J&J Eats a Hard Quarter

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"[T]his was one of the most challenging quarters for year-over-year comparisons in our history."

-- Chief Financial Officer Dominic Caruso

That's a pretty telling statement, considering that Johnson & Johnson (NYSE: JNJ) is over 100 years old. But it's definitely not an exaggeration. Just look at what happened this quarter:

Product	Year-Over-Year (decrease)	Reason for Drop
Risperdal	(66.4%)	Generic competition from Teva Pharmaceuticals (Nasdaq: TEVA), Mylan (Nasdaq: MYL), and many others
Topamax	(73.1%)	More generic competition
Drug-eluting stents	(40.6%)	Competition in U.S. -- down 58.7% domestically -- from new entrants: Medtronic (NYSE: MDT), Boston Scientific (NYSE: BSX), and Abbott Labs (NYSE: ABT).
Duragesic / fentanyl	(19.9%)	Issues from defective patches that needed to be recalled.
Procrit/Eprex	(11.5%)	Like Amgen's (Nasdaq: AMGN) anemia drug, there's still lingering safety concerns
Aciphex/Pariet	(20%)	Generic competition in Canada contributed. You'd think that investors would have more acid reflux in this market.

Source: Johnson & Johnson's financial results and conference call.

If this were any other company, we'd be talking about "The Slaughter in New Brunswick," but Johnson & Johnson is a nicely diversified company that can take hits like the above and still do well enough. Overall sales fell just 7.4% year over year.

The blow to the bottom line was dampened even more because management could obviously see many of the drops coming. With Risperdal and Topamax -- previously multibillion-dollar drugs -- now facing generic competition, a hit to gross margins was inevitable. On the plus side, Johnson & Johnson was able to reduce manufacturing costs by 6.3%. Cuts in other areas and a reduced share count meant that earnings per share fell just 1.7%.

Going forward, the comparisons should get easier for Johnson & Johnson. Levaquin, with $751 million in U.S. in the first half of the year, will begin seeing U.S. generic competition in the middle of 2011, but it also has a few new drugs that should be able to help grow revenue. Sales of HIV drug Prezista were up 59% year over year, and Simponi, it's follow-on to anti-inflammatory Remicade, was recently approved.

Getting through a quarter like this relatively unharmed says a lot about a company. If there ever was a buy and hold company, Johnson & Johnson seems to be it.

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