Despite encouraging sales performance in the first quarter for recently approved oncology drugs, Johnson & Johnson (NYSE:JNJ) continues to be vexed by manufacturing problems. That, coupled with new questions over its incoming CEO, paint a mixed picture for how 2012 will shake out for the pharmaceutical and medical device giant.
A consent decree from the U.S. Department of Justice covers Johnson & Johnson’s manufacturing operations in Puerto Rico and Pennsylvania locations in Fort Washington and Lancaster. As part of the decree, it was forced to suspend manufacturing operations at its Fort Washington facility over recalls of Tylenol and Motrin in recent years. Worldwide consumer sales of $3.6 billion in the first quarter of 2012 reflected a 2.4 percent decline over the same period the prior year. Domestic sales were down just over 2 percent.
Chief financial officer Dominick Caruso told analysts in a conference call this morning: “We do not anticipate our U.S. [over-the-counter] business to be a driver of growth in 2012.” He added later in response to an analyst question that the company had underestimated the time it would take to address the issues raised by the consent decree.
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“Operating under a consent decree, it’s difficult to predict the rate of recovery and though we are cooperating with it and with our third-party consultant, it is difficult to accurately predict the speed of recovery. … We are in fact behind where we thought we might be at this point, and we expect a slower recovery throughout the year than we previously thought at the end of last year.”
Still, its pharmaceutical business is getting a boost from recently approved treatments like its oncology drug Zytiga, approved for patients with chemo-refractory metastatic castrate-resistant prostate cancer. Zytiga accounted for $200 million in sales for the quarter in an even split between U.S. and non-U.S. markets. That and multiple myeloma drug Velcade helped increase sales 38.5 percent on an operational basis. But production of its cancer drug Doxil was suspended last year because of supplier Boehringer Ingelheim’s production problems. J&J hopes to resume production by the third quarter.
Its rheumatoid arthritis drug Remicade, approved in September last year in the U.S. market, was approved by European Union regulators in February this year. Additionally, it has eight drugs in phase 3 clinical trials in its pipeline. Among its most closely watched new drug applications are for Xarelto and Zytiga, for which it is seeking regulatory approval to add more indications. Despite a 16 percent increase in pharmaceutical sales in international markets, domestic sales fell 10 percent.
J&J’s medical device business is in transition. It continues to be affected by the repercussions of exiting the drug-eleuting stent business and pricing pressure. It sold the trauma division of DePuy Orthopedics to Biomet in a$280 million deal, but is still awaiting regulatory approval from Europe and the U.S. before its $19.2 billion acquisition of Synthes can be finalized.
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But just as J&J prepares for a changeover of the CEO position next week in what could mark a new chapter for the company, the U.S. government wants to depose Alex Gorsky, and alleges he was aware of kickbacks to Omnicare to get the nursing home pharmacy provider to purchase and recommend antipsychotic drug Risperdal and other drugs from the company in a case before the U.S. District Court in Massachusetts.
It’s difficult to predict what kind of a year it will turn out to be for J&J, but the first quarter gives every indication that it’s going to be a bumpy ride.
[Photo from Stock Xchng user John Nyberg]
