Johnson & Johnson's Shot Success Overshadowed by Baby Powder Cancer Suit

On Tuesday, Johnson & Johnson JNJ exceeded Wall Street's profit expectations but revenue missed forecasts for its third quarter. However, this report has been overshadowed by criticism about its handling of the opioid crisis and the development of a comparatively less effective Covid vaccine under outgoing CEO Alex Gorsky.

Third Quarter Figures

The pharma giant sold $502 million of its Covid-19 vaccine over the quarter, bringing in revenue of $23.34 billion that came below the expected $23.72 billion.

However, adjusted earnings per share exceeded the expected $2.35 as they amounted to $2.60. The better-than-expected profit was bolstered by higher sales in consumer health, pharmaceutical, and medical devices units.

The consumer unit, which makes products such as Neutrogena face wash and dental wash Listerine, brought in $3.7 billion to the revenue table, which translates to a 5.3% increase from a year earlier.

The pharmaceutical business is behind the single-shot Covid vaccine 13.8% YoY as it generated $12.9 billion in revenue.

The medical device unit that was hit hard by the pandemic that forced hospitals to postpone non-essential surgeries generated $6.6 billion, which translates to an 8% increase.  Chief Financial Officer Joseph Wolk told CNBC the revenue miss is owed to this unit and the Covid vaccine as the company experienced "fluctuations in elective procedures with the delta variant."

The Booster Permit and A "Mix and Match" Approach

On Wednesday, The US Food and Drug Administration authorized booster doses of Johnson& Johnson's and Moderna Inc's MRNA Covid-19 vaccines with a mix and match approach of any of three authorized vaccines used as a booster. But it left in place a complex formula for who should get boosters and when, so officials can simplify the framework as more safety data is gathered.

The FDA already approved emergency use authorization for a half dose of Moderna's vaccine as a booster for those who have been fully vaccinated at least six months ago, who are at least 65, who are at least 18 and at high risk of severe Covid-19 complications or have frequent institutional or occupational exposure to the virus. It also authorized booster doses of Johnson & Johnson's vaccine for anyone 18 and older who got that vaccine at least two months ago.

Pfizer Inc PFE already received the authorization for its booster shots for those vaccinated at least six months ago, with the same restrictions as those for Moderna's vaccine: those 65 and older and those with a higher risk of severe disease.

The Costly Baby Powder Controversy

Although cited as an "unrelenting assault by greedy lawyers",  40,000 lawsuits made Johnson & Johnson hope to resort to bankruptcy to dispose of the claim its baby powder products caused cancer. Its subsidiary that was created to hold the liabilities from the litigation announced last week it was filing for Chapter 11 protection. The critics called the move "an unconscionable abuse of the legal system." Although the company has denied its signature Johnson's Baby Powder and other talc-based products contained asbestos and cancer-causing chemicals, as alleged by tens of thousands of plaintiffs, it stopped selling Baby Powder in the United States and Canada last May and has put in 2 billion into a settlement fund to pay the talc claims. According to a court filing, the company has spent nearly $1 billion defending itself.

Outlook

J&J maintained its Covid vaccine sales outlook for the year at $2.5 billion. Moreover, it increased its full-year earnings guidance in the range between $9.77 per share and $9.82 per share, up from its previous estimates of $9.60 to $9.70 per share. Revenue is expected to be in the range from $94.1 billion to $94.6 billion, also up from a previously guided range of $93.8 billion and $94.6 billion.

Takeaway

In a press release, CEO Alex Gorsky summarized the financial results stating that they reflect solid performance across the company, fueled by robust above-market results in Pharmaceuticals, ongoing recovery in Medical Devices, and strong growth in Consumer Health.

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