Do J&J's Q3 Results Indicate a Sales Recovery for Big Pharma?

Johnson & Johnson JNJ is usually the first pharma company to report quarterly earnings. It reported encouraging third-quarter results, beating third-quarter estimates for earnings and sales. The drug and medical device giant also raised its full-year earnings and sales guidance for the second time this year.

How Did J&J’s Segments Perform

Its Pharmaceuticals unit continued to outperform the market as the company witnessed improved trends in prescription volumes and physician office visits. The sales increase was led by higher penetration and new indications across key products, such as Darzalex, Imbruvica and Stelara, which offset the impact of biosimilar and generic competition on some drugs, and the continued delays in diagnosis and slower new patient starts for some other drugs due to COVID-19.

Meanwhile, increasing demand for its Consumer Health products and a better-than-expected procedure recovery in Medical Devices provided top-line support. Thepandemic hit J&J’s Medical Devices segment the hardest due to a widespread decline in elective surgical procedures and the redeployment of hospital resources to address patients affected by COVID-19. However, the segment was much less affected in the third quarter due to better-than-expected market recovery as medical procedures are ramping up faster than expected.

In fact, faster-than-expected recovery in sales of the Medical Devices unit was the primary factor, which coaxed the company to raise its financial outlook for the year.

What Do J&J’s Results Mean for Others?

J&J is the first of the big drugmakers to report earnings for the third quarter. Investors typically look at this company’s results for signals regarding how the rest of the big drugmakers will fare.

Most large drugmakers expect their sales trends to have improved in the third quarter after a brutal second quarter. In the second quarter, demand trends of drugs, those administered in a physician’s office, were hurt by COVID-19-related business disruptions, while reversal of stockpiling benefits in the first quarter also hurt most companies’ top line. However, drugmakers expect improved business conditions with global economies re-opening to have resulted in increased sales in the quarter to be reported.

This was reflected in J&J’s Q3 results. All its segments performed well despite the negative impact of COVID-19 and the company expects to see continued improvement through the end of the year. Going forward, J&J expects continued procedure stabilization in the Medical Devices unit, solid volume-driven above-market growth in the Pharmaceuticals unit and competitive growth in the Consumer Health segment.

J&J’s strong third-quarter results and a bullish outlook for the rest of the year make us optimistic that most large drugmakers like Eli Lilly LLY, Merck MRK, AbbVie ABBV, AstraZeneca, Glaxo GSK and others, should report better-than-expected results for the third quarter.

J&J currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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