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New J&J CEO to Discuss $20B Purchase in 2Q Report

From Associated Press (July 13, 2012)

TRENTON, N.J. -- Johnson & Johnson, a Dow component, will focus on a huge acquisition, some experimental drugs awaiting approvals and its ongoing recall and manufacturing quality issues when it reports second-quarter results before the stock market opens Tuesday.

WHAT TO WATCH FOR: Alex Gorsky, who moved up from head of J&J’s medical device business to CEO in April, will address analysts on the quarterly conference call for the first time. He’s sure to focus on J&J’s June acquisition of Synthes, the Swiss surgical trauma equipment and orthopedic implants maker, for $19.7 billion -- J&J’s biggest acquisition ever. The deal is meant to lift J&J to a dominant global position in the growing orthopedic surgery market.

J&J, which makes Band-Aids, prescription drugs and medical devices, will give its usual update of its financial forecast, which could include some impact from integrating Synthes.

Analysts likely will bring up a flurry of litigation hitting the world’s biggest maker of health care products. That includes news this week that J&J has a tentative settlement with shareholders who are suing its board and top executives after years of growing legal and manufacturing quality problems. The plaintiffs blame J&J’s decentralized management structure for allowing top officials to claim they didn’t know about problems. The settlement would put in place new quality and compliance standards, an independent oversight committee and procedures for all problems to be reported quickly to the board.

J&J, based in New Brunswick, N.J., may note that it has taken another $600 million charge for litigation reserves involving ongoing government investigations over alleged illegal marketing of three prescription medicines. The company is reportedly close to a settlement with the Justice Department that would include paying about $2 billion in penalties.

Analysts may ask about a recent estimate by a plaintiff’s lawyer that the company could be facing close to $5 billion in liability from about 1,600 pending lawsuits over painful failures of its Pinnacle all-metal hip replacement system. The product remains on the market. J&J says it’s reduced pain and given mobility to many patients.

But the Food and Drug Administration last month said there’s growing evidence that instead of lasting longer than older-style hip replacements coated with ceramic or plastic, all-metal hips deteriorate faster and expose patients to dangerous particles of chromium and other metals. Two years ago, J&J recalled its ASR brand of all-metal hips, and about 7,000 lawsuits are pending over them.

Meanwhile, J&J will highlight sales trends for key drugs, including Xarelto for preventing blood clots and strokes. On Monday, the company said the FDA will give a priority review to its application to promote Xarelto for three additional uses: preventing clots in lung arteries, in deep veins and in patients who have previously had clots in either place. But a few weeks earlier, the FDA rejected J&J’s application to market Xarelto for preventing clots in certain heart patients who have had stents implanted to keep arteries open.

J&J also recently applied for approval of Type 2 diabetes drug canagliflozin and for bedaquiline, which would be the first treatment designed for multidrug-resistant tuberculosis.

Analysts may ask about progress in testing a potential breakthrough drug, bapineuzumab, which J&J is developing with Pfizer Inc. to slow the decline of physical and mental function in Alzheimer’s patients. Data on late-stage testing is to be presented at medical meetings in October. If the drug works well, it could be a gold mine.

WHY IT MATTERS: Johnson & Johnson has long been one of the most respected companies in the U.S. It recently returned to growth after a couple years of falling revenue due to all the product recalls and the weak global economy.

The company has gotten through a spate of generic competition that has slashed revenue from blockbuster drugs. Now it needs to focus on sales for newer drugs, getting some experimental compounds approved and resolving manufacturing problems so it can get its Tylenol, Motrin and other consumer health products back on store shelves.

J&J also must find a new manufacturer for its cancer drug Doxil, production of which has been shut down because the third-party manufacturer J&J used had contamination and other serious lapses at its factory. The resulting shortage has left many cancer patients in the lurch.

WHAT’S EXPECTED: Analysts polled by FactSet, on average, expect earnings per share of $1.29 on revenue of $16.71 billion.

LAST YEAR’S QUARTER: J&J reported profit of $1 per share on revenue of $16.6 billion.


Linda A. Johnson can be followed at


Posted: July 2012