Earnings Preview: J&J 4Q report on devices, drugs
TRENTON, N.J. (AP) — Health care giant Johnson & Johnson will focus on medical devices and new prescription drugs in development, plus progress on its manufacturing problems, when it reports fourth-quarter results before the stock market opens Tuesday.
WHAT TO WATCH FOR: Besides announcing its results and giving its 2013 financial forecast, J&J is hosting a periodic update for analysts, this one on its medical devices and diagnostics business. It's grown into J&J's biggest segment, with roughly $26 billion in annual revenue from surgical devices, artificial joints, Acuvue contact lenses, diabetes testing supplies and diagnostic equipment.
Executives will discuss products in development, growth strategies in developed and emerging markets and the approval of Evarrest, a sealant patch for stopping serious bleeding during surgery.
They'll give an update on the integration of Synthes Inc., a maker of surgical trauma equipment and orthopedic implants. J&J bought Synthes in June for $19.7 billion, its biggest acquisition ever.
It's been folded into J&J's DePuy orthopedics business as the new DePuy Synthes, which also makes devices and power tools for spine disorders, joint repair and sports medicine.
J&J, based in New Brunswick, N.J., also sells prescription drugs and consumer health products such as Listerine and No More Tears baby shampoo.
CEO Alex Gorsky, who also became J&J's chairman on Dec. 28 when predecessor Bill Weldon stepped down, will address the analysts and likely give an update on progress upgrading manufacturing plants.
The company has issued more than 30 recalls of nonprescription drugs since September 2009, for reasons from nauseating packaging smells to tiny glass and metal shards in liquid medicines. Costs for upgrades and completely rebuilding one factory, and for lost sales as Tylenol, Motrin, Benadryl and other products remained off store shelves, have mounted well past $1 billion.
The company has repeatedly pushed back its forecast for when the recalled products will be back in stores, has discontinued some brands and recently sold one, Rolaids, to Sanofi SA.
Management will discuss recent approvals of some prescription drugs, including Sirturo, the first tuberculosis treatment with a new mechanism of action in 40 years.
Anticlotting drug Xarelto, part of a new generation of blood thinners seen as big money makers, was approved in November for a fourth use: treating and preventing recurrence of blockages in lung arteries and blood clots in veins deep in the body.
And the European Commission last week approved use of prostate cancer drug Zytiga earlier in treatment, making it available for more men.
Executives will discuss drugs in development, particularly Type 2 diabetes drug canagliflozin, which could become a blockbuster. Outside advisers to the Food and Drug Administration recommended its approval in early January, and the agency is expected to make a decision in a few months.
J&J recently applied for EU and U.S. approval of another use for immune disorder drug Stelara — for active psoriatic arthritis, an incurable condition that causes joint inflammation and skin lesions.
Analysts may ask about the status of once-promising Alzheimer's disease drug bapineuzumab, which J&J has been developing with partner Pfizer Inc. An intravenous version failed to work in two studies, leading J&J to take a $340 million charge. Remaining studies, on a form injected just under the skin, could also fail.
WHY IT MATTERS: As the world's biggest, most diverse maker of health care products, Johnson & Johnson is a bellwether for how pharmaceutical and medical device companies are doing. Management comments on trends in patient hospital stays and doctor visits often give insight on the overall economy.
WBB Securities analyst Steve Brozak thinks J&J may have a one-year grace period this year as people who have long delayed elective surgeries and other health care decide they can't wait any longer. That could bump up sales of prescription medicines, plus products J&J sells to hospitals.
"They need to use this breathing room to make a change," Brozak says. "They have good cash flow. Now is the time to use that cash flow" on strategies for future growth.
He'll also be watching for increased spending indicating the company is fixing its manufacturing problems.
WHAT'S EXPECTED: Analysts polled by FactSet, on average, expect earnings per share of $1.17 and sales of $17.69 billion.
LAST YEAR'S QUARTER: J&J reported net income of just $218 million, or 8 cents per share, due to multiple one-time charges. Revenue totaled $16.26 billion.
Linda A. Johnson can be followed at http://twitter.com/LindaJ_onPharma