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J&J 2Q profit down by half on lower sales, charges
 
 
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"The challenge for (J&J) is to get new products out to the market, fix their manufacturing operations, and to change their culture so that it doesn't all go for waste because of quality control and illegal practices drains,"

By Linda A. Johnson on July 17, 2012 AP News

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Health care giant Johnson & Johnson, struggling with tough market conditions, ongoing manufacturing problems and other issues, lowered its profit forecast for the year after posting second-quarter net income that dropped by half due to a slew of litigation and acquisition-related charges.

The maker of Band-Aids, medical devices and prescription drugs, its iconic image tarnished by legal and manufacturing lapses, on Tuesday noted some positive signs. They include small increases in hospital admissions and surgical procedures in the U.S. Despite that, revenue dipped by 0.7 percent due to lower sales in the U.S. and for consumer health products worldwide.

The results beat analysts' expectations for adjusted profit by a penny, but fell short of the revenue forecast by nearly $250 million.

Many J&J nonprescription products remain off the market due to about three dozen recalls since September 2009. The company said Tuesday that they won't all be back in stores until sometime next year. Two of its consumer health product factories are operating at reduced capacity due to increased government scrutiny and the third is being rebuilt from the ground up. J&J noted remediation costs this year have been higher than expected.

"We remain committed to and optimistic about the future of our (over-the-counter) business," new CEO Alex Gorsky told analysts on a conference call Tuesday, adding that there's strong consumer demand for products that are back in stores, such as some versions of Tylenol.

Gorsky gave what amounted to a long pep talk about the company's great opportunities, despite continuing pressure from government and other health plans to reduce prices. His priorities include resolving the manufacturing problems, building on recent approvals and other success in the prescription drug business, and integrating Swiss orthopedics device maker Synthes. The company bought Synthes in June for $19.7 billion, its largest acquisition ever, and Synthes product sales in the quarter's last couple of weeks boosted revenue by 1.2 percent.

"I am resolute to keep our credo as the foundation of Johnson & Johnson," Gorsky said, referring to J&J's longtime guiding principle to put patients, doctors and employees before profits.

Many critics have questioned whether J&J still follows the credo. The government is prosecuting J&J for alleged kickbacks to boost medicine sales and improper marketing of a few prescription drugs. And J&J has had to recall medicines containing the wrong amount of active ingredient or glass or metal shards.

The company, based in New Brunswick N.J., said net income was $1.41 billion, or 50 cents per share, down from $2.78 billion, or $1 per share, a year earlier. Revenue fell by 0.7 percent to $16.48 billion.

Excluding a total of $2.2 billion in after-tax charges, income was $3.63 billion, or $1.30 per share. Analysts expected earnings per share of $1.29 on revenue of $16.71 billion, according to FactSet.

The charges included include asset write-downs, costs from the Synthes purchase, more recall costs for its DePuy hip replacements and another $611 million added to J&J's legal reserve for a potential civil settlement with the Justice Department its marketing practices. That case is expected to be finalized soon, with J&J paying a penalty in the $2 billion range.

J&J also took a charge for unfavorable currency exchange rates, which reduced total revenue by 4.2 percent.

Analyst Erik Gordon, a professor at University of Michigan's Ross School of Business, said the litigation, integration and currency expenses have become a recurring part of J&J's business and shouldn't be taken as charges.

"The challenge for (J&J) is to get new products out to the market, fix their manufacturing operations, and to change their culture so that it doesn't all go for waste because of quality control and illegal practices drains," he said.

Prescription drug sales edged up 1 percent, to $6.3 billion, on strong sales for some existing medicines and several new drugs. Those include Xarelto for preventing blood clots and strokes, cancer drug Zytiga, Invega for schizophrenia, Stelara for psoriasis and Incivo for hepatitis C.

But sales were down 0.1 percent to $6.57 billion for medical devices and diagnostics, and down 4.6 percent to $3.62 billion for the troubled consumer health business.

"This lackluster growth probably represents the 'new normal' in both sales and (earnings per share) growth," said analyst Steve Brozak of WBB Securities. "This is emblematic of" declines for all large drugmaker, medical device and health care companies, not just J&J.

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McNeil woes contribute to lower earnings at J&J

July 18 By David Sell

Inquirer Staff Writer

McNeil plant in Fort Washington, part of Johnson & Johnson's consumer division, has had dozens of product recalls in recent years. A source said J&J may be exploring its sale. MICHAEL S. WIRTZ / Staff

After Johnson & Johnson reported lower overall sales and profit for the second quarter Tuesday, in part because of continuing problems at its McNeil Consumer Healthcare facility in Fort Washington, new chief executive officer Alex Gorsky was asked why he was not considering selling pieces of the health-care giant.

