Johnson & Johnson's 3rd quarter disappoints, as generics gouge leading drugs, though cost cuts help profits

With stock markets on the rise ahead of the flurry of third-quarter US results reporting, the first drug major to file financials, Johnson & Johnson, proved to be a disappointment, as its group sales for the period dropped 5.3% to $15.08 billion. Net earnings, at $3.35 billion, were up 1.1% but largely benefitted from cost-cutting. Although the figures beat consensus forecasts, J&J's stock fell around 2.4% to $61.01 on the day of on the news, October 13.

Diluted earnings per share were $1.20, representing an increase of 2.6%, as compared to the same period in 2008. The company raised its earnings guidance for full-year 2009 to $4.54-$4.59 per share, which excludes the impact of special items, from $4.45-$4.55.

Drug sales plunge 14%

Worldwide Pharmaceutical sales of $5.3 billion for the third quarter represented a decrease of 14.1% versus the prior year, with an operational decline of 11.9% and a negative impact from currency of 2.2%. Domestic turnover fell 19.2%; while international sales were down 7.1%, which reflected an operational decrease of 1.9% and a negative currency impact of 5.2%, according to J&J.

The diversified health care firm's biggest selling drug, Remicade (infliximab), a biologic approved for immune mediated inflammatory diseases, demonstrated solid sales performance during the quarter, said J&J. Turnover was up 5.9% at $1.04 billion.

Several other pharmaceutical products had strong growth including: Prezista (darunavir), for HIV, which leapt 91.1% to $151 million; Velcade (bortezomib), a treatment for multiple myeloma, which rose 21.6% to $231 million, and Risperdal Consta (risperidone) long-acting, an antipsychotic, was up 4.4% to $353 million..

Sales results for Topamax (topiramate), an antiepileptic and a treatment for migraine, and Risperdal (risperidone), an antipsychotic, were negatively impacted by generic competition, the company noted. Topamax plunged 76% to $175 million, while Risperdal lost 40% of its revenues to $192 million.

"This is a shocker," declared WBB Securities analyst Steve Brozak. "They pretty much have made it clear now that they've got to buy their future. They've got to buy products and buy them at an earlier stage than they ever have before," said Mr Brozak, opining that the company raised the forecast to persuade institutional investors its stock is worth owning.

However, chief financial officer Dominic Caruso told analysts that J&J continues to invest for the future, citing deals in the third quarter including J&J's first foray into the vaccine business. It paid $440 million for a stake in Dutch biotech company Crucell, which is developing an antibody-based vaccine and drugs to target infectious diseases. J&J also invested nearly $1.4 billion in Irish biotech company Elan Corp, which it will help to develop two experimental drugs for Alzheimer's disease and a vaccine to prevent it.