If bellwether Johnson & Johnson (NYSE:JNJ) is any indication, fasten your seatbelts. We're in for a volatile earnings season.

The company delivered strong quarterly results, led by unexpectedly stellar sales of its new hepatitis C drug Olysio. But the company executives also said the drug is expected to become more vulnerable to competition, and shares dropped nearly 2% on the New York Stock Exchange.

J&J's second-quarter earnings, excluding one-time items, rose 12% over the year-earlier quarter. Earnings came in a $1.66 a share, beating analysts' consensus by 11 cents.  Items excluded were litigation accrual and costs tied to the acquisition of medical-device maker Synthes. Full-year adjusted EPS guidance was increased by a few cents to $5.85- $5.92 per share.

J&J's strong sales were driven mostly by new drugs, which exceeded expectations. Those drugs include Imbruvica, J&J and Pharmacyclicsimpressive new cancer treatment for mantle cell lymphoma. The company's oncology drugs in general did very well, with Velcade up 6.3% and  Zytiga up 42% globally.

The hep-C blockbuster season continues
Without a doubt, J&J's super-star in the earnings report was hep-C treatment Olysio.

Olysio sales reached $831 million in Q2, more than doubling from $354 million last quarter. Physicians have been prescribing Olysio with Sovaldi from Gilead Sciences (NASDAQ:GILD) for an an interferon-free genotype 1 hepatitis c cure.

The FDA has not approved the drug combo, so prescribing Sovaldi/Olysio together is an off-label use of the drugs. That seemed to surprise many analysts, but I learned through cancer treatment that off-label prescription of promising drugs for deadly diseases is commonplace. Bottom line: When cure rates are impressive and well-documented, and the alternative is grim, some physicians won't wait for FDA approval.

Olysio's unexpectedly great sales numbers also spell likely good news ahead for Gilead investors, with that company's earnings set for July 23.

Headwinds ahead?
While Olysio performed much better than Wall Street expected, some factors could weigh against the drug's future performance. Both AbbVie (NYSE:ABBV) and Bristol-Myers Squibb (NYSE:BMY) are gunning for a share of the huge hep-C market. And Gilead is likely to come out later this year with a Sovaldi+ledipasvir combination that would negate the usefulness of the Sovaldi/Olysio combo.

J&J CFO Dominic Caruso cautioned during the conference call that he expected "significant competition" for Olysio. The competition "will certainly pose a headwind," he said, although he declined to quantify it.

Another cautionary note: sales in J&J's diabetes care business were hit with price declines associated with Medicare competitive bidding in mail order and retail, which became effective last July.

A trusted brand again in a trillion dollar market?
The ongoing turnaround of J&J's consumer business was a focus of the conference call. Once a highly trusted brand in health care, multiple recalls of well-known products such as Tylenol and infant Motrin have bedeviled the company.

But even the most careful company is occasionally going to have a recall, and J&J has been working to move past its problems. Sales at the consumer unit rose 2.4% to $3.7 billion. According to CEO Alex Gorsky, the consumer unit's long-term prospects are excellent, as populations age and world economies recover. Right now, the worldwide market for health-care products is growing at 3% to 5% a year, and is close to $2.5 trillion a year.

J&J's medical-devices segment, which includes the Synthes business, posted anemic growth in sales -- up 0.7% to $2 billion. Still, Mr. Gorsky said he expects "solid growth" from the Synthes business in the future. He also said J&J was looking for potential deal opportunities in medical devices.

The big question
Like all major pharmaceutical and biotech companies offering expensive new drugs, J&J is going to be affected by the answer to a very important question. Given the growing pushback against health care costs, will insurers continue to cover the new drugs' stratospheric prices?

As of now, insurers are weighing their options.

Meanwhile, Johnson & Johnson, the maker of everything from Band-Aids to cancer drugs, a stellar dividend grower, and much loved by many long-term investors, is continuing to right its ship.

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Cheryl Swanson owns shares of Gilead Sciences. The Motley Fool recommends Gilead Sciences and Johnson & Johnson. The Motley Fool owns shares of Gilead Sciences and Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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