Pharmas Market with Mike Huckman

A Sense about Stents

Johnson & Johnson beat the Street and raised its outlook for this year, but the hybrid Pharma/Consumer Products/Medical Devices company posted a much bigger drop in sales of its highly profitable drug-coated stents than analysts expected. Stents are the expensive, little wire mesh tubes that prop open clogged arteries. Recently, sales of stents coated with drugs -- believed to cut the chances of reclogging -- have come under increasing scrutiny over safety (a small risk of fatal blood clots developing down the road) and stents, in general, are being questioned in the wake of a study showing old-fashioned heart drugs might work just as well.

Because of the drop in demand, JNJ says it has also had to drop its prices. Michael Weinstein at JPMorgan, which has done investment banking for JNJ and has an executive who sits on the JNJ Board, says Cypher sales missed his forecast by $20 million. For a company the size of JNJ, that doesn't really affect the bottom line.

But that's not the case for Boston Scientific, which has the only other drug-coated stent on the U.S. market. Ahead of BSX reporting its earnings next Monday, Weinstein -- based on JNJ's Cypher numbers -- says BSX's Taxus sales could come in $21 million dollars below his estimate. JPM has also banked BSX. And Weinstein believes that overall market share for drug-coated stents versus bare-metal ones (which are not believed to cause blood clots, but can be prone to reclogging) dropped in the first quarter to 69% -- down from 75% in the fourth quarter and 85% in the first quarter of 2006.

Nevertheless, Abbott Labs and Medtronic are hoping to soon win FDA approval of drug-coated stents. And JNJ recently bought a company that is working on next-generation drug-coated stent technology.

And medical device sales aren't the only challenged segment at JNJ. The company also reported that first-quarter U.S. sales of its embattled anemia drug Procrit grew only 1%. On the conference call, officials said the drug is under pressure from concerns about safety and alleged overuse by doctors. An FDA Advisory Committee will take up the issue at a May 10th meeting. It's a $3 billion drug for JNJ, but anemia drugs (Aranesp and Epogen) account for about one-half of Amgen's revenues and profits with annual sales of more than $6.5 billion. They are used on about a million Americans a year to help combat the side effects like fatigue from kidney dialysis and chemotherapy.

The biggest grower at JNJ was consumer sales. Spurred by the recent $16.5 billion dollar acquisition of Pfizer's consumer products business (including Listerine mouthwash), revenue in that unit jumped 49%. Minty fresh.

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