Pharmas Market with Mike Huckman

Johnson & Johnson's Earnings And Its Very "Taxing" Day

Johnson & Johnson

Dow component and healthcare conglomerate (drugs, consumer products, medical devices) Johnson & Johnson beat and boosted.

That's Wall Street jargon for earnings coming in higher than expectations and the guidance for the rest of the year being raised. So, why did the stock go down?

Several reasons. Among them: JNJ shares had rallied about four bucks over the past month, the new profit guidance encompasses the current consensus, some of the better-than-expected first quarter performance was due to the weak dollar and there's still considerable weakness in the highly-profitable drug-coated stent business and continued uncertainty for the embattled anemia drug franchise, Procrit.

The Food and Drug Administration has yet to "rule" on new recommendations for more restricted use of Procrit on cancer patients on chemo. U.S. sales of the drug were down 37 percent in the first quarter of this year versus the first quarter of last year. But they actually inched up $3 million sequentially--from the fourth quarter to the first quarter.

Bear Stearns biotech analyst Mark Schoenebaum thinks that might bode well for Amgen's results. AMGN is up a fraction today as investors might view JNJ's minor Procrit improvement as a faint signal that anemia drugs, Amgen's bread and butter, are hitting bottom. Nonetheless, Schoenebaum is forecasting a 13 percent sequential drop on Amgen's anemia drug sales. Bear Stearns makes a market in AMGN and Schoenebaum or someone in his household owns the stock.

JNJ also started putting in a footnote in its sales data breaking out sales of its Cypher drug-coated stent. Revenue from the expensive little wire mesh tubes that prop open clogged arteries fell $128 million. In addition, in the face of new competition from Medtronic and looming potential competition from Abbott , JNJ said it lost seven points in market share from the same time last year. And on top of that, prices have dropped six percent. Boston Scientific and JNJ enjoyed a duopoly in this space for a few years and soon there could be four players.

J&J Beats & Boosts

On the conference call a JNJ official said if foreign currency exchange rates remain around where they're at today that the weak dollar could favorably impact sales growth by 4.5 percent for the full year.

The $16 billion acquisition of Pfizer's consumer healthcare business continues to bolster JNJ. Officials say it could break even or start "mildly" adding to earnings next year--one year earlier than previously forecast. The outperformer there continues to be Listerine.

In fact, the company's so happy with it, "Listerine" was the password you needed to gain access on the telephone (not on the web) to the conference call this morning. Usually the password is something boring like, "First quarter earnings" or some "super secret" number combo.

So, might the company be looking to do another big deal now? It has $11 billion in cash and continues to buy back stock. JNJ officials wouldn't say if they kicked the tires on Alcon before Novartis paid as much as $39 billion in that deal. But they added that their criteria for making a purchase hasn't changed. It's the boilerplate line you hear from practically every company--it has to "generate significant shareholder value."

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