Health care giant Johnson & Johnson likely will tout an impressive three recent drug approvals, and downplay still-more medicine recalls, when it reports its second-quarter results before the stock market opens Tuesday.
WHAT TO WATCH FOR: J&J's pharmaceutical division is improving, with the worst of generic competition coming to an end after patents expired this spring for two blockbusters, powerful antibiotic Levaquin and attention deficit drug Concerta. J&J has a deal with another company for an authorized generic version of Concerta and so will get some of those sales.
During the quarter, the maker of Band-Aids, biologic medicines and birth control pills got two new drug approvals in the U.S., for life-extending prostate cancer pill Zytiga, in April, and in May, the once-a-day HIV pill Edurant. That blocks the HIV virus from reproducing and is meant to be part of a drug cocktail for newly diagnosed patients.
J&J also got U.S. approval of Xarelto, for preventing blood clots after knee and hip replacement surgery, on July 1. The New Brunswick, N.J., company will market it in the U.S., and partner Bayer Healthcare in other countries. The Food and Drug Administration is to rule in November on whether Xarelto should be taken regularly as a blood thinner for patients with atrial fibrillation, an irregular heartbeat.
In addition, J&J is awaiting approval of new hepatitis C pill Incivek in the European Union, where it has marketing rights. Its partner, Vertex Pharmaceuticals Inc., got approval for U.S. sales in May.
In April, J&J and Merck & Co. agreed to split billions of dollars in annual revenue to end a two-year arbitration fight over the rights to two blockbuster biologic medicines for rheumatoid arthritis and other immune disorders, Remicade and successor drug Simponi. Starting July 1, J&J is to receive exclusive marketing rights for the drugs in Canada, Central and South America, the Middle East, Africa and Asia Pacific territories, while keeping its rights to U.S. sales.
On the downside, CEO Bill Weldon still hasn't been able to bring an end to a string of more than 25 product recalls since September 2009.
There were four more in the quarter, covering tens of thousands of bottles of widely used epilepsy pill Topamax, HIV medicine Prezista, schizophrenia drug Risperdal and yet another recall of Tylenol caplets.
All four were blamed on a nauseating chemical smell linked to wooden shipping pallets _ the cause of many of the recalls. Others, though, were due to far more serious problems, from metal shards in liquid medicines to the wrong level of active ingredient.
The company is now operating under a consent decree allowing extra government oversight of a factory in Pennsylvania, closed since April 2010, where many of the nonprescription drugs recalled were made.
After recently reorganizing its consumer business to address those problems, J&J in June said it is restructuring its Cordis heart device business and will take a second-quarter charge of about $550 million. The pioneer of drug-coated stents for heart patients has ceded the territory to rivals whose newer, better products have been selling better. It will cut hundreds of jobs and shutter two factories.
In May, it set aside an undisclosed reserve related to a federal criminal investigation of its marketing practices for Risperdal, once one of its biggest sellers. The wide-ranging probe focuses on whether J&J illegally promoted sales for unapproved uses, including giving it to patients with dementia, a group for whom it can hasten death.
Among its efforts to expand in emerging markets, J&J last week closed a $245 million acquisition of some of the most popular nonprescription cough and cold medicines in Russia, made by J B Chemicals & Pharmaceuticals Ltd. In June, it opened a center in Suzhou, China, to develop medical devices and diagnostic products for emerging markets in Asia.
In April, J&J agreed to buy U.S.-Swiss medical device maker Synthes Inc. for $21.3 billion. The deal could give J&J a dominant position in the growing market for orthopedic surgery products.
WHY IT MATTERS: Since the recalls began nearly two years ago, much of the news on J&J has been negative, depressing its share price until it began picking up in May.
RBC Capital Markets analyst Glenn Novarro writes that a big ramp-up in consumer product sales likely won't come "until late in the year, owing to supply disruptions associated with the consent decree." But he expects another solid quarter for Johnson & Johnson's medical devices and diagnostics division, its biggest by revenue, plus "continued strong growth from recently launched new products" and sales from newly acquired vaccine business Crucell.
WHAT'S EXPECTED: Analysts polled by FactSet, on average, expect earnings per share of $1.24 and sales of $16.21 billion.
LAST YEAR'S QUARTER: Net income was $3.45 billion, or $1.23 per share, up 7.5 percent, but only because of a big drop in J&J's tax rate. Revenue totaled about $15.4 billion, $300 million less than analysts expected. And in a rare move, J&J reduced its 2010 profit forecast by 15 cents a share, mainly due to all the product recalls and related factory closure.