Fly Intel: What to watch in Johnson & Johnson earnings report

Johnson & Johnson (JNJ) is scheduled to report results of its third fiscal quarter before the market open on Tuesday, October 16, with a conference call scheduled for 8:30 am EDT. What to watch for 1. 2018 GUIDANCE: Along with its second quarter financial report in mid-July, the drug giant gave its view for FY18. J&J narrowed its FY18 EPS view to $8.07-$8.17 while lowering its yearly revenue view to $80.5B-$81.3B from $81B-$81.8B. The consensus for yearly revenue was $81.47B at the time. Worldwide operational results, excluding the net impact of acquisitions and divestitures, were driven by over-the-counter products including Tylenol analgesics and digestive health products, international beauty products primarily Neutrogena, OGX and Dr. Ci Labo, partially offset by lower sales of baby care products. Worldwide Pharmaceutical sales of $10.4B for Q2 represented an increase of 19.9% versus the prior year with an operational increase of 17.6% and a positive impact from currency of 2.3%. Worldwide operational results, excluding the net impact of acquisitions and divestitures, were driven by Stelara, a biologic for the treatment of a number of immune-mediated inflammatory diseases, Zytiga, an oral, once-daily medication for use in combination with prednisone for the treatment of metastatic, castration-resistant prostate cancer, Darzalex, for the treatment of patients with multiple myeloma, Imbruvica, an oral, once-daily therapy approved for use in treating certain B-cell malignancies, a type of blood or lymph node cancer, Tremfya, for the treatment of adults living with moderate to severe plaque psoriasis. Simponi/Simponi Aria a biologic for the treatment of a number of immune-mediated inflammatory diseases, Invega Sustenna/Xeplion/Trinza/Trevicta, long-acting, injectable atypical antipsychotics for the treatment of schizophrenia in adults, and Xarelto, an oral anticoagulant. 2. CHANGES TO MEDICARE PART B: In early August, the Centers for Medicare and Medicaid Services gave new authority to Medicare Advantage plans that allows those plans to negotiate lower drug prices. The policy will also allow Medicare Advantage plans to cross-manage across Part B and Part D as applicable. Credit Suisse analyst A.J. Rice said at the time that the changes could mean a source of potential savings opportunities for MA plans, but a lack of clarity around formal rule making related to step therapy, shared savings arrangement and beneficiaries adoption could limit participation for the 2019 plan year. Long-term, Rice sees these changes as a "net positive" for MA plans vs. Medicare Fee-for-Service. Rice also noted that, according to CMS, in 2016, seven drugs had reported total annual spending in excess of $1B under Part B, including Regeneron's (REGN) Eylea, Amgen's (AMGN) Neulasta and Prolia, Roche's (RHHBY) Avastin, Rituxan and Lucentis, and Johnson & Johnson's Remicade. 3. HEART FAILURE STUDIES MISS ENDPOINTS: In late August, Johnson & Johnson's Janssen Pharmaceuticals announced the results of the Phase 3 Mariner and Commander heart failure studies, which were presented at the European Society of Cardiology Congress 2018 and simultaneously published in The New England Journal of Medicine. In both studies, there was no significant difference found between Xarelto and placebo for the primary efficacy endpoints. Xarelto did, however, demonstrate a consistent safety profile, Janssen said in a statement. Mariner demonstrated that Xarelto did not reduce the composite endpoint of venous thromboembolism, or blood clots, and VTE-related death in acute medically ill patients following hospital discharge. 4. TALC CASE UPDATE: Late last week a jury in New Jersey cleared Johnson & Johnson of liability in a case where a woman claimed that the company's talc-based products, including its baby powder, contain asbestos and caused her cancer.