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Johnson & Johnson Q3 sales beat estimates at $20.3B despite pricing pressure

Johnson & Johnson surpassed Wall Street's expectations in the third quarter, generating $20.3 billion in global sales in the face of pricing pressure and increasing competition for some of its key drugs.

The world's biggest healthcare company by market value saw growth across all three segments: pharmaceuticals division Janssen, consumer health and medical devices. Janssen reported 8.2% growth over the same period in 2017, driven by cancer therapies.

Prior to the earnings release, analysts had predicted sales of $20.05 billion, a consensus that the company beat. Earnings reached $2.05 per share as opposed to consensus expectations of $2.03.

Following the strong performance, J&J raised its expected 2018 sales to $81.4 billion from $81 billion and lifted its EPS forecast to $8.13 to $8.18 a share, up from $8.07 to $8.17.

The New Brunswick, N.J.-based company's shares were up 1.91% to $136.29 at 1:08 p.m. ET.

Encroaching competition

But sales of rheumatoid arthritis drug Remicade dwindled, dropping another 15% to $1.38 billion as biosimilars from Pfizer Inc., Merck & Co. Inc. and Samsung Bioepis Co. Ltd. nibbled away at market share. Remicade does still retain 93% of the market, though, CFO Joseph Wolk said on J&J's earnings call.

Despite the decline in Remicade revenue, immunology grew 5% overall due to the strong performance of the company's Stelara and Simponi medicines, as well as the newly launched Crohn's disease treatment Tremfya.

"We definitely are seeing continued pressure on pricing in immunology, as the payers are working to extract greater rebates and discounts and also as there is increasing competition in key categories," Jennifer Taubert, executive vice president of pharmaceuticals, said on the Oct. 16 call. "However, that being said ... I think we're really well-positioned to continue to compete and to be able to succeed in the market."

Cancer drugs lead

The oncology portfolio overall was especially strong for J&J, leading the $10.3 billion pharmaceutical segment.

Prostate cancer drug Zytiga was the company's best performer in the division, pulling in $958 million over the quarter. Still, Zytiga also has to contend with encroaching competitors down the road: The Zytiga patent was invalidated in January, giving way to generics after a stay that ends at the end of October.

Leukemia treatment Imbruvica followed Zytiga in sales with $705 million in the third quarter, up from $512 million during the same period a year ago. And multiple myeloma drug Darzalex raked in $498 million, compared to $317 million in the year-ago quarter.

"Oncology was the highlight of the portfolio once again, exhibiting operational growth of 38.6% on the back of strong Darzalex and Imbruvica sales as global patient uptake continues to expand for both drugs," Cowen analyst Joshua Jennings wrote in a note to clients.

Cardiovascular vulnerability

J&J's sales suffered from a weakening cardiovascular lineup with both Xarelto and Invokana seeling declining sales compared to the same period a year ago.

Xarelto fell because of increased rebates, executives said on the earnings call, but a new indication approved this quarter by the U.S. Food and Drug Administration could expand the patient population by as many as 13 million patients.

At the end of August, results from two phase 3 Xarelto studies fell short of expectations, giving J&J a smaller chance of expanding the blood thinner's use further.

Medical devices underperform

Although there was growth in the medical devices sector of 1.7%, the business continues to perform at a lower level than the rest of J&J and below market, the company said.

"We are not satisfied with the performance in medical devices," Wolk said.

Diabetes, in particular, was a low point, and the company this quarter divested its LifeScan diagnostics arm in that space.

Wolk mentioned the potential for deals in medical devices.

"We're seeing improvements, and whether that's going to take a transformational deal or a tuck-in deal, we're looking at all of them across all segments of our businesses," Wolk said.

The improvements were noted by analysts, as well.

"These results should bode well for the group at large and in particular for Interventional Solutions (Cardiology), Surgery and Vision, which continue to be the primary drivers of growth for the segment," Leerink Partners analyst Danielle Antalffy wrote.

Baby brand relaunch

J&J's consumer division also benefited from a relaunch of its iconic brand of baby-related products, growing the division 4.9%.

"We think that [growth] is going to continue because it's underpinned by the baby franchise being rolled out across the globe," Wolk said. "We're seeing strong receptivity for those products here in the U.S., China and India."