Global Insight Perspective | |
Significance | Operating income and net income for the second quarter and first half of 2008 were consistent at growth levels of 9.74% and 8% (operating) and 23.82% and 22.5% (net), respectively. |
Implications | Growth was primarily bolstered by the consumer health business at 13.2% and medical devices unit at 12.1%. In terms of products performance, Velcade and Risperdal Consta achieved higher growth, while Procrit and Risperdal showed a declining trend. |
Outlook | J&J will experience pressures in the coming quarters, as generic competition for Risperdal is fully reflected. In the short term, however, J&J can expect a review of its New Drug Application (NDA) for golimumab and revenues from Concerta as a treatment for attention deficit and hyperactivity disorder (ADHD) in adults. |
U.S. pharma major Johnson & Johnson (J&J) completed the first half of 2008 with worldwide sales of US$32.44 billion, marking growth of 8.2% year-on-year (y/y). Favourable currency effects and key contributions from the medical devices and diagnostics segment at US$11.77 billion (first half) and US$6.07 billion (second quarter), as well as the consumer health division at US$8.1 billion and US$4.03 billion, respectively, fostered J&J's top-line figures. Expenditure has been consistent, but R&D spend in the second quarter rose, mainly due to the inclusion of an after-tax, in-process R&D charge of US$40 million related to the acquisition of Amic (Sweden). Net income stood at US$3.3 billion and US$6.92 billion in the second quarter and first half, respectively.
Johnson & Johnson: Financial Results, 2008 | ||||
Q2 2008 (US$ mil.) | % Change Y/Y, on a Reported Basis | H1 2008 (US$ mil.) | % Change Y/Y, on a Reported Basis | |
Pharma Sales | 6,340 | 3.1 | 12,769 | 3.2 |
- U.S. | 3,793 | -1.7 | 7,863 | -0.4 |
- International | 2,547 | 11.3 | 4,906 | 9.6 |
Medical Devices and Diagnostics | 6,074 | 12.1 | 11,775 | 9.7 |
Total Product Sales | 16,450 | 8.7 | 32,644 | 8.2 |
Costs of Products Sold | 4,751 | 9 | 9,365 | 7.1 |
Selling, Marketing and Administrative Expenses | 5,507 | 9.5 | 10,630 | 8.1 |
R&D (incl. in-process R&D) Expenditure | 1,936 | 3.75 | 3,648 | -15.6 |
R&D as % of Sales | 11.7% | 0.54 pp lower | 11.17% | 3.16 pp lower |
Operating Income* | 4,256 | 9.74 | 9,001 | 23.82 |
Operating Margin** | 25.8% | 0.17 pp higher | 27.5% | 3.47 pp higher |
Net Income | 3,327 | 8.0 | 6,925 | 22.5 |
Source: Johnson & Johnson; except * Global Insight estimate, calculated as sales minus cost of products sold, R&D and selling, marketing and administrative costs; and ** calculated as operating income divided by product sales | ||||
J&J's pharmaceutical business has suffered on the domestic front, with U.S. sales dipping by 1.7% y/y (second quarter) and 0.4% y/y (first half). Sales figures for the two periods were propped up by 4.4% and 11.9% impacts from the currency exchange, respectively. In terms of product performance, a negative impact from lower sales of anaemia drug Procrit was experienced, mainly due to a decline in the market segment. Anti-psychotic treatment Risperdal Oral was also affected by generic competition after the patent expired. Sales growth in multiple myeloma drug Velcade, migraine drug Topamax, anti-psychotic drug Risperdal Consta, and Remicade mitigated some of the negative impacts suffered by Procrit, Duragesic, and Risperdal.
Johnson & Johnson: Global Sales for Key Pharmaceutical Franchises, 2007 | ||||
Q2 2008 (US$ mil.) | % Change Y/Y, on a reported basis | H1 2008 (US$ mil.) | % Change Y/Y, on a reported basis | |
Aciphex/Pariet | 325 | -3.3 | 602 | -10.4 |
Concerta | 279 | 9.0 | 569 | 12.0 |
Duragesic | 272 | -5.6 | 505 | -14.6 |
Eprex/Procrit | 652 | -18.8 | 1,281 | -18.7 |
Levaquin | 351 | -3.6 | 847 | 0.5 |
Remicade | 886 | 2.0 | 1,884 | 17.8 |
Risperdal | 712 | -16.0 | 1,521 | -11.3 |
Risperdal Consta | 343 | 23.4 | 652 | 21.0 |
Topamax | 677 | 17.1 | 1,323 | 11.4 |
Velcade | 205 | 62.7 | 389 | 62.8 |
Source: Johnson & Johnson | ||||
FDA Concern over Doribax
The U.S. FDA has raised some concerns over studies associated with J&J's application to extend indication of antibiotic Doribax (doripenem). The Wall Street Journal reports that the regulatory agency queried the firm over trial patients, noting, "patients lacked convincing evidence of pneumonia." J&J's application involves expanding the indication of Doribax to pneumonia patients on mechanical ventilation units, the source added. J&J has since acknowledged that 6% of its trial patients did not meet strict radiologic criteria for pneumonia.
Outlook and Implications
J&J's financial performance in the first half of 2008 has been strong. However, the forthcoming quarters are expected to be challenging, as higher commodity prices and generic competition will affect the company's consumer health and pharmaceutical businesses. The declining trend in its key marketed products pipeline—namely Risperdal (risperdone), Levaquin (levofloxacin), and Duragesic—is set to continue in the forthcoming quarter. In fact, the full impact of the loss of marketing exclusivity for Risperdal will be evident in the subsequent quarters, even as J&J has launched its own authorised generic in that market segment. The company has received approval for its supplemental New Drug Application (NDA) for Concerta for attention deficit hyperactivity disorder (ADHD); this will be reflected in sales over the forthcoming quarters. Furthermore, J&J has submitted a biologics licence for the approval of golimumab for rheumatoid arthritis (RA), psoriatic arthritis, and ankylosing spondylitis, which is set for regulatory review in the short term. On the Doribax issue, the FDA's concerns will be further discussed by an advisory panel this week. The discussion will seek to evaluate the efficacy of doripenem for hospital-acquired pneumonia and pneumonia patients on ventilators.