Johnson & Johnson Earnings Call Nuggets: Growth Catalysts and Guidance

On Tuesday, Johnson & Johnson (NYSE:JNJ) reported its first quarter earnings and discussed the following topics in its earnings conference call. Here’s what the J&J C-Suite shared with analysts and investors.

Growth Catalysts

Larry Biegelsen – Wells Fargo Securities: So the first quarter operational growth was 1% dominant, the guidance is 4% to 5% if I heard correctly, could you talk a little bit about what accelerates growth going forward especially in Q2 given that as you look at the operational growth rates in the first quarter of this year compared to the fourth quarter of last year, there does seem to have been a deceleration, thanks.

Dominic J. Caruso – VP, Finance and CFO: Larry, the main factor in the growth rate comparison has to do with LEVAQUIN and CONCERTA. The first quarter, as we mentioned for the Pharmaceutical business only a 3% reflects the fact that LEVAQUIN went generic in May or June or through June of 2011 and obviously we entered into that agreement with Watson for authorized generic of CONCERTA in May of 2011. So, in the first quarter of 2011, we didn’t have those impacts yet. So that’s the major reason for the comparison. As we progress through the year, those comparisons will be easier; of course the comps will be easier. And just a reminder, we did acquire the Crucell business very late in the first quarter of 2011. So, if you look at the entire business and you just exclude the things that I mentioned sort of generic impacts, the impact of drug-eluting stents that Louise mentioned, and also the net impact of acquisitions and divestitures which netted to be actually a minor amount, the overall growth rate for our business in the first quarter on an operational basis is just about 4%. So, we feel pretty confident that we’ll accelerate the growth for the remainder of the year.

Larry Biegelsen – Wells Fargo Securities: Dominic, just one on DePuy and the orthopedic market, it looks like there was some improvement in the U.S. in knees. Could you just talk a little bit about what you’re seeing overall in the orthopedic market from a procedure and pricing standpoint please?

Dominic J. Caruso – VP, Finance and CFO: Sure, and I’ll ask Louise to comment as well if I leave anything out. We did see some improvement in knees and we continue to see knees being positively affected by product mix. So overall, in our knee business, pricing is only slightly negative, very, very low, not even quite single-digit price, offset by positive mix that’s low single digits. So, that’s a boost in the knee business, and overall, the knee market seems to be recovering as well. Louise, anything else you want to add to that?

Louise Mehrotra – VP, IR: Yeah, so the commentary we got from DePuy, said that they are seeing early signs of some positive trends in the knee market. However, we won’t know for sure until all the other manufacturers report.

Guidance

Michael Weinstein – JPMorgan: Dominic, just first question on your guidance. You had commented on fourth quarter call that you expected pre-tax operating margins for the year to improve by 100 basis points to 150 basis points, I think they were up about 10 basis points this quarter. So, does that 100 basis points to 150 basis points for the year still stand?

Dominic J. Caruso – VP, Finance and CFO: Yeah, it does, Mike. We feel pretty confident about that moving through the rest of the year.

Michael Weinstein – JPMorgan: Let me ask then a couple of operational questions. The commentary around the consumer business, particularly McNeil, suggested that it was going to take a little bit longer to get some of those issues resolved. I think you talked in your prepared remarks about the volumes coming out of Las Piedras and Fort Washington and Lancaster, Fort Washington being off wide, I think you said until late 2013, and then Las Piedras and Lancaster being ramping all the way into most of ’13. That sounded like it was a longer time period recovery for McNeil than we’ve been previously thinking about.

Dominic J. Caruso – VP, Finance and CFO: It is, Mike. As I said in my remarks, operating under the Consent Decree, it’s difficult to predict the rate of recovery, and although we are making progress and we are operating under Consent Decree in close cooperation with our third-party consultant who is there with us, it is difficult to accurately predict to the speed of recovery. As such, 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 tail end of last year. Although products are coming back to the market, they will continue to come back to the market throughout the year, you will see more and more of the products back on the shelves, but it will extend into 2013 as well. As I mentioned earlier, we are also incurring some additional remediation costs as a result of the delays, but all of that has already been factored into the guidance I just provided.

Michael Weinstein – JPMorgan: Just one question on ZYTIGA. When the independent data monitoring committee stopped the Phase 3 trial in pre-chemo metastatic castrate-resistant prostate cancer patients, they did so based on the primary end point which was progression free survival for them and I believe it was based on data that went through late last year. Do you know if at ASCO if we will see the follow up on patients up through the actual announcement of the halting of the trial? The question here is, whether we will see overall survival reached is still significant at the full follow up?

Louise Mehrotra – VP, IR: You are correct Mike. It did include the information up until the end of last year. I think it was November of last year. I don’t believe that you are going to see the continuing trend on the overall survival as ASCO. You will see the results as we have them right now.