Johnson & Johnson Boosts Outlook, Thanks to Stents

Stents are metal mesh tubes that doctors insert into patients who have undergone angioplasty, a procedure that unclogs arteries and improves blood flow. The stents reduce the chances of arteries reclogging. Drug-coated stents do an even better job of reducing the reclogging -- or restenosis -- rate. Physicians and analysts say the drug-coated stents could make the traditional stents virtually obsolete.

J&J has been trying to build a Cypher defense as it expands Cypher sales. It has sued Boston Scientific, alleging patent infringement; and Darretta said he believes a Delaware judge will rule before year-end.

In early September, J&J started offering discounts off the Cypher list price of $3,195 per stent to high-volume clients. The average selling price is now $2,800, and that figure could come down about $200 during the fourth quarter. The company declined to discuss 2004 stent prices.

Although Boston Scientific is the closest competitor to J&J, two other companies -- Guidant (GDT Quote) and Medtronic (MDT Quote) -- also are developing drug-coated stents.

There's a lot more to J&J than stents. Drugs have powered the company in recent years -- third-quarter revenue from drugs was $4.84 billion, up 13% -- and drugs were the source of praise and concern on Tuesday.

The biggest concern continues to be the slow, steady decline in the Procrit/Eprex franchise of anemia drugs. Sales were down 8% in the third quarter compared to the same period last year, and the company expects more erosion in the fourth quarter. Procit produced $703 million in revenue for the quarter, caused in part by a price cut; Eprex contributed $302 million.

Although competition is eating into the anemia drugs' market share, J&J executives said Tuesday that sales of the drugs have stabilized in recent quarters.

"The pharmaceuticals business -- the key driver of sales and EPS growth over the past several years -- has begun to moderate due to patent expirations and the launch of competitor products,'" said Mara Goldstein, of CIBC World Markets, in a research note written after the J&J conference call. Goldstein has a sector performer rating on J&J's stock. She doesn't own shares, and her firm doesn't have an investment banking relationship with J&J.