J&J, Novartis profits beat, but no boom ahead

By Ransdell Pierson

NEW YORK (BestGrowthStock) – Johnson & Johnson (JNJ.N: ) and Swiss rival Novartis Holding AG (NOVN.VX: ) reported better-than-expected quarterly earnings, but the results did not suggest accelerating growth for the drugmakers.

J&J saw strong sales for its medical devices, while its prescription drug sales disappointed investors “for the fourth or fifth quarter in a row,” said Glenn Novarro, an analyst with RBC Capital Markets.

The diversified healthcare company earned $4.53 billion, or $1.62 per share, compared with $3.51 billion, or $1.26 per share, in the year-earlier period.

Excluding special items, it earned $1.29 per share. Analysts on average had expected $1.27 per share, according to Thomson Reuters I/B/E/S.

“The beat was driven by stronger than expected revenues across all medtech franchises,” with the exception of J&J’s Cordis heart-device division, said Credit Suisse analyst Catherine Arnold. She also cited surprisingly strong sales of arthritis treatment Remicade.

J&J trimmed its full-year profit forecast to between $4.80 and $4.90 per share, excluding items, from its earlier view of $4.85 to $4.95.

The company said the adjustment was due to changes in foreign currency (Read more about trading foreign currency. rates, and incorporates initial costs of recently enacted U.S. healthcare reforms that require drugmakers to grant bigger price rebates to Medicaid patients.

Novartis reported first-quarter earnings of $1.29 per share, beating the average estimate of $1.11. It cited strong sales of new blood pressure drugs Exforge and Tekturna, and cancer drugs Zometa and Femara.

But it did not raise its 2010 sales growth target despite an 18 percent rise in first-quarter sales, saying big flu vaccine shipments would dwindle through the rest of the year.

“At a first glance, (the results were a) big beat versus consensus but mainly due to higher H1N1 flu vaccine sales,” analysts at Julius Baer said. “Quality of the beat is therefore rather low and not sustainable.”

Novartis also said it plans to eliminate 383 full-time U.S. jobs, primarily at its U.S. headquarters, to streamline its operations and prepare for generic competition for its blockbuster Diovan blood-pressure medicine.

Investors shrugged off the results. Shares in J&J closed down just 0.1 percent to $65.99, while Novartis’ U.S.-listed shares (NVS.N: ) rose 0.1 percent to $53.41.

J&J CFO SEES END OF TOPAMAX DRAG

J&J is also grappling with generic competition that helped fuel a 2.5 percent decline in global drug sales to $5.64 billion during the quarter.

Since late March of 2009, the company’s one-time blockbuster epilepsy drug Topamax has been slammed by cheaper copycats. Its sales plunged 75 percent to $148 million.

J&J Chief Financial Officer Dominic Caruso said the drag on sales growth from Topamax will end in the second quarter because the drug by then will have been competing with generics for a full year. Operational growth of the drug business will then be about 5 percent, he said.

“That is pretty healthy growth in the pharma business,” he said.

“Of course, we want to do better, but we’re in the early stages of launches for our new products,” he said, referring to recent introductions of arthritis treatment Simponi, Stelara for psoriasis and other medicines.

Sales of medical devices jumped 12.5 percent to $6.23 billion in the quarter.

“Our surgery businesses all look like they’re recovering,” Caruso said, citing an improving economy in which more procedures are being conducted. J&J’s products include hip and knee replacements and surgical instruments for minimally invasive procedures.

J&J’s global company revenue rose 4 percent to $15.63 billion, in line with Wall Street forecasts, but would have been nearly unchanged if not for foreign exchange factors.

Eli Lilly & Co (LLY.N: ) on Monday cut its 2010 forecast by about 35 cents per share due to projected costs of the healthcare changes. Lilly’s move stirred concerns that other drugmakers would have to chop their profit forecasts due to healthcare-reform costs.

But RBC’s Novarro said J&J’s small adjustment suggests confidence it will not be greatly hurt by the costs.

Novarro said J&J’s drug business could rebound within the next few years if J&J wins approvals for important new products, including two potential blockbusters: Xarelto to prevent blood clots and telaprevir for hepatitis C.

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(Reporting by Ransdell Pierson, editing by Dave Zimmerman, Maureen Bavdek and Tim Dobbyn)

J&J, Novartis profits beat, but no boom ahead