It’s earnings season. Here’s what to look for after J&J Beat

Johnson & Johnson started the third quarter earnings season on Tuesday. J&J is often viewed as the biopharma industry’s lodestar, the canary in the coal mine that analysts use to gauge the performance of other companies in the industry. Being the first to leave the merit gate carries with it great responsibility and weight.

J&J posted solid growth in the third quarter exceeded Wall Street expectationswith revenue of nearly $22.5 billion, up 5.2% from the same quarter last year. Adjusted earnings per share (EPS) fell 9% year over year to $2.42, but still beat analysts’ expectations. Oncology proved to be the biggest growth driver, generating sales of $5.38 billion. Darzalex, a drug used to treat multiple myeloma, became the company’s largest pharmaceutical company with global sales of more than $3 billion in the third quarter.

One company expected to see more positive news is Eli Lilly, which could announce this quarter that it has finally edged ahead of Novo Nordisk in the Zepbound-Wegovy weight loss battle. The second quarter results showed that competition between the pharmaceutical giants’ weight loss drugs is becoming increasingly tight with Lilly Closing the market share gapand the signs now point to a shortage of anti-obesity drugs ends for Lilly and continues for Novo.

Writing on third-quarter results this week, BMO Capital Markets analyst Evan Seigerman said he expects “a split in the obesity duopoly, with Lilly potentially coming out on top given weakening supply momentum,” while “Wegovy scripts on could indicate subpar performance as production capacity remains limited.”

Note this: Lilly reports third-quarter results on October 30th and Novo Nordisk reports its financial results on November 6th.

Pfizer is another big pharma that is expected to exceed expectations – probably more than J&J. In a report to investors this week, analysts at Guggenheim Securities said they see Pfizer as a winner with “significant upside” to consensus numbers due to increased demand for COVID-19 products. “Given the momentum in key products in the third quarter, particularly Comirnaty and Paxlovid, we see significant potential for upside in the upcoming earnings release,” said Guggenheim, which reported third-quarter revenue of $16.95 billion and earnings per share of $0.78, which is well above the current FactSet consensus revenue of $14.74 billion or earnings per share of $0.59. Pfizer will report its quarterly results on October 29th.

I’ll be listening to Friday’s webcast with Jefferies analysts who will go over their Q3 expectations for other big pharma and biotech companies, including Bristol Myers Squibb, Lilly, Merck and Regeneron. Their findings come late for this week’s column, but the company has already commented on Amgen (AMGN), Biogen (BIIB), Gilead Sciences (GILD), Moderna (MRNA) and Vertex Pharmaceuticals (VRTX). And this is where we start to see some of those duds from the third quarter, particularly Moderna.

Jefferies analysts wrote in a report this week that the third quarter “appears inconsistent or somewhat chaotic, although the fundamentals and our thesis are certainly intact here: We like AMGN and GILD and have been bullish all year; BIIB has problems with Leqembi and needs another M&A deal; VRTX is fine and LSR’s chronic pain data should be positive, although the stock is already strongly reflected in valuation and stock performance; MRNA has profitability issues and forecasts are unclear – COVID vaccinations also appear to be “peaking early,” which is not a positive.”

Jefferies’ outlook for Moderna is significantly negative after its second-quarter results, when the company lowered its 2024 forecast, and “even more so now” after last month’s annual report R&D day“when they gave a lower forecast for 2025 and Cost reductions of $1 billion will not occur until 2027.”

Jefferies analysts also noted that respiratory syncytial virus (RSV) scripts and guidance for 2024 are “essentially negligible,” while it remains “unclear” whether Moderna will have one in 2025 due to strong competition from GSK and Pfizer could conclude a contract. Adding to these challenges is uncertainty about what RSV vaccine recommendations will look like next season. “The main concern is that they continue to burn cash (while spending is still $5 billion to $6 billion) and have pushed profitability to 2028 from the previous forecast for 2026,” the analysts wrote.

In addition to the company’s problems, we learned this week that rival GSK is struggling filed two lawsuits against Moderna, alleging that the vaccine developer used proprietary mRNA technology for its COVID-19 vaccine Spikevax and RSV vaccine mResvia. Moderna is scheduled to report third-quarter financial results on November 7.

Aside from third-quarter earnings, the biopharma industry in general, like other sectors of the U.S. economy, is closely watching the November 5 presidential election. BMO Capital Markets’ Seigerman wrote this week that third-quarter earnings “feel like the calm before the storm.” Many investors are on the sidelines in the run-up to the US elections.”