J&J reports poor Q1 sales, announces job cuts

In the wake of lower-than-expected first-quarter results, Johnson & Johnson announced that it will be paring about 900 positions, or approximately 6 percent of its U.S. workforce, from its Ortho-McNeil-Janssen pharmaceuticals unit.

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In the wake of lower-than-expected first-quarter results, Johnson & Johnson announced that it will be paring about 900 positions, or approximately 6 percent of its U.S. workforce, from its Ortho-McNeil-Janssen pharmaceuticals unit.

According to company spokesperson Kara Russell, the cuts, which will mainly affect sales representatives, will include a mix of attrition and hiring freezes. She declined to specify the number of employees that will lose their jobs.

"Some employees were informed earlier this week that their positions were being eliminated," Russell said.

The decision, according to Russell, was a "first step in Ortho-McNeil-Janssen's revisiting its model of how it meets the needs of its multiple stakeholders," including physicians, payers, and policy makers, but specified that this does not necessarily mean there will be additional job cuts.

The decision also comes after the company reported that first-quarter sales of pharmaceutical products decreased 10.1 percent to $5.8 billion compared with the prior-year period, due in part to a strengthening of the U.S. dollar and generic competition.

Quarterly earnings at the company slipped to $3.5 billion, down 2.5 percent from the same time last year, but still surpassing analyst expectations.

Reduced spending and the sale of its consumer products unit nearly three years ago has helped Johnson & Johnson weather the economic downturn and competition from generic drugs, according to Jeff Jonas, an analyst at Gabelli & Co.

According to Credit Suisse analyst Catherine Arnold, revenue was mainly below expectations because consumer product sales were $408 million below what she forecast.

Arnold said the prescription drug business held its own, "partly due to aggressive price increases that are not sustainable," but the overall performance is encouraging for the drugmakers reporting results in the next couple weeks.

Meanwhile, analyst Steve Brozak of WBB Securities said Johnson & Johnson was able beat analysts' forecasts because it kept expectations relatively low.

"They are the health care bellwether, and the bellwether is showing that we are nowhere near (having) the end in sight in this recession," he said, adding that competitors at best can hope to match the company's results because even health care companies "can't defy the recession gravity."

With regard to prescription products, worldwide revenue for Remicade increased 3 percent to $1 billion during the quarter, while sales of Concerta rose 18.6 percent to $344 million, and Risperdal Consta revenue was up 5.2 percent to $325 million. Generic competition negatively impacted sales of Risperdal, which plummeted 66 percent to $275 million compared to the prior-year quarter, as well as revenue for Topamax, which fell 6.8 percent to $602 million. Sales of Procrit were down 12.6 percent to $550 million.

Overall, Johnson & Johnson's revenue for the quarter was down 7.2 percent to $15 billion, falling short of analysts' projections of $15.4 billion. The company said six percentage points of the decline were due to the strong US dollar. Commenting on the results, WBB Securities analyst Steve Brozak said Johnson & Johnson "managed things well, reducing expenses the way they had telegraphed they would, and it's going straight to the bottom line." He added that "this is a game of expectations, and even though sales were weak across all three of Johnson & Johnson's business units, people were expecting far worse numbers."

According to iStockAnalyst.com, the company is facing increasing generic competition which could eat into its revenue.

"Johnson & Johnson could face generic competition soon to its blockbuster attention deficit drug Concerta, after a federal court at the end of March 2009 ruled that a key patent is invalid," according to the Web site's analysis. "The patent challenger, Watson Pharmaceuticals Inc., is awaiting Food and Drug Administration approval to sell four different generic doses of Concerta, which had $1.25 billion in sales last year."

iStockAnalyst also points out that Johnson & Johnson's competitive position weakened considerably after Merck & Co.'s $41.1 billion buyout of Schering-Plough Corp. That's because Schering and J&J share rights to revenues from immune disorder drug Remicade and their contract has change-of-control provisions that could come into play. J&J hasn't disclosed its plans so far. Yet the company's guidance for 2009 seems achievable.

Company CFO Dominic Caruso sounded an optimistic tone, saying he doesn't expect the recession's effects to worsen and is counting on new drugs to stanch losses to generic rivals before the year ends.

The recession, and competition from generic copies of two of J&J's biggest drugs, "basically played out like we thought it was going to play out, and we were able to deliver very solid results," Caruso told Bloomberg News. "I don't know how long the recession's going to last, but 'as expected' is a good comment."

Johnson & Johnson was the first major health-care company to report first-quarter results. In the session immediately following the report, the company's stock rose 22 cents to $51.37 in New York Stock Exchange composite trading. The shares have lost 22 percent in the last year.

According to the company, it expects regulatory decisions in the U.S. later this year on new drugs that should help turn around the pharmaceutical division. The Food and Drug Administration is to decide on rheumatoid arthritis medication golimumab in April, anti-clotting pill rivaroxaban in May, psoriasis treatment ustekinumab in July, and schizophrenia drug paliperidone palmitate by September.

Unlike other large drug makers like Pfizer Inc. and Merck & Co., Johnson & Johnson has yet to make a splash in the acquisition pool.

Caruso told the Wall Street Journal this week that the company wouldn't rule anything out, but he noted that in recent years J&J has opted to invest internally in drug research, or license drugs from other companies.

Caruso declined to comment on whether Johnson & Johnson believed Merck's agreement to buy Schering-Plough Corp. triggered a "change-of-control" provision that would terminate Johnson & Johnson's co-marketing deal with Schering for Remicade and a follow-up drug. Merck and Schering have said they structured their deal so that the combined entity would retain its rights to the drugs.

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