Pharmas Market with Mike Huckman

JNJ, Genentech: What's Ailing Them (And Their Stock)


If you saw the headline, you would've thought that Johnson and Johnson might help power the Dow today. The hybrid pharmaceutical, medical device and consumer healthcare products company handily beat the Street and raised its guidance for the year.

In early trading the stock couldn't pick a direction--it was down, it was up, it was down, up, down, up and then, really went down.

The realization set in that two of the company's biggest products are still having major problems. Revenue from its blockbuster anemia drugs fell off a cliff--down 15% from the second quarter to the third quarter--amid ongoing safety and reimbursement issues.

Amgen is also trading lower on that number because anemia drugs are the biotech giant's bread and butter. And the JNJ unit that sells drug-coated stents saw it sales drop another $24 million sequentially amid ongoing safety and efficacy concerns about those clogged artery roto-rooters.

Boston Scientific is also trading lower on that number because drug-coated stents are its bread and butter. Separately, The Boston Globe is reporting this morning that BSX is planning to lay off thousands of people soon, as much as 12% of its workforce because of the stent situation. This will all make for interesting fodder at the scientific convention that starts this weekend in Washington, DC for interventional cardiologists--the rock star docs that put in stents. We'll be reporting live from there next Monday.

But Genentech is really having a bad day.  I can't remember reading so much bearish analyst commentary about this company. Many are cutting their revenue and earnings forecasts and their price targets. For example, in a research note to clients this morning, Geoffrey Porges at Bernstein writes that he thinks DNA may have lost its way. He says, "…this quarter has for the first time raised concerns about the company's execution of its core mission of developing and selling breakthrough medicines." Ouch. Bernstein makes a market in the stock and a part of the company owns at least one percent of the shares.

Three of the company's top four drugs missed the analyst consensus forecast. But Lucentis for adult-onset blindness actually saw its sales drop sequentially as more doctors used the similar and markedly cheaper Genentech cancer drug, Avastin, instead. And on the conference call, Genentech officials admitted their crackdown on that practice may be futile.

One executive said, "Physicians can still acquire Avastin by ordering it themselves or via hospitals and we expect them to do so." As a result, Genentech expects the pressure to remain on Lucentis through the end of this year and into the first quarter of next year.

Porges says, "We now fear that Genentech's vaunted research machine is showing signs of being overwhelmed by the sheer number of trials in planning or underway…."

As I've blogged and reported before, from an investment standpoint, at least, Genentech may have become a victim of its own success.

Questions?  Comments?