* Q4 sales $17.56 billion vs Street view $17.7 billion
* Profit, excluding items, $1.19/shr vs Street view $1.17
* 2013 profit forecast $5.35-$5.45/shr, below Street view
* Shares down 0.8 pct in afternoon
(Adds comment by fund manager, other details, updates stock
By Ransdell Pierson
Jan 22 Johnson & Johnson may sell or
spin off its slow-growing $2 billion-a-year diagnostics
business, the company said on Tuesday when it reported quarterly
The diversified healthcare company said it may sell the
Ortho Clinical Diagnostics business - whose products include
equipment for laboratory diagnostics and blood transfusion
screening - or turn it into a stand-alone company.
The decision comes as drugmakers are shedding businesses and
cutting costs due to overseas price controls and pressure on
payments from insurers and the government. Pfizer Inc,
for instance, is spinning off its animal health products
business, and Abbott Laboratories has split off its
Debbie Wang, an analyst with Morningstar, said the J&J
diagnostics unit "is a slower grower, and if you're not one of
the leaders, it's very difficult to compete in that area."
Les Funtleyder, a fund manager at Poliwogg, said the company
is wise to consider exiting this low-tech diagnostic business.
J&J should target the more high-tech, high-profit molecular
diagnostics business, which entails sophisticated genetic
analysis used by physicians to tailor treatment to individual
patients, he said. This is becoming more of a mainstay in
medical treatment, especially in cancer, where numerous gene
mutations make patients vulnerable to disease.
"If you look five years down the road, we are going to see
molecular diagnostics and gene sequencing converge," Funtleyder
said in an interview at the J&J analyst meeting in New York. He
added that gene sequencing - a process that looks for certain
genes, and gene mutations especially, that predispose a person
to certain diseases - will become the main determinant of how
physicians treat patients.
Funtleyder said he thinks J&J should consider acquiring
companies like Illumina Inc or Life Technologies Corp
, both engaged in genetic analysis.
But Andy Busser, a fund manager for Symphony Capital in New
York, thinks moving into molecular diagnostics may not be
likely. "At the end of the day, they might prefer to invest that
Ortho Clinical Diagnostics, whose revenue growth has been
relatively flat, is No. 5 in the clinical diagnostics market, as
measured in sales. Typically, J&J's businesses rank first or
second in their respective markets.
Clinical diagnostics is less attractive than molecular
diagnostics, which might see near double-digit revenue growth in
coming years, according to analysts.
It might be easier to sell Ortho Clinical Diagnostics to a
private equity buyer, Funtleyder said. "They might be satisfied
with a dependable if not an exciting business."
J&J, which made the disclosure as it reported
stronger-than-expected earnings, said it was in the very early
stages of examining options.
J&J said it earned $1.19 per share, excluding one-time
items, in the fourth quarter, beating analysts' average estimate
A favorable tax rate and cost controls boosted results,
according to Piper Jaffray analyst Matt Miksic. He also cited
very strong growth in sales of J&J's traditional artificial hips
and of artificial knees, whose combined U.S. sales rose 7
percent despite disruptions from Superstorm Sandy in the
CHARGES FOR HIP IMPLANTS
Including a charge of $800 million, related mostly to
recalls of defective "metal-on-metal" hip replacement devices
made by its DePuy Orthopedics unit, J&J earned $2.6 billion, or
91 cents per share. That compared with $218 million, or 8 cents
per share, a year earlier, when the company took charges of more
than $3 billion, including $800 million for medical costs
related to the same recalls.
All-metal hip implants were developed to be more durable
than traditional implants but have failed at a high rate. In
some cases, they have shed metal fragments that have disabled
patients. Traditional implants combine a ceramic or metal ball
with a plastic socket.
As many as 500,000 Americans are estimated to have received
metal-on-metal hip replacements in the last five years, with J&J
the largest manufacturer of such products.
The company withdrew its ASR metal-on-metal hip system in
2010 and faces more than 2,000 lawsuits from patients claiming
to have been harmed by it.
REVENUE UP BUT MISSES
J&J said global revenue rose 8 percent to $17.56 billion in
the fourth quarter, below Wall Street expectations of $17.7
"The sales miss was driven by lower-than-expected medical
device and consumer sales," RBC Capital Markets analyst Glenn
Novarro said in a research note.
Sales of prescription drugs jumped 7 percent to $6.52
billion, helped by strong sales of its treatments for arthritis,
psoriasis and HIV.
"By any measure, we have transformed our pharmaceuticals
business," Chief Executive Alex Gorsky told analysts on a
conference call. The business is bouncing back after several
years of anemic sales due to generic competition for some of its
But J&J said it expects its blockbuster Concerta treatment
for attention deficit disorder to face pressure from cheaper
generics early this year.
Fourth-quarter sales of medical devices rose almost 14
percent to $7.38 billion, boosted by the company's recent
acquisition of trauma-device maker Synthes.
Sales of J&J's array of consumer products fell almost 3
percent to $14.4 billion, hurt by the stronger dollar and
recalls of Tylenol and other over-the-counter medicines that
have curtailed availability of the brands.
The company forecast full-year 2013 earnings of $5.35 to
$5.45 per share, excluding special items. Analysts, on average,
expected $5.49, according to Thomson Reuters I/B/E/S. The
company is known for making conservative forecasts at the
beginning of the year.
J&J shares were down 0.8 percent at $72.66 on Tuesday
(Reporting by Ransdell Pierson in New York, Debra Sherman in
Chicago and Caroline Humer in New York; editing by Maureen
Bavdek, John Wallace and Matthew Lewis)