IHS Global Insight Perspective | |
Significance | J&J registered positive top-line performance in Q4 with overall product sales up 9% y/y. However, the full-year result was less encouraging, which saw total product sales and pharmaceutical sales slip by 2.9% and 8.3% y/y respectively. Restructuring charges had a negative impact on net profit in Q4 and the full year, both of which experienced drops. |
Implications | With focus on pharmaceutical sales, the drop was mainly attributed to the decreased sales of products such as Topamax and Risperdal as a result of strong generics competition. |
Outlook | Looking ahead to 2010, J&J is likely to continue its strategies of business diversification through mergers and acquisitions as well as licensing deals. The goal of cost saving set in November 2009 will see the company tighten its belt in expenditures in a bid to increase profitability prospects. |
Johnson and Johnson (J&J, U.S.) has reported its financial results of the fourth quarter (Q4) and full year of 2009, which saw its top-line revenue from all products slip by 2.9% year-on-year (y/y) to US$61.9 billion in 2009. During the same period, medical devices and diagnostics was the only segment among the company's three core businesses posting positive growth, while pharmaceutical sales suffered a reported y/y decline of 8.3% to US$22.5 billion. Both sales in the U.S. and international markets contributed to the overall pharma sales slip although sales from the former decreased by 12.1% y/y. By contrast, the company has shown positive performance in the fourth quarter, which saw overall product sales and pharmaceutical sales up by 9% and 5.4% respectively.
Although both costs of products sold and research expenditure both went up in the fourth quarter, J&J's three main expenditures, namely costs of sales, selling, marketing and administrative costs (SMA), and research and development spend demonstrated a declining trend in 2009. It reflected the company's strategy of cost containment under the pressure of overall sales as well as the negative impact of economic downturn. As a result, the full-year operating income went up by 4.2% to US$16.7 billion. In terms of net income, hefty restructuring charges brought down the net profit by 18.7 y/y to US$2.2 billion in the fourth quarter, and the full-year net earnings slipped by 5.3% to US$12.3 billion.
Johnson & Johnson: Financial Results 2009 | ||||
Q4 (US$ mil.) | % Change Y/Y, on a Reported Basis | Full Year (US$ mil.) | % Change Y/Y, on a Reported Basis | |
Pharma Sales | 5,993 | 5.4 | 22,520 | -8.3 |
—U.S. | 3,338 | -2.7 | 13,041 | -12.1 |
—International | 2,655 | 17.7 | 9,479 | -2.6 |
Medical Devices and Diagnostics | 6,309 | 11.8 | 23,574 | 1.9 |
Total Product Sales | 16,551 | 9 | 61,897 | -2.9 |
Costs of Products Sold | 5,312 | 21.5 | 18,447 | -0.3 |
Selling, Marketing and Administrative Expenses | 5,629 | -0.6 | 19,801 | -7.9 |
R&D (incl. in-process R&D) Expenditure | 2,213 | 5.0 | 6,986 | -7.8 |
R&D as a % of Sales | 13.4% | 0.5 pp lower | 11.3% | 0.6 pp lower |
Operating Income* | 3,397 | 17.3 | 16,663 | 4.2 |
Operating Margin** | 20.5% | 1.4 pp higher | 26.9% | 1.8 pp higher |
Net Income | 2,206 | -18.7 | 12,266 | -5.3 |
Source: Johnson & Johnson; except * IHS Global Insight estimate, calculated as sales minus cost of products sold, R&D, and SMA costs; and ** calculated as operating income divided by product sales. | ||||
Turning to J&J’s leading pharmaceutical products, revenue growth was driven by inflammatory disorder treatment Remicade (infliximab), myeloma drug Velcade (bortezomib) and antipsychotic Risperdal Consta (risperidone), which posted sales increase of 14.8%, 18.6% and 8.9% respectively in 2009. The company's top-selling drug Remicade brought in revenue of US$1.1 billion and US$4.3 billion in the fourth quarter and full year respectively. By contrast, some of the company's star performers suffered severe revenue drops due to strong competition from generics. Sales of Risperdal and Topamax declined by 57.7% and 57.9% respectively during 2009 as a result of negative impact from market share loss to generic rivals.
Global Sales for Key Pharmaceutical Franchises 2009 | ||||
| Q4 (US$ mil.) | % Change Y/Y, on a reported basis | Full Year (US$ mil.) | % Change Y/Y, on a reported basis |
Aciphex/Pariet | 312 | 13.9 | 1,096 | -5.4 |
Concerta | 381 | 36.1 | 1,326 | 6.3 |
Duragesic | 233 | -14.3 | 888 | -14.3 |
Eprex/Procrit | 576 | 2.9 | 2,245 | -8.7 |
Levaquin | 452 | 10 | 1,550 | -2.6 |
Remicade | 1,138 | 28.4 | 4,304 | 14.8 |
Risperdal | 193 | -32.3 | 899 | -57.7 |
Risperdal Consta | 399 | 25.1 | 1,425 | 8.9 |
Topamax | 192 | -71.8 | 1,151 | -57.9 |
Velcade | 281 | 35.1 | 933 | 18.6 |
Source: Johnson & Johnson | ||||
Outlook and Implications
Despite the positive top-line growth in Q4, J&J's full-year results were still disappointing with the pharmaceutical sector presenting the highest y/y drop among all three segments. In 2009, the company has adopted several strategic changes including the diversification of businesses and active seeking of pipeline enhancement opportunities. At the end of 2009, the company also announced its global restructuring plan, which was aimed at the cost saving target of US$1.4-1.7 billion by 2011 including US$800-900 million expected to be saved in 2010. The plan consisted of job cuts at some 6-7% of its global headcounts (see United States: 4 November 2009: J&J to Slash 6-7% of Global Headcount, Aims for Savings of Up to US$1.7 bil. by 2011). The company has also been active in mergers and acquisitions with targets including a series of medical device companies such as Acclarent, Omrix and Mentor to ramp up the strength of J&J's Ethicon division (see United States:17 December 2009: J&J's Ethicon Snaps Up Acclarent for US$785 mil.). J&J also struck high-profile collaborative deals such as the acquisition of Elan's Alzheimer's Immunotherapy Programme and the collaborations with Crucell for the development of vaccine products including influenza, infectious and non-infectious diseases.
Looking forward, J&J has released earning forecast for the year ahead to stand at US$4.85 to US$4.95 per share, excluding the impact of special items, as opposed to the US$4.4 in 2009. In terms of the pharmaceutical segment growth, the environment will remain challenging with generics competition to continue eclipsing the shares of drugs like Topamax and Risperdal. Under the difficulty of achieving top-line growth, cost containment will continue to be adopted by J&J in a bid to increase profitability. Despite an eventful year in terms of M&A activities, 2010 is still likely to see further acquisitions made by the company to strengthen its product pipeline and growth in new fields.