J&J Third-Quarter Profit Falls as Generic Rivals Take Sales

J&J Third-Quarter Profit Declines on Generics
Tablets of Centocor Ortho Biotech Inc.'s Zytiga prostate cancer medication. Source: Johnson & Johnson via Bloomberg

Johnson & Johnson, the world’s second-biggest seller of health-care products, said third-quarter profit slipped 6.4 percent as the company spent more to promote new drugs and lost sales to generic competition.

Net income dropped to $3.2 billion, or $1.15 a share, from $3.42 billion, or $1.23, a year earlier, the New Brunswick, New Jersey-based company said in a statement. Earnings adjusted for one-time items topped analyst estimates. J&J also raised the lower-end of its forecast for full-year profit.

Chief Executive Officer William C. Weldon won approvals for a quartet of drugs this year, including the prostate-cancer medicine Zytiga. While spending more to market those products, J&J also faced generic rivals to the antibiotic Levaquin and attention deficit remedy Concerta. The two drugs generated almost 5 percent of J&J’s revenue last year.

“When your U.S. pharmaceutical business is down 6 percent, that hurts,” said Matt Miksic, a Piper Jaffray & Co. analyst in New York, in a telephone interview. “We were looking for weaker pharma, and it was weaker.”

The numbers were offset by encouraging sales from outside the U.S., Miksic said. Helped by currency-exchange rates, revenue grew in all three of J&J’s divisions -- consumer-products, medical devices and drugs -- for an overall increase of 16 percent. Worldwide, sales climbed 6.8 percent to $16 billion.

Losing Market Share

Johnson & Johnson sales have suffered the last two years after recalling millions of defective over-the-counter medicines, hip implants and prescription drugs. In April, the company announced its biggest deal ever, the $20.3 billion purchase of orthopedics company Synthes Inc., in part to offset slowing device sales.

The company has lost “significant” market share in over-the-counter drugs to private labels, Chief Financial Officer Dominic Caruso said on a conference call. The company will use coupons and product innovations to recoup lost territory, he said.

“Our marketers are very good at knowing what they need to do to attract consumers,” Caruso said. The company will reintroduce its products with “a mix of brand marketing and expenses, couponing, innovation, etc., a surround-sound impact to get consumers back.”

Earnings adjusted for one-time items of $1.24 a share beat by 3 cents the average estimate of 16 analysts surveyed by Bloomberg. The company raised the lower end of its annual forecast and now predicts $4.95 to $5 a share compared with a previous target of $4.90 to $5.

‘Cautious’ About Conditions

“We’re still cautious about the overall macroeconomic conditions and their impact on health care,” Caruso said on the call. “We’re very positive about how we stack up in that marketplace given new product launches.”

J&J rose 1 percent to $64.42 at 4 p.m. New York time. The stock has gained 4.2 percent so far this year.

Sales of over-the-counter products like Tylenol, which have slowly returned to the market this year, fell 9.4 percent, not including the effects of currency-exchange rates, with a $106 million drop in the U.S. Overall, J&J’s consumer division, which also sells skin and baby-care products and other items, rose a half-percent, excluding currency rates.

Pharmaceutical sales jumped 8.9 percent to $5.98 billion. J&J’s biggest unit, its medical-devices division, had a revenue increase of 6.1 percent to $6.28 billion.

Drug Sales

The generic competitors cost J&J “a few hundred million in sales,” said Jeff Jonas, a Gabelli & Co. analyst in Rye, New York, in an interview before today’s announcement. “And they’re still investing pretty heavily to launch their new drugs.”

Sales were boosted by a weakened U.S. dollar for most of the quarter, which increased the value of revenue earned outside the U.S., the company said. That’s likely to reverse in the fourth quarter and next year, as the dollar gained value over the last month amid the European debt crisis, Matthew Dodds, a Citigroup analyst, said in an Oct. 3 note.

Pfizer Inc., based in New York, is the biggest health-care company by sales.


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