment as there may be an additional impact as the year progresses.
J&J’s Pharma segment is expected to see slower growth this year as a number of key growth drivers like Remicade and Concerta have slowed down and are facing generic competition. Meanwhile, HCV sales continue to decline in the face of intense competition.
What’s With Other Pharma Giants?
J&J is not the only large pharma company facing a slowdown in sales of its drugs. Many others like Merck, Amgen, Inc. (AMGN - Free Report) , Pfizer and others are facing loss of exclusivity and generic/biosimilar competition for key revenue generators, slowdown in sales of mature drugs and competitive and pricing pressure, mainly in the U.S. which is hurting their top-line.
We discuss here a few companies facing similar issues.
Pfizer
Pfizer's top-line is being impacted by the loss of patent exclusivity on products like Celebrex, Lipitor, Norvasc, Protonix, Camptosar, and Zoloft. Meanwhile, products like Lyrica and Chantix will lose exclusivity in the coming years. Other than that, pricing pressure and rising competition and expiry of certain key contracts are also hampering top-line growth. New products like cancer drug Ibrance and contribution from acquisitions like Hospira and Medivation are expected to provide some top-line support, going forward.
In 2017, the company’s sales are expected to increase only slightly from 2016 levels. The Zacks Consensus Estimate for sales in 2017 is $53.1 billion, representing year-over-year growth of only 0.54%. Pfizer carries a Zacks Rank #3 (Hold).
Merck
Merck is facing generic competition for several drugs including Singulair, Maxalt, Propecia, Temodar, Cozaar/Hyzaar, Zocor and Fosamax. All these drugs have recorded rapid and steep declines in revenues due to the presence of generics. In 2016, key drugs like Nasonex, Cubicin and Zetia lost patent exclusivity, which is hurting sales. In 2017, Merck will lose market exclusivity in the U.S. for Vytorin. Sales of the drug are expected to decline sharply in the U.S. thereafter. In addition, Isentress is facing competitive pressure and is being impacted by slowing growth of the integrase class.
While sales of drugs that have lost patent exclusivity will continue to decline rapidly, the full benefit of the ramp from new product launches such as Keytruda and Zepatier will be realized only from the second half of 2017.
The Zacks Consensus Estimate for 2017 sales is $39.78 billion, representing a slight year over year decline.
Amgen
While biotech major Amgen’s results impressed in 2016, concerns remain about the sustainability of the performance, considering the presence of biosimilar competition and slowdown in sales of mature products. Biosimilars are already having a negative impact on key products like Neupogen and Neulasta in the EU.
Meanwhile, Neupogen sales are also being hurt by biosimilar competition in the U.S. We expect competition to increase as additional biosimilars receive approval. Neulasta and Epogen could start facing biosimilar competition in the U.S. this year. Moreover, minimal sales price increases and stiff competition can hurt blockbuster Enbrel sales in 2017.
Volume growth of relatively newer products – Prolia, Xgeva, Vectibix, Nplate and Sensipar – may not be enough to offset the decline in mature brands.
Amgen carries a Zacks Rank #3. The Zacks Consensus Estimate for 2017 sales is pegged at $30 billion, flat year over year.
Sanofi has faced significant loss of revenues in the last couple of years as several of its key products went off patent including its blockbuster drug, Plavix. Although the company is now past its patent cliff, sales of new products are yet to pick up. Meanwhile, drugs like Lantus, Lovenox, Aprovel/Avapro. Renagel and Taxotere, among others, are expected to face further generic competition in 2017, which will continue to have a negative impact on revenues in the coming quarters. Additionally, the company is facing increased genericization in Japan due to new policies.
Sanofi’s Diabetes franchise is under significant pressure with key product, Lantus, facing increasing competitive pressure at the payer level. Sanofi’s outlook for its Diabetes franchise is bleak. Meanwhile, the uptake of new products like its PCSK9 inhibitor Praluent has been slower-than-expected due to pricing and reimbursement issues.
Genericization of Plavix, Avapro/Avalide and Baraclude in the U.S. due to loss of exclusivity is significantly hurting the company’s top line. The company also faces stiff competition in the immuno-oncology space. Meanwhile, shares are under pressure with investors expressing disappointment over the company’s failed efforts to expand its key product Opdivo’s label to include the first-line treatment of lung cancer, which could give an edge over competitors.
Bristol Myers carries a Zacks Rank #3.
