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J&J, Novartis' Q1 Earnings Impress: Will Others Follow Suit?

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Johnson & Johnson JNJ kicked off pharma earnings season on a strong note beating the Zacks Consensus Estimate for both earnings and sales in the first-quarter 2018. J&J’s performance was driven by continued positive momentum since the second half of 2017 and improvement in Consumer segment sales.

How Did J&J Perform in Q1?

J&J’s earnings of $2.06 per share beat the Zacks Consensus Estimate of $2.01. Quarterly revenues were $20 billion, which also beat the consensus mark of $19.48 billion. Buoyed by its strong performance, the company upped its previously issued sales outlook for 2018. (Read More: J&J Tops Q1 Earnings Estimates, Raises Sales Guidance).

J&J’s Pharmaceutical segment sales grew 19.4% year over year in the first quarter of 2018 due to strong sales in both domestic and international markets and favorable currency impact. Sales in the U.S. market rose 9.9% in the quarter while international sales grew 33.1%.

New products like Imbruvica (cancer) and Darzalex (multiple myeloma) continued to perform well. Oncology sales increased 45% during the quarter to $2.3 billion, constituting almost a quarter of the pharmaceutical sales. Core products like Xarelto, Stelara, Zytiga, Simponi/Simponi Aria and Invega Sustenna also contributed to growth. Imbruvica sales rose 43.5%. The drug is marketed by J&J in partnership with AbbVie, Inc. ABBV.

Edurant sales rose 40.9% while Prezista sales increased 11.2%.

However, Concerta sales continue to decline due to generic competition. Sales of Risperdal Consta also fell 5.3%. Sales of Invokana/Invokamet declined 12.7% due to higher managed care discounting, while blockbuster rheumatoid arthritis drug, Remicade, marketed in partnership with Merck & Co., Inc. MRK fell 16.9%.

J&J’s Pharma segment achieved some clinical milestones during the quarter including FDA approvals of prostate cancer drug, Erleada for the treatment of men with non-metastatic castration-resistant prostate cancer and line extension of already marketed prostate cancer drug, Zytiga in combination with prednisone in the first-line setting.

These will certainly boost sales in 2018. J&J now expects revenues in the range of $81.0 to $81.8 billion, higher than $80.6 billion to $81.4 billion expected previously.

Overall, in 2018, J&J expects the Pharmaceutical segment to remain strong while the Consumer and Medical Device segments will continue to improve. We expect other companies like Merck, Amgen, Inc. AMGN, Pfizer and Lilly to follow suit.

Novartis Reports Encouraging Q1 Results

Novartis AG NVS also reported this week. The Swiss pharma giant beat earnings and revenue estimates driven by strong performance of key drugs, Cosentyx and Entresto. Novartis reported core earnings of $1.28 per share, beating the Zacks Consensus Estimate of $1.25 and up from $1.13 recorded in the year-ago quarter. Revenues increased 10% to $12.7 billion, beating the Zacks Consensus Estimate of $12.3 billion. (Read more: Novartis Beats Earnings and Revenue Estimates in Q1)

Sales of the Innovative Medicines division grew 6% to $8.4 billion driven by volume growth of Cosentyx and Entresto. However, entry of generics for Gleevec in the United States and Europe impacted sales unfavorably.

Cosentyx sales increased to $580 million, up 35% driven strong growth in all indications and expanded access. Entresto’s sales increased 126% to $200 million driven by increased uptake.

Oncology franchise (excluding Gleevec) grew 6% driven by Promacta/Revolade, Tafinlar + Mekinist, Jakavi and recent launches. However, sales at the Sandoz division were $2.5 billion, down 4% due to price erosion in the Unites States.

However, this year so far, J&J’s shares have lost 8.8% and Novartis’ shares are down 6% against 4.3% decrease witnessed by the industry.

Will Other Pharma Bigwigs Report Solid Results Too?

