J&J says it can return to growth with pharmaceuticals

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Johnson & Johnson (JNJ) has been one of the favorite stocks among investors during the market downturn, often touted as a defensive company with a strong management team that could steer the company remarkably well during these trying times.

But even the diversified health product maker couldn't fully protect itself from macro and sector-specific forces. While J&J investors were used to double digit growth rates, this year, no growth is expected. Right now, J&J's consumer products and medical devices businesses continue to provide balance to the lost sales in its pharmaceutical division -- a division that generated $24.6 billion in sales last year, or 39 percent of the company's total revenue. Today, in its analyst meeting, J&J promised a return to growth already next year, driven again by pharmaceuticals.
The road ahead won't be easy. J&J has been losing revenue from old blockbusters that now face cheaper generic competition. Specifically, in the past year, J&J has lost U.S. patent protection for two of its top drugs that together accounted for nearly 30 percent of its pharmaceutical revenue in 2007.

To counter that, J&J plans to file for regulatory approval of three new drugs by the end of 2010, and an additional eight drugs by the end of 2013. That's no small order.

The first drugs in question are telaprevir for the treatment of hepatitis C, Dacogen for a form of leukemia and an HIV drug TMC278. The first to be filed for approval in Europe, last two in the U.S. By 2013, it plans to seek U.S. approvals for treatments for diabetes, tuberculosis, attention deficit disorder, pain, obesity and rheumatoid arthritis.

And don't think J&J has done nothing until now. Since the beginning of 2008, J&J has secured approvals for six new drugs and another seven are under review. Other country approvals and new formulations were also in the works.

"We are very optimistic about our future in pharmaceuticals," Worldwide Chairman of Pharmaceuticals Sheri McCoy said in a statement. "We are well-positioned with an industry-leading pipeline, the global reach and financial resources of Johnson & Johnson, a long, rich history in pharmaceuticals, and a broad portfolio that is grounded in science and addresses serious unmet needs."

The company said it would focus on drug research in five therapeutic categories: neuroscience, cardiovascular and metabolism, infectious disease, immunology and cancer.

It seems J&J's optimism is contagious and indeed analysts estimate earnings will resume double digit growth by 2010, according to Morgan Stanley. Of course, there are no guarantees when it comes to drug pipelines, but despite some compounds not living up to their expectations in recent years, the current pipeline seems more promising, analysts say. The amount of new drugs also provides a cushion.

Investors weren't really that impressed, perhaps looking for more immediate action and more concrete results, and pushed the stock down about one percent by midday trading.
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