Despite the fact that Johnson & Johnson has been in the news lately because its COVID-19 vaccine has been put on hold by the FDA and CDC, the company reported strong Q1 earnings on Tuesday morning (April 20), showing an adjusted earnings per share of $2.59, which beat Wall Street’s expectation of $2.34. The growth was led by the company’s medical devices unit, which grew 8 percent year over year, and its pharmaceutical division, which grew 7.4 percent YOY on an adjusted operational basis.
J&J’s pharmaceutical division reported $100 million of first-quarter sales from its COVID-19 vaccine. That vaccine is currently being reviewed after six women became ill from a rare blot clot disease and one died. It has been widely expected to be cleared shortly, as the CDC has said no new cases have been reported, despite the use of close to seven million doses of the vaccine.
Regardless of the regulatory issues surrounding the vaccine, J&J said that it never expected to make a profit on it. Indeed, the company’s growth in this sector was driven by other pharmaceuticals, including drugs aimed at treating multiple cancers, inflammatory diseases, plaque psoriasis and schizophrenia.
The COVID Impact
COVID-19 factored into J&Js Q1 financial picture in other ways, though. The company saw decreased sales in its consumer health division of 2.9 percent, which it attributes to pantry loading in 2020’s first quarter due to the pandemic. In other words, as people began to stockpile supplies in the early days of the pandemic, it drove sales up. This year, as things have begun to go back to normal and the stockpiling has stopped, the company is showing a sales dip.
Conversely, the company’s medical device sector showed a boost thanks to a post-pandemic stabilization of the economy and a return to routine surgical procedures and doctor visits. J&J manufactures electrophysiology products, which are used in investigating heart rhythms; endocutters, which are used to close wounds; contact lenses; artificial joints and trauma products used in orthopaedics; and breast implants, among other items. Part of the company’s positive outlook for the rest of the year stems from a continued upward swing in this division as the medical industry stabilizes and grows.
“The improvement that we’re seeing in our surgery business will continue to bear out stronger performance and share gains through the year,” said CEO Alex Gorsky in an earnings call on Tuesday morning. “Based upon some of the surgical planning reports that we saw, especially for the end of the first quarter, it looks as though performance for the second and third quarters should be on good trends, and we expect that to improve as patients gain confidence to go back into the hospitals, and we see systems work their way through backlogs.”
Volume, Not Price
In a broader look at J&J’s future, on the same call, company representatives were asked how they would respond to potential regulation in the U.S. market regarding drug pricing going forward. For the last few years, regulators have been looking more and more closely at making prescription drugs more affordable to patients, implementing such actions as the Safe Importation Action Plan, which allows states to import certain drugs from Canada.
Interestingly, the response was that J&J has based its growth primarily on increases in volume and not price over the year.
“Prices declined in 2020 by 5.7 percent, and this is the fourth consecutive year that we have made price declines,” said Joaquin Duato, J&J’s vice chairman of the executive committee. “We are able to grow in (in a price-regulated) environment based on having a very broad-based portfolio, with 11 products of more than a billion dollars and an R&D-based model that allows us to have a very differentiated pipeline. In 2020, we invested $9.6 billion in R&D, which is two times what we invest in sales and marketing, so … in that context, the Johnson & Johnson pharmaceutical business is especially well-positioned, based on our ability to drive growth based on volume in our very broadly diversified portfolio.”
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