Recession cuts Johnson & Johnson drug, devices and consumer products sales, profit edges up

J&J ekes out profit rise despite sales drop

TRENTON, N.J. — Band-Aid maker Johnson & Johnson is feeling the pain as consumers worldwide buy more generic health products — whether it’s prescription medicines or store-brand bandages — or just do without for as long as they can.

The company, the world’s most diversified health-products maker, saw its revenue fall 5 percent in the third quarter as intensifying generic competition slashed sales of about a half-dozen of its prescription drugs, and recession-wary consumers limited spending on items from contact lenses to artificial hips.

The maker of Band-Aids, biotech drugs and Acuvue contact lenses on Tuesday reported a meager 1 percent increase in third-quarter net income, at $3.35 billion, or $1.20 per share.

That was 7 cents better than analysts expected, but Credit Suisse analyst Catherine Arnold attributed 5 cents of that to an unexpectedly low tax rate, just 21.2 percent, and the rest to cost-cutting.

In addition, New Brunswick-based J&J uncharacteristically missed its 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.”

Shares of Johnson & Johnson lost $1.52, or 2.4 percent, to close at $61.01 Tuesday.

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, the only J&J segment not declining, 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.

Sales of prescription drugs, which had been the top-selling division, fell 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.”

Only a few drugs showed sales growth, including Remicade for rheumatoid arthritis and other immune disorders, up 6 percent to $1 billion.

The smallest division, consumer products, posted a 2.7 percent drop in sales. Chief Financial Officer Dominic Caruso told The Associated Press that among consumer products, the recession particularly hurt sales of nonprescription medicines, such as cold and allergy medicines and pain relievers such as Tylenol. He cited store brands grabbing more market share and distributors reducing their inventories.

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.