Goldman Sachs pharmaceutical analyst Jami Rubin wrote in May that J&J should follow the example of Pfizer Inc. and Abbott Laboratories Inc. and separate its three divisions - consumer products, pharmaceuticals, and devices - because it couldn't manage them all in a way to get full value.

"When you have a large portfolio with depth and breadth, that will be a competitive advantage," Gorsky said Tuesday when Rubin asked about the difference in strategy on a conference call with Wall Street analysts, after having earlier said that resuming quality production at McNeil was one of his highest priorities.

"We also realize," he said, "we are going to have to be more selective and more decisive in what areas we're going to be in and what areas we're not going to be in."

McNeil, which is part of the consumer division in the J&J organization chart, has had dozens of product recalls in recent years. The Fort Washington plant stopped making medicine in April 2010. Repairs are under way, but production won't resume until the U.S. Food and Drug Administration and a federal judge say so, perhaps sometime in 2013. Maybe.

On Tuesday afternoon, the company said it was laying off 200 employees from the McNeil facility in Puerto Rico.

An industry source said J&J might be exploring the possibility of selling McNeil or some of its products, including the pain-reliever Tylenol.

Reporters are not allowed to ask questions during the conference calls with Wall Street analysts. A spokesman at J&J headquarters in New Brunswick said Gorsky was unavailable for an interview. The spokesman, Al Wasilewski, was asked if J&J has given any consideration to selling the McNeil unit or its key brands such as Tylenol or Motrin.

"I think you heard Alex talk about our broad-based approach as one of our fundamental strengths and what positions us best for the future," Wasilewski said via e-mail. "We wouldn't comment on speculation and rumors in the marketplace."

McNeil employs about 900 people in Fort Washington, which also is the unit's headquarters, 200 in Lancaster, and after the cuts, about 600 in Las Piedras, Puerto Rico. Lancaster and Las Piedras are operating under greater scrutiny and will focus on a few key products in coming months: versions of Tylenol, Motrin, Zyrtec, and Benadryl.

McNeil is one of several J&J operations in the Philadelphia area. Indeed, while Gorsky said he was "extremely" happy with the pharmaceutical division's recent efforts, he was proud to talk about West Chester medical-device-maker Synthes. J&J closed that $19.7?billion acquisition - engineered by Gorsky - on June 14, and in the 11 days before the quarter ended, Synthes accounted for 1.2 percent of quarterly sales.

But that wasn't enough to overcome other issues.

J&J's domestic sales dropped 1.9 percent. The overall second-quarter sales were $16.5?billion, a decrease of 0.7 percent over a year earlier, though currency rates were a big factor.

J&J profit was $1.4?billion for the second quarter, down 49.3 percent from the $2.8 billion of the second quarter in 2011. The difference was attributed mainly to currency rates and one-time charges of $2.2?billion related to accounting rules and litigation around several products.

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J&J profits battered by charges as pharma sales are solid

World News | July 18, 2012

Johnson & Johnson has kicked off the US reporting season by posting a 49.3% fall in earnings for the second quarter, hit by charges, and healthy sales of new products, notably the prostate cancer drug Zytiga.

Group net income came in at just over $1.40 billion, including special items of $2.20 billion primarily attributed to a partial write-down of in-process R&D and intangible assets related to the Crucell vaccines business. Group turnover edged up 0.7% to $16.48 billion, while worldwide pharmaceutical sales were up 0.9% to $6.29 billion; however they fell 4.5% in the USA to $3.09 billion.

Generic competition meant that the antibiotic Levaquin (levofloxacin) sank 89.9% to just $16 million, following the loss of marketing exclusivity in the USA. The antipsychotic Risperdal Consta (risperidone) fell 12.1% to $355 million.

J&J's anaemia therapy Procrit/Eprex (epoetin alfa) fell 15.6% to $401 million, while sales of Doxil/Caelyx (doxorubicin) for ovarian and other cancers, which was suspended last year because of manufacturing problems by supplier Boehringer Ingelheim's Ben Venue unit, decreased 90.6% to $13 million.

On the positive side, J&J's biggest seller was once again the Merck & Co-partnered anti-inflammatory Remicade (infliximab), sales of which were up 11.1% to $1.52 billion, while the latter's follow-up Simponi (golimumab) brought in $125 million, up 86.6%.

The HIV therapy Prezista (darunavir) leapt 19.2% to $73 million, while turnover from Stelara (ustekinumab) for moderate to severe plaque psoriasis climbed 40.9% to $248 million. Zytiga (abiraterone) contributed $232 million to J&J's coffers, up from $49 million in the like, year-earlier period.

The healthcare giant noted that sales at its medical devices and diagnostics unit were flat at $6.57 billion, while turnover from its troubled consumer division fell 4.6% to $3.62 billion. On a conference call, new J&J chief executive Alex Gorsky said the firm is focused on sorting out the manufacturing woes suffered by its over-the-counter business.

