J&J’s Blockbuster Hepatitis C Sales Not Enough for Investors

Jul 15, 2014 4:05 pm ET

(Adds closing stock price in fifth paragraph.)

July 15 (Bloomberg) -- While Johnson & Johnson’s new hepatitis C pill Olysio has had blockbuster revenue in 2014, concerns the sales surge probably won’t last drove down shares.

Olysio, approved in November, generated second-quarter sales of $831 million, the company said today as it reported earnings that beat analyst estimates. The drug, though, may face competition from a similar product as early as October.

Gilead Sciences Inc. is developing a pill that will replace Olysio in a cocktail of drugs used by patients with the liver disease, and that the company has said could be approved this year. While J&J’s pharmaceutical unit grew 21 percent in the second quarter, that growth was largely driven by Olysio.

“There may not have been as many folks dialing in the pressure on the back half of next year from competition,” said Matt Miksic, an analyst with Piper Jaffray Cos., in a telephone interview “That’s certainly something that was driven home.”

Shares of New Brunswick, New Jersey-based J&J fell 2 percent to $103.28 at 4 p.m. New York time, the biggest one-day decline since April.

Positive earnings results released today were not enough to offset Olysio’s likely future decline. J&J beat earnings estimates by 11 cents, posting profit excluding one-time items of $1.66 a share. The company raised its guidance for the year by less than half of that, or 5 cents, to $5.85 to $5.92 per share, up from $5.85 to $5.90 previously.

Conservative Guidance

The share decline may reflect “the lack of a more meaningful guidance raise to reflect to reflect this quarter’s out-performance, again, a move that we believe is the company being conservative,” Danielle Antalffy, an analyst with Leerink Research, said in a note to client.

Second-quarter net income rose 13 percent to $4.3 billion, or $1.51 a share, from $3.8 billion, or $1.33 a share, a year earlier. Total revenue was $19.5 billion, up 9 percent from a year before.

After losing patent protection on drugs with $8 billion a year in sales since the early 2000s, J&J has launched 14 new compounds since 2009, making it the fastest growing of the 10 biggest pharmaceutical companies in the U.S., Europe and Japan, Chief Executive Officer Alex Gorsky said on the call.

Joaquin Duato, head of J&J’s drug business, credited the company’s long-term investments with the drug unit’s growth. “Is this just a lucky run, or is there something more to it?” Duato said on a call today. “After facing significant challenges in the early 2000s, we made a number of changes to our business,” he said, including increasing their focus on drug development.

’Directly Responsible’

“These changes are directly responsible for the success we are seeing now,” he said.

The company’s worldwide drug sales rose to $8.5 billion, led by the arthritis medicine Simponi, the prostate cancer drug Zytiga, blood thinner Xarelto, psoriasis treatment Stelara. Consumer products and medical devices are also starting to expand again after quality problems and recalls.

Sales of consumer goods and over-the-counter medicines, including Tylenol and Motrin, returned to growth in the quarter, rising 2.4 percent to $3.74 billion from a year before.

The medical device unit, now the company’s second-biggest division behind pharmaceuticals, had the weakest growth. Sales rose less than 1 percent, to $7.24 billion.