J&J Eats a Hard Quarter
By
Brian Orelli
July 14, 2009
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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:
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Product
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Year-Over-Year (decrease)
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Reason for Drop
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Risperdal
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(66.4%)
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Generic competition from Teva Pharmaceuticals (Nasdaq: TEVA), Mylan (Nasdaq: MYL), and many others
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Topamax
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(73.1%)
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More generic competition
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Drug-eluting stents
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(40.6%)
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Competition in U.S. -- down 58.7% domestically -- from new entrants: Medtronic (NYSE: MDT), Boston Scientific (NYSE: BSX), and Abbott Labs (NYSE: ABT).
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Duragesic / fentanyl
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(19.9%)
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Issues from defective patches that needed to be recalled.
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Procrit/Eprex
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(11.5%)
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Like Amgen's (Nasdaq: AMGN) anemia drug, there's still lingering safety concerns
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Aciphex/Pariet
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(20%)
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Generic competition in Canada contributed. You'd think that investors would have more acid reflux in this market.
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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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