By Patrick Wingrove and Bhanvi Satija

(Reuters) -Johnson & Johnson Chief Executive Joaquin Duato said on Tuesday that tariffs on pharmaceuticals can create supply chain disruptions and that favorable tax policies would be a more effective tool to boost U.S. manufacturing capacity of both drugs and medical devices. Duato, during an investor call to discuss first-quarter results, said that healthcare companies should work with the Trump administration to mitigate supply chain vulnerabilities and prevent any drug shortages that can result from tariffs. J&J (NYSE: JNJ ) is the first major healthcare company to report results since the administration of U.S. President Donald Trump proposed hefty duties on trade partners including China, a key source of raw ingredients and supplies for the pharmaceutical and medical device industries.

Other drugmakers have made similar pleas about tax policy to the Trump administration, including Eli Lilly (NYSE: LLY ), which pledged to invest $27 billion in new U.S. plants over the next five years.

Last month, J&J also laid out plans to raise U.S. investments by 25% to more than $55 billion over the next four years, including some already planned commitments.

J&J reported first-quarter revenue and profit above Wall Street estimates on Tuesday, driven by strong cancer drug sales, and provided its first forecast that accounts for trade tariffs imposed by Trump.

The New Jersey-based healthcare conglomerate raised its 2025 sales forecast by $700 million to reflect the addition of schizophrenia drug Caplyta to its portfolio, which it expects to be approved this year.

The company also said it expects Spravato, a nasal spray used to treat depression, to bring in $3 billion to $3.5 billion in annual sales by 2028.

Even with the expected boost from Caplyta, J&J maintained its profit estimate to reflect the impact of tariffs and dilution from its $14.6 billion deal to buy neurological drugmaker Intra-Cellular.

Chief Financial Officer Joe Wolk in an interview said the profit outlook takes into account about $400 million expected to be incurred due to tariffs, mostly in the company’s medical device business, from the second quarter.

He said the estimate reflects the impact of tariffs currently in place, even if some parts of those have been given a 90-day pause by the Trump administration.

The finance chief added on the investor call that tariffs on China and China’s retaliatory tariffs would be the most substantial contributors to his estimate, but that duties on Mexico, Canada and on steel and aluminum would have an impact.

Jeff Jonas, portfolio manager at Gabelli Funds which holds J&J shares, said the company appears "to have less protection in Mexico and more Chinese exposure" than many medical device peers such as Intuitive Surgical (NASDAQ: ISRG ).

"I’m glad they could absorb the tariff impact, but that number was bigger than expected," Jonas said.

The White House is also moving ahead with a probe into imports of pharmaceuticals as part of a bid to impose tariffs on the sector.

J&J said it expects adjusted earnings of $10.50 to $10.70 per share for the year, well above analysts’ expectations of $10.43 per share, according to LSEG data.

Its shares were down slightly at $154, which two investors attributed to the weakness in the medical device business. The stock is up 6.7% so far this year and was largely spared from a market rout earlier this month when pharmaceuticals were exempted from the first round of reciprocal tariffs. The broader S&P Healthcare Index has gained about 1% this year.

J&J reported quarterly sales of $21.89 billion, up 2.4% from a year ago and above analysts’ expectations of $21.56 billion.

On an adjusted basis, the company earned $2.77 per share in the quarter, topping analysts’ estimates by 18 cents.

Investors are focusing more on the impact of tariffs and other macro factors on J&J and its peers than on the company’s individual growth drivers, said Guggenheim analyst Vamil Divan.

The company now expects 2025 sales of $91.6 billion to $92.4 billion, up from its previous forecast of $90.9 billion to $91.7 billion.

Quarterly sales for the company’s drugs business rose 2.3% to $13.87 billion, beating analyst expectations of $13.43 billion, while medical devices revenue was $8.02 billion, up 2.5% on the previous year but below Wall Street estimates of $8.17 billion.