Earnings Preview: J&J reports 2Q results Tuesday

Johnson & Johnson to focus on rehab of ailing consumer health business, sales of key medicines

Associated Press

TRENTON, N.J. (AP) -- Johnson & Johnson will discuss sales of key drugs such as blood thinner Xarelto and its ongoing rehabilitation of the ailing consumer health business when it reports second-quarter results before the stock market opens Tuesday.

WHAT TO WATCH FOR: The world's largest health products maker will note a recent acquisition and initial sales of its first drug for the fast-growing diabetes market. But its conference call with analysts will focus on efforts to turn around its smallest division, which makes nonprescription medicines, Band-Aids and other consumer health products.

Sandra Peterson, who joined J&J in December as head of the consumer business and the supply chain, will detail recent steps and what remains to be done to end an unprecedented series of about four dozen product recalls, including popular pain relievers Tylenol and Motrin, since September 2009.

Recalls have involved defective blood sugar meters for diabetics, painful artificial hips, liquid medicines containing glass shards and pills with incorrect levels of active ingredients. Just last month, J&J recalled millions of oral contraceptive pills, sold in 43 foreign countries, that didn't release a hormone properly and might increase chances of pregnancy.

CEO Alex Gorsky will briefly review J&J's strategy and its performance for the first half of 2013, while Chief Financial Officer Dominic Caruso will update the full-year financial forecast.

Executives will note that on Wednesday, J&J and partner Pharmacyclics Inc. applied for U.S. approval to sell experimental drug ibrutinib for treating two blood cancer types: mantle cell lymphoma and chronic lymphocytic leukemia. It will get an expedited review and could become a big seller.

They may note that J&J, based in New Brunswick, N.J., in June agreed to purchase Aragon Pharmaceuticals Inc., a San Diego company developing a prostate cancer drug, for up to $1 billion.

Analysts will be watching for signs that new brand-name rivals are hurting sales of some big drugs, including Xarelto, immune disorder treatment Remicade and prostate cancer drug Zytiga. Remicade, J&J's top seller at $6 billion a year, also likely will soon face competition in Eastern Europe and Scandinavia from a biosimilar drug — sort of a generic version of the biologic drug, which is made by living cells.

The analysts also will scrutinize initial sales of recently launched Invokana for Type 2 diabetes. The daily pill is the first drug in a new class that increases sugar excretion via urine. J&J's medical devices division, its largest by revenue, already makes widely used OneTouch diabetes testing supplies and insulin pumps.

J&J will note recent approvals of three new devices, including a new breast implant touted as having firmer, more natural shaping.

Analysts may ask about J&J's recent decision to stop selling some artificial hips and the escalation of litigation over improper marketing of antipsychotic drug Risperdal and the medicine's alleged side effects, including diabetes and breast development in some males.

Analysts may ask about a recent U.S. ruling to grant an additional patent on a particular way of using Zytiga, which recently surpassed the $1 billion-a-year sales level. This patent will run until 2027, 11 years beyond the basic patent on the drug's composition, but it's unclear whether generic versions will be barred from the market for all those additional years.

WHY IT MATTERS: It's been nearly 4 years since the product recalls began, most of them due to substandard manufacturing or inadequate quality control. Most involved nonprescription medicines, but contact lenses and a couple of prescription drugs also have been recalled.

Efforts to upgrade factories, including rebuilding a key consumer health products factory in suburban Philadelphia from the ground up, have been dragging on. The company has repeatedly pushed back its forecast of when all the recalled nonprescription medicines will be back on store shelves. J&J's last forecast is for about 75 percent of the nonprescription products to return to stores by year's end.

Reduced sales of the retail products, plus the factory upgrades and increased regulatory inspections, have cost J&J well over $1 billion.

However, their drag on J&J's stock price ended last year. Shares have jumped about 45 percent since last May to an all-time high of nearly $90.

WHAT'S EXPECTED: Analysts polled by FactSet, on average, expect earnings per share of $1.39 and sales of $17.72 billion.

LAST YEAR'S QUARTER: J&J reported net income of $1.41 billion, or 50 cents per share, on revenue of $16.49 billion.

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Follow Linda A. Johnson at http://twitter.com/LindaJ_onPharma

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