J&J Posts Loss on Tax Charge; Patent Ruling Stings -- WSJ

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (January 24, 2018).

Johnson & Johnson sales rose in the fourth quarter, but the company reported a loss after taking a $13.6 billion charge as a result of the new U.S. tax law.

J&J expects the new law to lower its effective tax rate by 1.5 to 2.5 percentage points from the current rate of 17.2%.

Analysts said the positive impact probably figured in the company's better-than-expected financial outlook for this year.

New Brunswick, N.J.-based J&J is the latest company to post a charge as a result of the new tax law's levy on earnings made abroad, part of the overhaul's efforts to shift to a territorial system of taxation.

J&J has about $16 billion in foreign earnings it has held overseas to avoid paying taxes under the old 35% corporate tax rate. The new law will charge companies a one-time tax of 15.5% on overseas profits held in cash and liquid assets.

Chief Executive Alex Gorsky praised the tax changes for improving the competitiveness of U.S. companies and giving them more flexibility to use their cash.

He said the law will prompt J&J to increase investment "with the intent to have [the investment] substantially made in the U.S."

For the fourth quarter, J&J swung to a loss of $10.71 billion, or $3.99 a share, compared with a profit of $3.81 billion, or $1.38 a share, in the year-earlier period, largely because of the tax-law charge.

Excluding special items such as the tax provision, J&J's profit rose 9.5% to $4.78 billion, or $1.74 a share. Analysts polled by Thomson Reuters were expecting adjusted earnings of $1.72 a share.

J&J, one of the largest U.S. health-products companies by revenue and a bellwether for the health-care sector, said sales rose 12% to $20.2 billion.

The performance was driven by sales in the company's pharmaceuticals business, which rose 18% to $9.7 billion. Sales of J&J's cancer drugs had some of the biggest gains.

Global sales of multiple-myeloma treatment Darzalex rose 86% in the quarter to $371 million, making the drug a so-called blockbuster, with annual sales over $1 billion.

But sales of arthritis therapy Remicade, J&J's longtime top-selling product, fell 10% in the quarter to $1.5 billion as the company offered heavy discounts to compete with lower-priced biosimilars.

Mr. Gorsky said the company was making moves to improve the performance of its consumer-health and medical-device businesses, which haven't been performing as well as the pharmaceuticals unit.

For 2018, J&J said it expects sales between $80.6 billion and $81.4 billion and adjusted earnings per share between $8 and $8.20. Analysts had expected full-year adjusted earnings of $7.87 on revenue of $80.7 billion.

Also on Tuesday, a federal appeals court upheld a decision from the U.S. Patent and Trademark Office invalidating a key patent protecting Remicade. If J&J had won, the company could have sought compensation from rivals such as Pfizer Inc. for sales lost to biosimilar versions of Remicade.

The news helped send J&J shares down 4.3% to $141.83 on the New York Stock Exchange.

A J&J spokesman said the company was "disappointed" in the ruling. Patents "enable us to invest in the discovery and development of tomorrow's life-changing and lifesaving new medicines," the spokesman said.

Pfizer has sued J&J alleging anticompetitive behavior to protect Remicade from competition from Pfizer's biosimilar, known as Inflectra. A Pfizer spokesman praised the patent ruling, but said "J&J continues to use their scheme of exclusionary contracts to maintain Remicade's monopoly position that prevents patients, payers and providers from the opportunity to benefit from Inflectra."

Write to Jonathan D. Rockoff at Jonathan.Rockoff@wsj.com and Allison Prang at allison.prang@wsj.com

(END) Dow Jones Newswires

January 24, 2018 02:47 ET (07:47 GMT)