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J&J Promises `Significant' R&D Spending After Tax Reform

Jan. 23, 2018
"We’re now up to the most significant R&D spending we’ve done in our history and we expect to expand on that going forward," the company said after forecasting 2018 profits will be higher than anticipated due to the tax overhaul.

Johnson & Johnson is promising to spend more on research in the health-care sector after changes to the U.S. tax system.

But for now, the world’s biggest health-care company isn’t providing many details on how it may use the extra money from lower tax rates.

“We’re going to look at all of our opportunities but it’s going to be a significant increase," CFO Dominic Caruso said on Jan. 23 in an interview on Bloomberg TV. “We’re now up to the most significant R&D spending we’ve done in our history and we expect to expand on that going forward.” He declined to provide a specific amount.

J&J provided a 2018 profit forecast that was higher than analysts anticipated, joining companies that are seeing benefits from the tax overhaul passed in law late last year. The health-care conglomerate, whose businesses include prescription medicines, medical devices and consumer brands such as Johnson’s baby care, makes almost half of its revenue outside of the U.S., and also benefited from the weaker dollar in the past year.

The profit for this year will be $8 to $8.20 a share, excluding some items, J&J said, higher than the $7.86 average of estimates compiled by Bloomberg. Revenue is projected to be $80.6 billion to $81.4 billion, in line with estimates.

J&J, the first big U.S. drugmaker to report financial results this year, topped profit estimates for the fourth quarter. Earnings were $1.74 a share, excluding some items, New Brunswick, New Jersey-based J&J said. Analysts anticipated $1.72.

On a net basis, J&J had a quarterly loss of $10.7 billion after taking a one-time charge of $13.6 billion related to accounting changes caused by tax legislation, to bring back to the U.S. years of aggregated foreign earnings. At the end of 2016 that amounted to $66 billion, according to the most recent annual report.

There were some disappointments in the pharmaceuticals business, J&J’s biggest. Sales of blockbuster arthritis treatment Remicade, now facing competition from cheaper versions, came in lower than analysts anticipated. The decline was offset by sales in newer drugs such as psoriasis drug Stelara.

For about a year, the company has been reviewing strategic options for its diabetes-care business, which could include a sale, partnerships or joint ventures. J&J has said the diabetes devices have been hit by price declines for several years in the market and it’s difficult to fund future innovation. On Tuesday, a Chinese firm said it approached J&J about the proposed sale.

Caruso declined to comment on the review.

By Jared S. Hopkins

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