Pharmaceutical behemoth Johnson & Johnson (NYSE:JNJ) sued the Biden Administration for its 2022 ruling relating to Medicare negotiations in the Inflation Reduction Act (IRA). The ruling enabled the government’s Medicare program to negotiate and slash the drug prices of popular drugs, citing affordability concerns. Meanwhile, JNJ is set to report its second quarter Fiscal 2023 results on July 20, before the market opens.
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The Street expects JNJ to post adjusted earnings of $2.62 per share, marginally higher than the comparative prior-year figure of $2.59 per share. Similarly, revenues are pegged at $24.67 billion, up 2.7% compared to the same period last year.
Lawsuit Against the Administration
Johnson & Johnson is claiming the new rule will allow Medicare to set drug prices much lower without the consent of the pharma companies, despite calling it negotiable. This in turn will hamper JNJ’s profitability as pharma companies spend billions of dollars and years-long of research behind the development of life-changing drugs. At the heart of the matter is JNJ’s drug Xarelto, which aids in treating blood clots and reduces the chances of a stroke.
Xarelto is subject to price negotiations in 2023 since it is widely covered under the Medicare Part D program that reimburses the cost of medicine for senior citizens. The first list of drugs that will be subject to negotiations is due on September 1, with the revised prices taking effect in 2026. Through the lawsuit, the company seeks to stop the U.S. Health and Human Services Department (HHS) from forcing it to participate in the program.
Johnson & Johnson filed a lawsuit in a New Jersey court citing a violation of the First and Fifth Amendments of the U.S. Constitution. Previously, pharma companies Merck (NYSE:MRK) and Bristol Myers Squibb (NYSE:BMY) filed similar lawsuits challenging the said provision of the IRA.
JNJ said the lawsuit seeks to stop the “innovation-damaging congressional overreach that threatens the United States’ primacy in developing transformative therapies and in patients’ access to those treatments.”
JNJ’s Q2 Results in Focus
JNJ’s Q2FY23 results are due tomorrow, July 20. The company has consistently beaten earnings expectations in the past several quarters, though it has fallen short in terms of revenue in a few instances. All eyes will be on the management’s comments related to the two main issues listed below.
The pharma company faces ongoing litigation related to the talc (baby powder) issue. The company created a separate entity, LTL Management, to absorb all of the talc-related liabilities. LTL is seeking a bankruptcy filing once again while it has already agreed to pay $8.9 billion over 25 years to settle all current and future talc claims.
Furthermore, investors await any news on the distribution of the majority stake in its recently spun-off consumer health division into Kenvue (NYSE:KVUE). As of date. JNJ owns around $43 billion worth of KVUE shares.
Is JNJ Stock a Buy or Sell?
On TipRanks, JNJ stock has a Moderate Buy consensus rating based on four Buys and nine Hold ratings. Also, the average Johnson & Johnson price target of $179.94 implies 13.1% upside potential from current levels. Year-to-date, JNJ stock has lost 9.4%.
