Updated from 3:37 p.m. EDT
A solid third quarter and the promise of a healthy fourth quarter prompted
Johnson & Johnson
to raise its full-year earnings prediction Tuesday.
"We look forward to finishing the year with a strong fourth quarter," said Robert J. Darretta, the company's chief financial officer, in a telephone conference call with analysts and investors. The company upped its outlook for the year to $2.64 from $2.62 excluding one-time gains.
J&J's stock closed at $50.93, gaining 2.3%, or $1.14.
Helped by its Cypher drug-coated stent for treating heart disease, J&J reported earnings per share of 69 cents for the third quarter, up 21% from the same period last year and 1 cent ahead of the Wall Street consensus of 21 analysts polled by Thomson First Call.
Net earnings rose 20% to $2.07 billion for the three months ended Sept. 30, and revenue gained 15.2% to $10.46 billion from the same period last year.
J&J has the only drug-coated stent available in the U.S., although
is in hot pursuit. Boston Scientific's drug-coated stent will be discussed Nov. 20 by an advisory committee of the Food and Drug Administration. A favorable response by the panel and the FDA could bring competition to J&J by early 2004.
But for now, J&J could luxuriate in the news that Cyper brought in $429 million in U.S. revenue -- and $489 million total revenue -- for the three months ended Sept. 30, the first full quarter of Cypher's U.S. sales.
Cypher was approved by the FDA in late April, but J&J experienced manufacturing and distribution problems that caused supply to fall far short of demand. Company executives said Tuesday the final residue of those problems will be gone domestically and internationally by the end of this month.
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 --
-- 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.
Although Goldstein views the Cypher stent as "likely to provide the bulk" of J&J's growth through 2004, Michael Weinstein, a J.P. Morgan analyst, calls Cypher a "largely one-time event" and worries about long-term growth prospects for J&J's drugs.
He is concerned about competition for Procrit and for Risperdal, a schizophrenia drug, whose U.S. sales dropped 1% for the quarter to $335 million amid increased competition most notably from
Abilify. Weinstein has a neutral rating on J&J. He doesn't own shares; his firm has had an investment banking relationship with J&J within the last 12 months.
There's plenty of good news for J&J drugs, too. Worldwide sales of the narcotic pain reliever Duragesic, delivered via a skin patch, gained 42% to $424 million for the quarter compared to the same period last year; sales of the epilepsy drug Topamax advanced 37% to $253 million; and Remicade, which treats both rheumatoid arthritis and the pernicious gastrointestinal ailment Crohn's Disease, posted a 30% gain to $443 million.