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J&J Raises Forecast as Profit Climbs on Demand for Drugs

J&J’s First-Quarter Profit Climbs on Demand for New Drugs
Sales of new medicines that include the prostate cancer medicine Zytiga, seen here, bolstered J&J’s results during the quarter. Source: Johnson & Johnson via Bloomberg

Johnson & Johnson, the world’s second-biggest maker of health-care products, raised its full-year earnings forecast after quarterly profit climbed on the divestiture of an older drug and revenue from new medicines.

Earnings excluding one-time items will be $5.07 to $5.17 a share for 2012, helped by currency exchange rates, New Brunswick, New Jersey-based J&J said in a statement today. Last quarter, the company provided a forecast of as much as $5.15.

First-quarter profit beat by 1 cent the $1.36 average of 19 analyst estimates compiled by Bloomberg, bolstered by sales of new drugs, including the prostate cancer medicine Zytiga. The company gained $357 million in cash for selling its hypertension treatment Bystolic to Forest Laboratories Inc.

“The medical device and pharmaceutical units look good and are improving, which are two legs of the stool,” Matt Miksic, a Piper Jaffray & Co. analyst in New York, said by telephone. “The one that is disappointing is consumer.”

Consumer sales fell 2.4 percent after the company shut a Pennsylvania factory making over-the-counter drugs that were recalled, according to the company’s statement.

“It’s very difficult to predict how long it will last and how much the company will have to spend” to satisfy regulatory requirements to return the products to shelves, Miksic said.

J&J rose less than 1 percent to $64.22 at the close of New York trading, and has gained 6 percent in the past 12 months. Pfizer Inc., based in New York, is the top seller of medical products.

Analysts Estimate

Analysts had estimated J&J would generate $5.10 a share in earnings this year as Alex Gorsky takes the helm on April 26 from Chief Executive Officer William C. Weldon, whose 10-year tenure was marked by recalls on products from Children’s Tylenol to artificial hips. Sherilyn McCoy, the former vice chairman of J&J’s pharmaceuticals and consumer division, last week was named CEO of Avon Products Inc.

J&J’s McNeil consumer unit suspended manufacturing at its Fort Washington, Pennsylvania, plant on April 30, 2010, the same day it pulled 136 million bottles of over-the-counter children’s medicines tainted with metal flecks or containing improper levels of ingredients.

The company signed a consent decree in March 2011 expanding U.S. oversight at the plant and others in Lancaster, Pennsylvania, and Las Piedras, Puerto Rico.

Longer Return

It’s taking longer to return products that had been recalled, such as Children’s Tylenol and Motrin, to the U.S. market than the company had anticipated, said Chief Financial Officer Dominic J. Caruso in a call with analysts. About half the items will return this year, half in 2013, he said.

J&J is confident the name-brand products will recapture market share from store brands once they return, Caruso said.

“We’re obviously disappointed that it’s taking us longer,” he said. “Our brands, both Tylenol and Motrin, continue to score very highly compared to store brands even though they aren’t on the store shelves. That gives us a great confidence that the significant legacy we’ve built over the years remains with consumers.”

Net income increased to $3.91 billion, or $1.41 a share, from a year earlier, J&J said. The company posted sales of $16.1 billion, little changed from a year earlier.

The company is awaiting regulatory review of its $21.3 billion purchase of Synthes Inc., a maker of tools and implants to treat damaged bones.

J&J’s acquisition of Synthes would make J&J the leader in the $5.5 billion market for trauma devices, said Derrick Sung, an analyst with Sanford C. Bernstein & Co. in New York, in an April 13 note to investors.

Trauma Market

J&J agreed to buy West Chester, Pennsylvania-based Synthes in April 2011 for 159 Swiss francs a share in cash and stock. The purchase, which will give J&J a device company with almost half the trauma market and an operating margin of 35 percent, is pending regulatory review in the U.S. and Europe.

“You buy Johnson & Johnson because it’s a defensive stock that will give you a good return over time and not give you a rocket ride,” said Les Funtleyder, a portfolio manager who helps oversee $100 million, including J&J shares, at Miller Tabak & Co. in New York. “These earnings are consistent with that.”

Last week, an Arkansas judge ruled J&J must pay more than $1.1 billion in fines after a jury found the company illegally marketed and misled doctors about the antipsychotic medication Risperdal. The penalty is the largest of the three handed down so far against the company in state cases alleging it hid the drug’s risks and tricked Medicaid regulators into paying too much for the medication.

J&J said today the fine was “excessive” and that it plans to ask for a dismissal. If the attempt to dismiss is unsuccessful, J&J said it will file for a new trial.

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