Conclusion
Most of these companies boast a deep and promising pipeline while their new products are doing relatively well. Also, these companies are looking at strategic mergers and acquisitions, in-licensing deals/collaboration with smaller companies to boost their product portfolio. It remains to be seen how far these efforts offset the negative impact of genericization and pricing, payer and competitive pressure in the U.S.
Sell These Stocks. Now.
Just released, today's 220 Zacks Rank #5 Strong Sells demand urgent attention. If any are lurking in your portfolio or Watch List, they should be removed immediately. These sinister companies because many appear to be sound investments. However, from 1988 through 2016, stocks from our Strong Sell list have actually performed 6X worse than the S&P 500.
See More Zacks Research for These Tickers
Pick one free report - opportunity may be withdrawn at any time
Image: Bigstock
Is J&J's Pharma Sales Slowdown a Warning for Other Players?
Johnson & Johnson (JNJ - Free Report) reported mixed first-quarter 2017 earnings results on Tuesday. While earnings beat the Zacks Consensus Estimate, sales missed due to a slowdown in pharmaceutical product sales.
For the first quarter, J&J’s earnings of $1.83 per share beat the Zacks Consensus Estimate of $1.77. Quarterly revenues were $17.8 billion, which missed the consensus mark of $18.0 billion. (Read More: J&J Q1 Earnings Beat Estimates, Pharma Sales Slow Down).
This was the second consecutive sales miss for the Zacks Rank #3 (Hold) company. Shares of the drug and consumer products giant declined 3% in response.
This year so far, J&J’s share price is up 6.4%. However, this compares unfavorably with the 6.9% increase witnessed by the Zacks classified Large-Cap Pharma industry.
The impact of J&J earnings caused the NYSE ARCA Pharmaceutical Index to decline 1.32% on Tuesday.
About the Pharmaceutical Division
Johnson & Johnson has several multi-million dollar drugs within its pharmaceutical division covering a broad range of therapeutic areas such as neuroscience; cardiovascular and metabolism; immunology; oncology and infectious diseases/vaccines. Pharmaceutical sales account for more than 45% of J&J’s total revenue. However, several products in this segment are facing generic competition.
How Did the Segment Perform in Q1?
J&J’s Pharmaceutical segment sales grew only 0.8% year over year in the first quarter of 2017 due to weaker sales in the domestic markets. Sales in the U.S. market declined 1.3% in the quarter.
New products like Imbruvica (cancer) and Darzalex (multiple myeloma) continued to perform well. Other growth drivers were Stelara, Invega Sustenna and Simponi.
However, Concerta declined 9.5% due to generic competition while Zytiga sales fell 6.3% due to higher utilization of independent patient assistance foundations.
In the cardiovascular metabolic space, pricing pressure and competitive payer dynamics hurt sales of Invokana and Xarelto. Sales of Xarelto declined 9.5% due to the timing of Medicare Part D costs and higher drug access discounts while Invokana/Invokamet sales declined 12.6% due to lower price. Some analysts fear these issues are not isolated for J&J and other pharma/biotech companies may also feel the impact of these pricing/payer issues this year.
Importantly, sales of the blockbuster rheumatoid arthritis drug Remicade, marketed in partnership with Merck & Co., Inc. (MRK - Free Report) , declined 6% in the quarter with U.S. sales declining 2.4% and international sales declining 3% due to biosimilar competition in Europe.
In this regard, we would like to mention that Pfizer Inc. (PFE - Free Report) launched its Inflectra injection, a biosimilar version of Remicade in the U.S. late last November at-risk, which did not have any significant impact on Remicade sales in the first quarter of 2017. Nonetheless, we believe that though the rate of penetration of a biosimilar entrant may be modest, the launch brings a certain element of uncertainty to the Pharma segment as there may be an additional impact as the year progresses.
J&J’s Pharma segment is expected to see slower growth this year as a number of key growth drivers like Remicade and Concerta have slowed down and are facing generic competition. Meanwhile, HCV sales continue to decline in the face of intense competition.
What’s With Other Pharma Giants?
J&J is not the only large pharma company facing a slowdown in sales of its drugs. Many others like Merck, Amgen, Inc. (AMGN - Free Report) , Pfizer and others are facing loss of exclusivity and generic/biosimilar competition for key revenue generators, slowdown in sales of mature drugs and competitive and pricing pressure, mainly in the U.S. which is hurting their top-line.
We discuss here a few companies facing similar issues.
