Why Johnson & Johnson's Strong Pharmaceutical Business Is A Concern

Johnson & Johnson JNJ came out with better than expected earnings on Tuesday despite the strong headwind it faced from the rising dollar. The company reported first-quarter EPS of $1.56, compared to $1.54 in the same quarter last year, while revenue dropped to $17.4 billion, from $18.1 billion.

Barbara Ryan, Clermont Partners, was on CNBC recently to share her outlook on Johnson & Johnson and the company’s M&A activity.

Concerns About Pharma

“JNJ’s performance has been driven largely by a very strong pharmaceutical business,” Ryan said. “People are a little concerned about that going forward, they have obviously competition in Hepatitis C, there’s some concerns around Remicade which is about 15 percent of the company’s business as it relates to some patent disputes as well as biosimilars, but certainly we see companies like Merck and Pfizer in U.S. benefitting from what we are seeing in immuno oncology [...]”

M&A Activity

On Johnson & Johnson losing its bid for Pharmacyclics, Inc. PCYC to AbbVie Inc ABBV, Ryan said, “I think if you look at JNJ, it’s been a great collaboration for them, right? Enormously successful drug and Abvie sort of stands to gain more because they want to get into that market.”

“I think people are looking at JNJ from the perspective that they have $20 billion in cash what are they going to do with that. They sold Cordis…so they have been focussed on getting out of some of the slower growth, lower operating margin portions of their business and will they in fact do more M&A in pharma,” Ryan concluded.