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J&J Q3 net income drops 7 percent on higher costs

Johnson & Johnson's third-quarter profit fell 7 percent as litigation and acquisition costs and factory upgrade expenses related to its consumer product recalls offset higher medicine and medical device sales.

The results beat modest Wall Street expectations, and J&J raised its 2012 profit forecast.

However, the world's biggest maker of health products yet again pushed back the timeline for all its recalled over-the-counter drugs returning to stores, to sometime next year. Initially, it predicted that would happen by early 2011.

The recalls of nonprescription medicines, including adult and children's Tylenol and Motrin, have cost the company well over $1 billion in lost sales and costs to upgrade two factories and completely rebuild a third.

The maker of baby shampoo, artificial joints and drugs such as Remicade for immune disorders said Tuesday that its net income was $2.97 billion, or $1.05 per share. That's down from $3.2 billion, or $1.15 per share, in 2011's third quarter.

Revenue rose 6.5 percent to $17.05 billion, boosted nearly 6 percent by sales from Synthes Inc., a maker of surgical trauma equipment and orthopedic implants. J&J bought the company in June for $19.7 billion, its biggest acquisition ever.

Excluding one-time charges, earnings were $3.5 billion, or $1.25 per share.

The charges included $94 million more to cover recall and lawsuit costs for defective DePuy replacement hips, $135 million related to buying Synthes and a $340 million writedown for ending testing of the intravenous form of once-promising Alzheimer's disease drug bapineuzumab. Patient testing of a version injected under the skin continues. J&J's partner on bapineuzumab, Pfizer Inc., will be taking a similar charge, J&J Chief Financial Officer Dominic Caruso said.

Analysts had expected earnings of $1.21 per share on revenue of $17.01 billion.

J&J, based in New Brunswick, N.J., said it now expects earnings per share of $5.05 to $5.10, excluding one-time items, up from its July forecast of $5 to $5.07.

In early afternoon trading, J&J's shares hit $69.40, up 80 cents or 1.2 percent _ slightly better than the broader markets.

"All in all, I think the business is on sound footing. The investments we've made are paying off," Caruso told analysts during a conference call, referring to research, costs to launch new products and acquisitions.

He said U.S. hospitalization rates, surgeries and doctor visits increased in the single digits in the second quarter as well as the first, following nine straight quarters of declines.

"These signs are too early to signal any meaningful recovery," Caruso said.

Even a modest uptick helps J&J, which sells hospitals everything from surgical tools to diagnostic equipment. It could indicate more patients now are insured, can afford copayments for care or just can't put off surgery any longer.

He added that J&J's sales in Europe have been depressed by continuing pressure to reduce prices and government health programs pushing more use of generic drugs.

Erik Gordon, a professor at University of Michigan's Ross School of Business, called J&J's results "one of the rare good news quarters in Big Pharma."

"If Johnson & Johnson gets its consumer sales back on track, it could be one of the best stories of 2013 in the pharmaceutical business," Gordon said.

Analyst Steve Brozak of WBB Securities said J&J executives seemed to be telling investors there are no other good options among drugmakers, with executives stressing the strength of J&J's pipeline of experimental drugs and growing sales for its new ones. They noted its product launches in the last 3 1/2 years have brought in far more sales than those of 14 rivals.

Sales of medical devices and diagnostic equipment, which is J&J's biggest division and now includes the Synthes business, jumped 12.5 percent to $7.07 billion.

Prescription drug sales climbed 7 percent to $6.4 billion.

But sales of consumer health products fell 4.3 percent, to $3.58 billion.

J&J's McNeil Consumer Healthcare business has conducted about 30 product recalls since September 2009, for reasons including wrong levels of active ingredients in pills, glass and metal shards in liquid medicines and nauseating packaging odors. J&J also has recalled prescription drugs, contact lenses and artificial hips.

Caruso said some more of the drugs affected by recalls were re-launched in the last quarter. He added that increased inspections by the Food and Drug Administration can delay shipments from factories.

J&J's U.S. sales rose 13 percent to $7.79 billion, while sales in other countries, hurt by unfavorable currency exchange rates, inched up 1.4 percent to $9.26 billion.

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Linda A. Johnson can be followed at http://twitter.com/LindaJ_onPharma