Global Insight Perspective | |
Significance | Cost-cutting and a push from the weak U.S. dollar have helped to prop up pharmaceutical sales in the first quarter of 2008. Operating income and net income have registered higher growth at 13% and 39.8%, respectively. |
Implications | International sales remained a highlight with good growth. Contribution from the company's consumer products business bolstered by products acquired from Pfizer and the over-the-counter (OTC) launch of Zyrtec mitigated some of the pressures from the pharma business in the United States. |
Outlook | Markets outside of the United States will gain in prominence in the forthcoming quarters with the forecast, however, still conservative at 7% earnings growth by the company. |
U.S. pharma major Johnson & Johnson (J&J) reported higher sales of US$16.19 billion, marking 7.7% growth year-on-year (y/y) for the first quarter (Q1) ending on 31 March 2008. Overall U.S. sales were marginally higher at 2.8%, while international sales reported 13.7% y/y growth at US$7.7 billion. In terms of pharmaceutical product sales, the United States dominated at US$4.07 billion, under 1% up against the year-ago quarter. The results reflect a positive currency impact of 11.3%, which is significant and contributed to boosting pharmaceutical sales. Medical devices and diagnostics posted healthy 7.2% growth, while the consumer unit remained upbeat at 16.2% y/y growth.
The company reported a modest rise in its expenditure, with an average increase of 5% against the comparable period last year. The cost cutting is subtle and is reflected in the declining pattern to contribution to overall sales for cost of goods, SG&A (Selling, general and administration expenses) and R&D expenditure. Net income at US$3.6 billion was aided by US$807 million associated with the acquisition of Conor Medsystems.
J&J: Financial Results | ||
Financial Particulars | Q1 2008 (US$ mil.) | % Change Y/Y, on a Reported Basis |
Pharma Sales | 6,429 | 3.3 |
- U.S. | 4,070 | 0.9 |
- International | 2,359 | 7.9 |
Medical Devices and Diagnostics | 5,701 | 7.2 |
Consumer Products | 4,064 | 16.2 |
Total Product Sales | 16,194 | 7.7 |
Costs of products sold | 4,614 | 5.2 |
Selling, Marketing and Administrative Expenses | 5,123 | 6.7 |
R&D Expenditure | 1,712 | 3.6 |
R&D as a % of Sales | 10.6 | 0.4 basis points lower |
Operating Income* | 4,745 | 13 |
Net Income | 3.6 | 39.8 |
Source: Johnson & Johnson; except | ||
In terms of product sales, Velcade (bortezomib), Remicade (infliximab), Risperdal Consta (risperidone), Razadyne/Reminyl (galantamine), and Concerta (methylphenidate) provided some of the momentum in pharmaceutical-product growth. However, safety concerns for anaemia drug Procrit/Eprex contributed to a 23%dip in revenues. Equally worrying were Aciphex/Pariet and Duragesic/Fentanyl transdermal, reporting a 17.6% and 23.1% decline. Antipsychotic drug Risperdal, which faces patent expiry achieved sales of US$809 million, a marginal drop of 6.7%.
Global Sales for Key Pharmaceutical Franchises | ||
Q1 2008 (US$ mil.) | % Change Y/Y, on a reported basis | |
Aciphex/Pariet | 277 | -17.6 |
Razadyne/Reminyl | 149 | 16.4 |
Concerta | 290 | 15.1 |
Duragesic/Fentanyl Transdermal | 233 | -23.1 |
Eprex/Procrit | 629 | -23 |
Risperdal | 809 | -6.7 |
Levaquin/Floxin | 496 | 3.5 |
Remicade | 998 | 36.5 |
Topamax | 646 | 5.9 |
Velcade | 184 | 62.8 |
Source: Johnson & Johnson. | ||
The consumer division, following the acquisition of Pfizer's product portfolio in late 2006, saw a growth rate of 16.2%. The company has not given details of its top over-the-counter (OTC) products, but in a conference call, Chief Financial Officer Dominic Caruso revealed that OTC medications reported 25% growth in the quarter under review, Reuters stated. The OTC launch of allergy drug Zyrtec (cetirizine) also bolstered the company's revenues from the portfolio. J&J received an approvable letter from the FDA for ceftobiprole for the treatment of complicated skin and skin-structure infections.
Outlook and Implications:
The financial performance for the first quarter of 2008 reflects the growing pressures on the pharmaceutical business with generic competition and safety concerns on the rise. The pharma major has faced increasing pressures on the regulatory front, with Reganerx (becaplermin) revealing cancer risks and Prezista (darunavir) showing risks of potential liver damage. The FDA advisory panel in March endorsed restrictions on the use of anaemia drugs—mainly erythropoeitins or erythropoiesis stimulating agents (ESAs)—affecting J&J's products as well. The recall of 32 million patches of Duragesic (fentanyl) due to manufacturing issues which could have led to accidental overdoses, has also made its mark on first-quarter figures for the product.
It is interesting to note the increasing contribution of the international markets that has clearly helped to prop up sales and mitigate some of the losses. In terms of geographical contribution, Asia Pacific and Africa account for US$2.1 billion, while Europe contributed US$ 4.3 billion, marking a 13% rise. With the U.S. dollar expected to be under pressure, contribution from the international sales division is expected to continue on the positive front. The company's restructuring efforts and diversified business strategy have certainly helped to distribute some of the pressures. The forecast for earnings was set at 7%, a conservative figure and lower than the estimated 10% noted last year, reflecting the cautious outlook for the company in the forthcoming quarters.
Related Articles:
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- United States: 14 March 2008: FDA Advisors Recommend Anaemia Drugs Restrictions