Litigation costs pour cold water on J&J’s finances

Johnson & Johnson posted a loss in the first three months of the year as it booked a massive $6.9 billion charge related to its recently-agreed proposal to settle claims that its talc products cause cancer.

The usually highly profitable healthcare giant flipped to a $68 million loss in the first quarter and issued a cautious forecast for the full-year, despite posting a 5.6% increase in revenues to $24.7 billion and raising its full-year forecast slightly.

Shares in J&J weakened after the update, in which the company also warned that it may find it more difficult to meet the oft-repeated objective of reaching $60bn in pharma sales by 2025.

The division’s sales rose just over 4% to $13.4 billion, led by Stelara (ustekinumab), which brought in $2.4 billion in the quarter, up 6.8%. However, J&J’s top-selling drug is heading for patent expiry in the US later this year, likely sometime in the late third or early fourth quarters.

While there are currently no ustekinumab biosimilars approved for marketing in the US, several are in late-stage development, including candidates from Samsung Bioepis, Teva/Alvotech, Celltrion, and Fresenius Kabi/Formycon.

J&J’s chief financial officer, Joe Wolk, told analysts and reporters that the company is expecting sales of Stelara to erode fairly quickly, as it is a self-administered, subcutaneous product with multiple competitors approaching the market, some of which may get approval for the biosimilars as interchangeable with the branded drug.

He added, however, that J&J is “committed to growing through the patent expiration,” fuelled by 30 products or platforms that generate over $1 billion in annual revenue.

Updating on the talc litigation situation, J&J said its goal remains to separate the liability into a new company LTL, allowing the rest of the company to return to normal operations.

LTL filed for bankruptcy earlier this month for the second time, after its first attempt was blocked by the courts, but J&J insists that its plan to provide $8.9 billion in settlement funding for claimants over 25 years remains the best option for “equitable and efficient” resolution of the lawsuits.

J&J said the planned spinoff of its consumer health unit was on track and would not be impacted by the LTL bankruptcy filing plan, which comes up against a judge again today.

The company expects sales this year to come in between $97.9 and $98.9 billion, around $1 billion higher than prior forecasts.