Pfizer
Pfizer's top-line is being impacted by the loss of patent exclusivity on products like Celebrex, Lipitor, Norvasc, Protonix, Camptosar, and Zoloft. Meanwhile, products like Lyrica and Chantix will lose exclusivity in the coming years. Other than that, pricing pressure and rising competition and expiry of certain key contracts are also hampering top-line growth. New products like cancer drug Ibrance and contribution from acquisitions like Hospira and Medivation are expected to provide some top-line support, going forward.
In 2017, the company’s sales are expected to increase only slightly from 2016 levels. The Zacks Consensus Estimate for sales in 2017 is $53.1 billion, representing year-over-year growth of only 0.54%. Pfizer carries a Zacks Rank #3 (Hold).
Merck
Merck is facing generic competition for several drugs including Singulair, Maxalt, Propecia, Temodar, Cozaar/Hyzaar, Zocor and Fosamax. All these drugs have recorded rapid and steep declines in revenues due to the presence of generics. In 2016, key drugs like Nasonex, Cubicin and Zetia lost patent exclusivity, which is hurting sales. In 2017, Merck will lose market exclusivity in the U.S. for Vytorin. Sales of the drug are expected to decline sharply in the U.S. thereafter. In addition, Isentress is facing competitive pressure and is being impacted by slowing growth of the integrase class.
While sales of drugs that have lost patent exclusivity will continue to decline rapidly, the full benefit of the ramp from new product launches such as Keytruda and Zepatier will be realized only from the second half of 2017.
Merck carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for 2017 sales is $39.78 billion, representing a slight year over year decline.
Amgen
While biotech major Amgen’s results impressed in 2016, concerns remain about the sustainability of the performance, considering the presence of biosimilar competition and slowdown in sales of mature products. Biosimilars are already having a negative impact on key products like Neupogen and Neulasta in the EU.
Meanwhile, Neupogen sales are also being hurt by biosimilar competition in the U.S. We expect competition to increase as additional biosimilars receive approval. Neulasta and Epogen could start facing biosimilar competition in the U.S. this year. Moreover, minimal sales price increases and stiff competition can hurt blockbuster Enbrel sales in 2017.
Volume growth of relatively newer products – Prolia, Xgeva, Vectibix, Nplate and Sensipar – may not be enough to offset the decline in mature brands.
Amgen carries a Zacks Rank #3. The Zacks Consensus Estimate for 2017 sales is pegged at $30 billion, flat year over year.
Sanofi (SNY - Free Report)
Sanofi has faced significant loss of revenues in the last couple of years as several of its key products went off patent including its blockbuster drug, Plavix. Although the company is now past its patent cliff, sales of new products are yet to pick up. Meanwhile, drugs like Lantus, Lovenox, Aprovel/Avapro. Renagel and Taxotere, among others, are expected to face further generic competition in 2017, which will continue to have a negative impact on revenues in the coming quarters. Additionally, the company is facing increased genericization in Japan due to new policies.
Sanofi’s Diabetes franchise is under significant pressure with key product, Lantus, facing increasing competitive pressure at the payer level. Sanofi’s outlook for its Diabetes franchise is bleak. Meanwhile, the uptake of new products like its PCSK9 inhibitor Praluent has been slower-than-expected due to pricing and reimbursement issues.
Bristol-Myers Squibb Company (BMY - Free Report)
Genericization of Plavix, Avapro/Avalide and Baraclude in the U.S. due to loss of exclusivity is significantly hurting the company’s top line. The company also faces stiff competition in the immuno-oncology space. Meanwhile, shares are under pressure with investors expressing disappointment over the company’s failed efforts to expand its key product Opdivo’s label to include the first-line treatment of lung cancer, which could give an edge over competitors.
Bristol Myers carries a Zacks Rank #3.
Conclusion
Most of these companies boast a deep and promising pipeline while their new products are doing relatively well. Also, these companies are looking at strategic mergers and acquisitions, in-licensing deals/collaboration with smaller companies to boost their product portfolio. It remains to be seen how far these efforts offset the negative impact of genericization and pricing, payer and competitive pressure in the U.S.
Sell These Stocks. Now.
Just released, today's 220 Zacks Rank #5 Strong Sells demand urgent attention. If any are lurking in your portfolio or Watch List, they should be removed immediately. These sinister companies because many appear to be sound investments. However, from 1988 through 2016, stocks from our Strong Sell list have actually performed 6X worse than the S&P 500.