J&J 3Q report to focus on pharmaceutical business

LINDA A. JOHNSON, AP Business Writer

TRENTON, N.J. -- Johnson & Johnson will likely discuss the health of its prescription-drug business and progress on its manufacturing problems when it reports third-quarter results before the stock market opens Tuesday.

WHAT TO WATCH FOR: J&J, based in New Brunswick, N.J., will focus on its pharmaceutical business, including sales trends for hepatitis C treatment Incivo and other new medicines, as well as progress on drugs in development.

Analysts will be listening closely when Chief Financial Officer Dominic Caruso gives his quarterly update on J&J's profit forecast for the year. In a rare move, Caruso lowered the 2012 profit forecast in July, citing the impact of unfavorable currency exchange rates. In addition, J&J's second-quarter net income dropped by half due to litigation and other charges. Caruso said he expected earnings per share of $5 to $5.07 excluding one-time items, down about a nickel from his April forecast, and revenue of about $67 billion.

Since September 2009, J&J has recalled more than 30 products, mostly nonprescription drugs. Many still are not back in stores. J&J has repeatedly pushed back its target for their return, so executives are likely to give an update. The lost revenue from those products, plus expenses to gut and rebuild one factory and upgrade another, have cost J&J well over $1 billion.

In addition, production of Doxil, a crucial cancer drug J&J farmed out to a subcontractor, has been shut down since last November due to lax quality control and contamination at the factory. That's left patients in the lurch, and J&J is still working on resuming production.

New CEO Alex Gorsky won't be on the call, but the company will likely note his first big hire, Sandra E. Peterson, the chief executive of Bayer CropScience. She starts on Dec. 1 in a new position overseeing the troubled consumer-health and manufacturing operations.

Analysts likely will ask about progress in integrating Synthes Inc., which makes surgical trauma equipment and orthopedic implants. In J&J's biggest acquisition yet, it paid $19.7 billion for Synthes in June.

Executives should note continuing acquisition and integration charges for Synthes, plus a $300 million to $400 million charge related to the diminished prospects for bapineuzumab. That's the heavily touted Alzheimer's disease drug J&J has been developing with Pfizer Inc. In August, they ended development of an intravenous formulation that failed to work better than placebo in two late-stage patient tests. J&J is continuing studies of bapineuzumab injected just under the skin.

Meanwhile, it's seeking U.S. approval for additional uses for two drugs launched last year, Zytiga for prostate cancer that's spread after chemotherapy and the anticlotting pill Xarelto. The Food and Drug Administration has granted priority review for both, meaning it will aim for a decision within six months, rather than the standard 10.

FDA also is giving priority review to J&J's experimental treatment for multidrug-resistant tuberculosis, called bedaquiline. It's also under review in the European Union.

Company executives likely will discuss testing of a hepatitis C drug called TMC435, as well as canagliflozin for Type 2 diabetes.

Analysts may ask about liability from continuing litigation over allegations J&J marketed former blockbuster schizophrenia drug Risperdal for unapproved uses and downplayed side effects, including some adolescent boys developing female breasts after taking it.

WHY IT MATTERS: Johnson & Johnson is one of the 30 companies in the Dow Jones industrial average. It's the first major U.S. drugmaker to report results and is the world's biggest and most diverse maker of health care products, selling everything from Listerine and baby shampoo to hip replacements and biologic drugs.

That makes it a bellwether for how the current global economic slowdown is affecting pharmaceutical, consumer health and medical device companies.

"They're a perfect barometer for what to expect for our economy and the global economy going forward," says analyst Steve Brozak of WBB Securities.

The company's share price has fallen nearly 2.5 percent over the past week. The decline follows a downgrade from Goldman Sachs, from neutral to sell.

WHAT'S EXPECTED: Analysts polled by FactSet, on average, expect earnings per share of $1.21 and sales of $17.01 billion.

LAST YEAR'S QUARTER: J&J reported net income of $3.2 billion, or $1.15 per share. Revenue totaled $16 billion.


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