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Johnson & Johnson excludes US tax reform plans from upped FY'17 guidance

Johnson & Johnson voiced confidence in the progress of a tax reform initiative in the U.S. but clarified that it is not assuming any tax reform in its 2017 profit guidance.

The drugmaker raised its full-year 2017 adjusted EPS outlook to between $7.25 and $7.30 from the previous $7.12 to $7.22 range, after recording an 11.2% increase in third-quarter earnings to $5.21 billion, or $1.90 per share.

The administration's business tax reform plan would allow top U.S. biopharmaceutical companies to repatriate cash overseas at a significant discount and would reduce total corporate tax rates. Johnson & Johnson is among those holding the largest piles of cash offshore, according to data compiled by S&P Global Market Intelligence.

Johnson & Johnson remains optimistic on the White House's tax reform plan but is not assuming reform in its full-year 2017 outlook, CFO Dominic Caruso said during the company's Oct. 17 earnings conference call, adding that its guidance, excluding special items, is 19% to 19.5% as an effective tax rate — a slight tightening of the range from the company's previous guidance.

Driving drug sales

Sales for diabetes drug Invokana declined in the U.S., following increasing discounts for the brand in managed care contracting and higher utilization in the Medicaid program, said Joseph Wolk, head of investor relations.

The 25.2% decline in Invokana sales was mainly attributed to pricing, according to Joaquin Duato, worldwide chairman of pharmaceuticals. The addition of the black box warning required by the U.S. Food and Drug Administration to warn about the risks of foot and leg amputations also impacted sales.

Johnson & Johnson is, however, optimistic that the Credence study in patients with diabetic neuropathy evaluating kidney function is an opportunity with Invokana as the company moves into 2018.

Imbruvica, which is being marketed with AbbVie Inc., and Darzalex, developed with Genmab A/S, "will remain important drivers of our growth into 2018," as they both "continue to have impressive share gains," Duato said.

Imbruvica, which is used to treat chronic graft-versus-host-disease, a serious and debilitating potential consequence of stem cell or bone marrow transplant, has taken over 50% of the U.S. market share across all approved indications, Wolk noted. Darzalex, meanwhile, has more than 40% of the U.S. market share for multiple myeloma, Duato added.

Assessing Actelion accretion

The $30 billion acquisition of pulmonary arterial hypertension drugmaker Actelion has been key to the company's total pharmaceutical growth, said Duato.

Sales included the impact of the first full quarter of the acquisition, which contributed 7.9% to worldwide operational sales growth.

Johnson & Johnson is assessing how much of the accretion from Actelion of roughly 35 cents to 40 cents per share will be on top of the operational EPS growth and how much will be reinvested, Caruso said.

"[W]e're evaluating all our plans right now in determining where is the best place to invest, what the businesses have in terms of launches of new products and what they have in terms of their own momentum, and we want to continue to invest behind new product launches," Caruso said, adding that the company will disclose its plans on the Actelion accretion when it announces its full-year results in January 2018.