Pfizer

Pfizer's top line is expected to be favorably impacted by new products like Xeljanz (rheumatoid arthritis) and Ibrance (breast cancer) as well as older products like Lyrica (neuropathic pain), Chantix (smoking cessation) and Eliquis (blood thinner) in the soon-to-be reported quarter. Moreover, line extension of Xeljanz, Sutent and Bosulif received in the fourth quarter of 2017 is also expected to bring in more sales.

However, loss of exclusivity and associated generic competition for Pristiq in the United States and Lyrica in Europe, and product shortages for legacy Hospira will likely affect sales negatively. Blockbuster drug Enbrel sales should continue to decline in the quarter due to biosimilar competition.

In 2018, the company’s sales are expected to increase in low single digits from 2017 levels. The Zacks Consensus Estimate for sales and earnings for Q1 is pegged at $13.03 billion and 73 cents, respectively. The Zacks Consensus Estimate for sales in 2018 currently stands at $54.52 billion, representing year-over-year growth of 3.7%. Pfizer carries a Zacks Rank #2 (Buy).

Merck

Merck’s blockbuster drug, Keytruda, along with Lynparza and Bridion Injection is expected to boost revenues in the first quarter. Keytruda sales are gaining momentum through approval and launch of Keytruda in new indications, especially in first-line lung cancer.

However, rising competitive and pricing pressure are expected to hurt sales of Zostavax, Zepatier, Januvia and Isentress.

Animal health franchise sales are likely to remain strong in the first quarter.

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

The Zacks Consensus Estimate for sales and earnings for Q1 is pegged at $10.11 billion and 99 cents, respectively. The Zacks Consensus Estimate for 2018 sales is $41.81 billion, representing a 4.2% year-over-year increase.

Eli Lilly (LLY)

Sales of Lilly’s diabetes drugs, Trulicity and Jardiance are expected to grow driven by market share gains. Other new drugs such as Cyramza, Taltz, and Lartruvo are also expected to boost the top line due to continued strong demand. Verzenio is also expected to generate higher sales in the first quarter.

However, patent expiry in some countries for Cymbalta, Strattera, Effient, Axiron, Zyprexa, Evista and competitive pressure mainly from immuno-oncology agents for Alimta will hurt sales of these drugs.

We expect strong uptake of new products to offset decline in sales of established products this quarter too.

The Zacks Consensus Estimate for sales and earnings for Q1 is pegged at $5.52 billion and $1.13, respectively. The Zacks Consensus Estimate for 2018 sales stands at $23.43 billion, representing a rise of 2.4% year over year. Lilly carries a Zacks Rank #2.

Bristol-Myers Squibb Company (BMY)

Several label expansions of Bristol-Myers’ blockbuster cancer drug, Opdivo, drove the company’s sales last year and is expected do so this year as well. Moreover, cardiovascular drug, Eliquis, also demonstrated strong performance in 2017. We expect this trend to continue this quarter. Label expansion of leukemia drug, Sprycel, approved in November 2017 should bring in more sales for the drug. Moreover, continued strong performance of Yervoy and Orencia will have a favorable impact.

However, genericization of Plavix, Avapro/Avalide and Baraclude in the United States due to loss of exclusivity is significantly hurting the company’s top line. The company also faces stiff competition in the immuno-oncology space. The HIV business continues to face competitive pressure.

The Zacks Consensus Estimate for sales and earnings for Q1 is pegged at $5.17 billion and 84 cents, respectively. The Zacks Consensus Estimate for 2018 sales is pegged at $21.69 billion, representing a rise of 12.7% year over year. Bristol Myers carries a Zacks Rank #3.

Conclusion

The new products of the majority of these companies are doing well and are expected to offset declining sales of legacy drugs due to loss of exclusivity. Moreover, most of these companies boast a deep and promising pipeline. Also, the new tax law boosts the prospects of strategic mergers and acquisitions and in-licensing deals/collaboration with smaller companies, which will strengthen the companies' product portfolio.

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