Drug, device maker Johnson & Johnson posts 1 percent rise in 3Q profit despite lower sales

J&J posts 1 percent profit rise despite sales drop

TRENTON, N.J. — Johnson & Johnson on Tuesday reported a meager 1 percent increase in third-quarter profit, as intensifying generic competition slashed sales of blockbuster prescription drugs. In addition, the global recession hurt consumer product sales and slowed growth for medical devices, the only J&J segment not declining.

The maker of Band-Aids, biotech drugs and Acuvue contact lenses said it earned $3.35 billion in the quarter, or $1.20 per share. In last year’s third quarter, it had net income of $3.31 billion, or $1.17 per share.

Analysts polled by Thomson Financial were expecting lower earnings per share, at $1.13, and revenue of $15.19 billion in the latest quarter.

New Brunswick, N.J.-based J&J uncharacteristically missed the revenue forecast, with sales of $15.08 billion, down 5 percent from a year ago, as prescription drug sales plunged 14 percent.

“This is a shocker,” analyst Steve Brozak of WBB Securities said. “They pretty much have made it clear now that they’ve got to buy their future. They’ve got to buy products and buy them at an earlier stage than they ever have before.”

In afternoon trading, shares of Johnson & Johnson fell $1.71, or 2.8 percent, to $60.82.

That’s despite the company raising its earnings forecast for 2009 to a range of $4.54 to $4.59 per share. The previous forecast was $4.45 to $4.55; analysts expect $4.52 per share, on average.

Brozak said the company raised the forecast to persuade institutional investors its stock is worth owning.

Sales in the medical devices and diagnostics division rose 2.3 percent to $5.84 billion.

“In areas where there is any … discretionary spending, we’re seeing impact from the recession,” Alex Gorsky, the new head of medical devices and diagnostics, told analysts during a conference call.

Sales of contact lenses and diabetes products such as blood sugar meters were down slightly. Growth has been slowing for joint replacement products such as knee and hip implants — hardly a luxury for older folks suffering from pain and reduced function.

“We think that maybe people have been avoiding surgery,” Gorsky said, citing concerns about insurance coverage and nervousness about being away from work for a long stretch for surgery and recovery.

Gorsky said the plastic surgery market is down 20 percent. That’s also a problem because J&J bought breast implant maker Mentor Corp. earlier this year.

Prescription drugs, which had been the top-selling division, saw sales fall to $5.25 billion from $6.1 billion, as U.S. sales plunged 19 percent. J&J cited a $680 million decrease in the combined sales of two blockbusters with recent generic competition: epilepsy drug Topamax, which had a 76 percent drop in sales, and the short-acting version of antipsychotic drug Risperdal, which was down 40 percent.

“They’ve been hit the worst” in the industry by generic competition, said Erik Gordon, an analyst and professor at University of Michigan’s Ross School of Business. “Imagine the decline Johnson & Johnson would have faced if pharmaceuticals were their only business.”

Several other drugs also saw a double-digit drops in sales due to generic competition or other factors, including attention deficit disorder pill Concerta, painkiller Duragesic, anemia treatment Procrit and Alzheimer’s drug Razadyne. Only a few drugs showed sales growth, including Remicade for rheumatoid arthritis and other immune disorders, up 6 percent to $1 billion, and the long-acting version of Risperdal.

The smallest division, consumer products, posted a 2.7 percent drop in sales, to $3.99 billion.

Chief Financial Officer Dominic Caruso told The Associated Press that in consumer products, the recession particularly hurt sales of nonprescription medicines. That included cold and allergy medicines and pain relievers such as Tylenol.

He cited store brands grabbing more market share and distributors reducing their inventories.

Caruso said the company continues to hold down costs, with more efficient operations of factories, reduced administrative spending and lower cost of goods sold. The latter was partly due to costs a year ago for halting production of an advanced pain patch system recalled in more than 10 countries due to a manufacturing defect.

Caruso told analysts J&J continues to invest for the future, citing deals in the third quarter including J&J’s first foray into the vaccine business. It paid $440 million for a stake in a Dutch biotech company developing an antibody-based vaccine and drugs to target infectious diseases. J&J also invested nearly $1.4 billion in Irish biotech company Elan Corp., which it will help to develop two experimental drugs for Alzheimer’s disease and a vaccine to prevent it.

For the first nine months of the year, net income fell 2 percent to $10.06 billion, or $3.61 per share, from $10.24 billion, or $3.60 per share, in the same period in 2008. Revenue fell nearly 7 percent to $45.35 billion from $48.57 billion.