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JNJ On Tap: Price Control Debate May Color Big Pharma Earnings

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October 12, 2015
JNJ On Tap: Price Control Debate May Color Big Pharma Earnings

The constant scrutiny over the costs that big pharmaceutical companies charge for everyday and specialty drugs will likely be getting a closer look within Q3 earnings results due out starting this week and throughout the next month. That’s because Congress and presidential hopefuls continue to press the industry over drug-price jumps that critics have deemed excessive.

Cost complaints have made the news for decades but in just the last month or so they’ve been at the forefront of new legislative discussions and election stump platforms. That’s after Turing Pharmaceuticals hiked what it charges for Daraprim—an effective drug, according to industry review, that’s used by cancer and AIDS patients. Turing spiked the price by 5,400% to $750 a pill from $13.50.

Amid the uproar—even Democratic presidential candidate Hillary Clinton tweeted that the “gouging” was “outrageous”—the company promised to lower the price but has yet to do so. Local pharmacies are still charging upwards of $900 per pill, according to published reports.

Global health conglomerate and Dow Jones Industrial Average (DJX) constituent Johnson & Johnson (JNJ) is not part of the Turing fracas just yet. But its big-pharma status throws it into the larger debate of government-induced price controls that could impact the future results of JNJ and its competitors. Investors will want to hear how big pharma, including JNJ, is reacting to the political rhetoric and the potential share-price volatility fears that drug-pricing noise has engendered among some traders. Could this topic overshadow any business-as-usual earnings announcement?

Braced for Year-Over-Year Drop?

JNJ issues its latest quarterly performance in the pre-bell hours on Tuesday. Analysts reporting to Thomson Reuters expect JNJ’s Q3 earnings and revenue to decline on a year-over-year basis. For the quarter, these analysts forecast an average $1.45 per share in profit on topline sales of $17.48 billion. A year ago, JNJ turned in adjusted per-share earnings of $1.66 on revenue that was almost $1 billion higher at $18.46 billion. 

More of the Same?

JNJ has had a three-year history of outpacing Wall Street’s profit expectations. Its stock price is off some 13% since a high of 109.49 was hit last November but shares had been trending upward in recent sessions (figure 1).

The stock move around the earnings release could be muted if the options market is any guide. The Market Maker Move tracked on the thinkorswim® platform shows short-term options traders as of Monday morning have priced in a nearly 1.3% potential share move in either direction around the Tuesday earnings release.

JNJ-stock-chart

FIGURE 1: STEADY IMPROVEMENT?

Johnson & Johnson (JNJ) shares charted on the new-look thinkorswim® platform show JNJ’s share price is off some 13% since a high of 109.49 hit last November. At the 95.37 hit to end trading last week, the stock was at its highest in nearly a month. Chart source: TD Ameritrade’s thinkorswim® platform. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

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