J&J Maintains Growth Projections Amid IRA Price Negotiation Impact

Johnson & Johnson (J&J) is adjusting to the new landscape of pricing rebates and Medicare drug cost negotiations as attempts by the pharmaceutical industry to overturn the Inflation Reduction Act (IRA) have not been successful. Despite disagreeing with the IRA and its price-setting mechanisms, J&J has integrated expected future costs into its growth forecasts, according to Jennifer Taubert, Executive Vice President and Worldwide Chairman of Innovative Medicine at J&J, during an analyst call.

J&J anticipates a business growth of 3% next year, increasing to 5%-7% annually through 2030. This projection comes after J&J received final price offers from Medicare for three of its drugs under negotiation, although the company plans to disclose these figures around September. These numbers have already been factored into the guidance J&J provided last year.

The IRA, enacted in summer 2022, includes provisions that allow Medicare to negotiate the prices of certain high-cost drugs starting in 2026. J&J is notably impacted, with three of its drugs (Imbruvica, Stelara, and Xarelto) included in the first round of Medicare negotiations. However, J&J’s Darzalex Faspro, a subcutaneous version of its multiple myeloma drug developed with Halozyme, is expected to avoid price negotiations due to its unique formulation.

Taubert’s comments coincided with J&J’s report of a 4.3% increase in second-quarter sales, reaching $22.4 billion. The innovative medicine segment was a significant contributor, generating $14.5 billion, up 5.5% from $13.7 billion in the same period of the previous year. This growth was driven by the performance of cancer treatments such as Darzalex and Erleada, as well as immunology drugs Tremfya and Stelara, and the neuroscience treatment Spravato.

Looking ahead, J&J is betting on new sales from the planned approvals and launches of Rybrevant combined with lazertinib for frontline EGFR-positive lung cancer and Tremfya for inflammatory bowel disease (IBD) in the latter half of the year. Joe Wolk, J&J’s Chief Financial Officer, highlighted these upcoming milestones as crucial for the company’s future growth.

In other news, J&J recently filed an appeal following a legal setback in its challenge to the IRA at the U.S. Court of Appeals for the Third Circuit. The company, like other pharmaceutical firms, argues that the Medicare price negotiation process infringes upon its constitutional rights. J&J’s legal team contends that the process breaches the Fifth Amendment by taking private property without adequate compensation and the First Amendment by forcing companies into agreements they would not voluntarily enter.

As it stands, J&J is navigating a complex regulatory environment while aiming for substantial business growth through the end of the decade. The company’s ability to adapt to these changes and leverage its innovative medicine portfolio will be critical in achieving its long-term objectives.