Johnson & Johnson Earnings Call Nuggets: ZYTIGA Patent Application and Consumer Business Margins

Johnson & Johnson (NYSE:JNJ) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.

ZYTIGA Patent Application

Michael Weinstein – JPMorgan: I wanted to ask about the recent event which was the allowance of the patent application on ZYTIGA in combination with prednisone and could you give us your updated view on life of ZYTIGA in the U.S. and how ZYTIGA is going to fit in with ARN-509 and the Aragon acquisition, in other words how do you see positioning the two products?

Alex Gorsky – Chairman and CEO: Mike this is Alex. Thanks a lot for the question. As you know, Janssen’s got five years of data exclusivity in the U.S. from the date of approval which was April 2011 or until April 2016. We’re also watching the Hatch-Waxman extension to December 2016. At this point in time, we believe that those are the correct dates to be using. Obviously we are going to be looking at some of these other recent events, closer to see what impact it may have, but at this time, we’re sticking with December 2016. Regarding the Oregon, look we think it’s a great complement our portfolio. If you look at the great job frankly that our team has been able to do with ZYTIGA in the launch regarding the clinical – you should backup actually the actual approval of the compound, the ongoing clinical development, very impressive, the commercial penetration that we’ve seen as well as the care programs for patients. We think it represents a significant capability, and now when you complement that with the Aragon compound, it will certainly enable us to leverage all of those skills on to a next phase. We think that there could be potentially complementary utilization of both compounds together, and again as one – another example of us continuing to really make a difference for patients and for our business in this very exciting oncology area.

Michael Weinstein – JPMorgan: Let me just ask two quick follow-ups if I can, one is an update on the plans for the clinical diagnostics, and two, Dominic, where are you with the completion of last year’s ASR and could you just talk about thoughts on additional share repurchase following that?

Alex Gorsky – Chairman and CEO: Sure Mike, I’ll take the first half of that question and I’ll Dominic to follow-up on the second part. As you remember, earlier this year, we announced that we were going to be exploring the future of the Diagnostics group at an enterprise level. And the initiation of this process was really part of a broader strategic planning process across Johnson & Johnson, recognizing that that we wanted to be very disciplined and decisive about what we’re going to do with our businesses and our capabilities going forward. As we stated back in January we expect that this process could take anywhere from about 12 to 24 months. We are on track for that. We are still in the early stages, and we think it’s premature at this time to speculate about the specific impact. But we are continuing to look at our options. Dominic?

Dominic J. Caruso – VP, Finance and CFO: On the ASR program we expect it will be completed in early August so we are near the completion of it. As soon as we complete that program then we will be permitted to recommence the share purchases that we normally do in the normal course of business, which as I think you all know, we repurchase all the shares that are issued in connection with any employee compensation program. So we will obviously commence that right after the ASR program is completed in early August. As far as any larger more significant share buyback program, as we said before, we always evaluate that in the spirit of utilizing our strong cash flows but quite frankly in the priority we’ve always set, first our dividend, second to use in building our business to generate even more sustainable cash flows for the future and then finally considering additional returns to shareholders as appropriate, given the first two.

Consumer Business Margins

Rajeev Jashnani – UBS: My first question was on the consumer business, Sandy and I was hoping you could talk a little bit about the margins in that business and clearly there is some costs associated with compliance that are ongoing now. But maybe you could talk about how you see that playing out over the next few years and some of the investments you have to make on the brands?

Sandra E. Peterson – Group Worldwide Chairman: As you know, we are still in the process of remediating the OTC business which is an ongoing effort and clearly we will spend what it takes to ensure that we are completely compliant with the CD and we’re bringing all of the products back. Our expectation is that that will continue for the near-term. But in addition to all of the remediation efforts, we also are going to ensure that we are investing sufficiently to bring these brands back and bring them back fully to consumers and retailers, and that our current estimation is that we will probably be spending at a higher rate than our historical averages as we are bringing all of these brands back, so that, clearly, in the near-term will have some impact on our margins. But at the same time, we are also working very hard to globalize our core brand portfolio, and by doing that, that will improve our margins over time across the total consumer portfolio, and we’ve also – the team has put a lot of effort in the last couple of years in reducing overheads and driving efficiencies throughout the business. So I think what you’ll see is that over time, we will start seeing improvements in our margins as we bring the OTC portfolio back and as we globalize the rest of our core portfolio. And our expectation is that our business will have similar margins in the consumer sector as you see in the other parts of the J&J portfolio, as we bring all of these businesses back and we’ll continue to improve those margins over time.

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