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J&J's Profit Slips on Charges, Currency Impacts

WSJ July 17 2012

Health-care conglomerate Johnson & Johnson reported a 49% decline in second-quarter profit because of higher acquisition-related and legal costs, while product-supply disruptions and negative currency trends contributed to a slight sales decrease.

The result prompted J&J to lower its full-year earnings outlook. Also costs are mounting in J&J's efforts to reintroduce certain over-the-counter medicines that were recalled for manufacturing-quality lapses in the past two and a half years.

On his first earnings conference call since becoming J&J CEO in April, Alex Gorsky outlined his strategic priorities for the company. He reiterated that one of his top goals is to restore the supply of the recalled medicines, which include Tylenol brands. Certain manufacturing plants have been operating under a "consent decree" that heightens federal government oversight as J&J tries to fix quality problems.

In addition, Mr. Gorsky said he would focus on integrating the recent $19.7 billion purchase of medical-device maker Synthes, which J&J hopes will jump-start sales growth for its own device unit. He also said he would try to build on momentum in J&J's pharmaceuticals unit, which has introduced several new drugs recently.

J&J will remain a diversified, decentralized company, Mr. Gorsky said, because customers are increasingly demanding health-care solutions that encompass more than one product. At the same time, Mr. Gorsky said J&J is undergoing a strategic planning process, and would consider exiting certain businesses if they aren't meeting patient needs or being competitive.

"Our goal is to be very decisive about what businesses we're in and what we're not in," he said.

Mr. Gorsky cited changing global demographics, including aging populations in certain countries, as an opportunity for J&J. But he also acknowledged challenges including pricing pressure resulting from the U.S. health-care overhaul as well as budgetary constraints among European national health systems.

For the second quarter, J&J earned $1.41 billion, or 50 cents a share, compared with $2.78 billion, or $1 a share, in the same period a year earlier.

The latest quarter included $2.2 billion in charges. This included a partial write-down of in-process research and development and intangible assets related to J&J's Crucell vaccines business, which it acquired last year. J&J said the accounting move reflects "changes in timelines" for vaccine R&D efforts and a reduced carrying value of certain products on the market.

The charges also include costs from the Synthes deal, as well as an increase in a reserve for a potential settlement of civil litigation alleging improper marketing practices surrounding J&J's antipsychotics Risperdal and Invega and heart-failure treatment Natrecor.

Excluding these costs, J&J would have earned $1.30 a share, a penny ahead of the mean estimate from analysts surveyed by Thomson Reuters.

Second-quarter revenue declined 0.7% to $16.48 billion from $16.6 billion a year earlier, falling short of the Thomson view of $16.69 billion. Currency trends reduced sales by 4.2%. U.S. sales decreased 1.2%, while non-U.S. sales fell 0.4%.

J&J's biggest unit, medical devices and diagnostics, posted second-quarter sales of $6.6 billion, down 0.1% from a year earlier. J&J's exit from the drug-eluting stent market last year weighed on sales, while the recent Synthes deal contributed some growth.

Additionally, J&J said it has experienced supply disruptions for endovascular and energy products, which are used in certain health-care procedures, as well as in its vaccine business. These are the latest supply disruptions for J&J, following the over-the-counter medicine recalls and manufacturing suspension for cancer drug Doxil.

J&J said it has seen signs that health-care utilization--such as hospital procedures and physician office visits-is stabilizing after a long slump set off by the recession. But the company said it was still too early to say that a sustained recovery was under way.

Pharmaceuticals sales rose 0.9% to $6.3 billion, helped by anti-inflammatory drug Remicade, HIV drug Prezista, and newer drugs including the cancer drug Zytiga. Generic competition for antibiotic Levaquin and the Doxil manufacturing suspension reduced sales growth.

J&J hopes to accelerate pharmaceuticals sales growth by seeking approval for new drugs and new uses for existing drugs.

One closely watched R&D program is bapineuzumab, an experimental Alzheimer's disease treatment being co-developed with Pfizer Inc. J&J said Tuesday that Pfizer planned to issue a press release during the third quarter with partial results from late-stage clinical studies of the drug, and full results would be presented at a medical meeting in Stockholm in September.

Investor expectations for bapineuzumab and a similar drug in development by Eli Lilly & Co. are relatively low. Mr. Gorsky declined to speculate on the upcoming results, but said J&J is "very excited" about Alzheimer's research because of the high unmet medical need.

J&J's consumer unit, which includes the recalled drugs, had sales of $3.6 billion, down 4.6% from a year earlier. Sales growth for oral-care products was offset by declines in other businesses including women's health.

J&J lowered its 2012 per-share forecast of adjusted earnings, excluding items, to a range of $5 to $5.07, from a prior range of $5.07 to $5.17, citing the currency trends and recent Synthes deal.

 
 
 
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