UPDATE 5-J&J sales lag after recalls; 2011 view disappoints

* Sales $15.6 billion, shy of $16 billion forecast

* US consumer product sales fall 29 pct after recalls

* Sees 2011 profit gain of 1-3 pct, below Wall St. view

* Price pressure may suggest hardship for other drugmakers

* Shares fall 1.8 pct (Adds changes at Puerto Rico plant, annual sales declines)

By Ransdell Pierson

NEW YORK, Jan 25 (Reuters) - Johnson & Johnson JNJ.N warned it is facing growing pressure from governments and insurers to curb prices, as a string of embarrassing product recalls and the weak economy haunt the diversified healthcare company.

The company reported fourth-quarter sales that were lower than expected and said its earnings would grow only 1-3 percent in 2011, below the 5 percent growth that Wall Street had envisioned.

“J&J was weak across the board, hurt by consumer product recalls and the still-weak economy, which is putting pressure on prices on all its product lines in the United States and overseas,” said Noble Financial Capital Markets analyst Jan Wald.

J&J shares fell as much as 2.4 percent on Tuesday and closed down 1.8 percent.

The company's emphasis on domestic and international pricing pressures could herald tough conditions for other drugmakers, such as Pfizer Inc PFE.N and Merck & Co MRK.N, as they report quarterly earnings in coming weeks.

“One already assumed the pricing environment was tough, but J&J is suggesting it is even worse than we thought and that the pressures are not going away,” Wald said.

U.S. sales of J&J consumer products, including over-the-counter medicines like Tylenol and Motrin, fell 29 percent to $1.22 billion in the quarter, hurt by recalls.

J&J has recalled more than 300 million packages of Tylenol and other consumer medicines in the past year after regulators cited grime, faulty procedures and other quality-control lapses at a plant in Fort Washington, Pennsylvania, and other factories.

In its latest big action, J&J two weeks ago recalled 50 million bottles and packages of Tylenol, Benadryl, Rolaids and other products because of lax cleaning procedures and other problems at the Pennsylvania plant, which was closed in April for a major overhaul. [ID:nN14184505]

In a conference call with investors on Tuesday, J&J Chief Executive William Weldon did not rule out the possibility of more recalls. But he said J&J had completed an examination of its own factories, which account for 80 percent of manufacturing output, and is now turning its sights to outside contractors.

“The vast majority (of issues) are behind us, so now we can look forward to getting the products back into the marketplace,” Weldon said.

Weldon did not say when the problems will be resolved, and declined to speculate whether J&J might have to shut down another consumer medicines plant in Las Piedras, Puerto Rico, which has a history of quality-control problems.

The company said it was in the process of streamlining operations at the Caribbean plant, by temporarily transferring manufacture of certain brands to other sites or eliminating some other products.

Morgan Stanley analyst David Lewis, in a research note on Tuesday, questioned whether J&J can recover this year from its manufacturing woes.

J&J said fourth-quarter earnings fell to $1.9 billion, or 70 cents per share, from $2.2 billion, or 79 cents per share, a year earlier.

Excluding special items, J&J earned $1.03 per share. That matched the consensus Wall Street forecast, largely because of unexpectedly low taxes.

Global sales fell 5.5 percent to $15.6 billion, compared with Wall Street expectations of $16 billion. For the full year, sales fell slightly to $61.6 billion, the first back-to-back years of sales declines since J&J went public in 1944.

Wells Fargo analyst Larry Biegelsen said J&J had managed to meet quarterly profit forecasts because its tax rate was five percentage points below expectations in the period, masking weak sales of consumer brands and prescription drugs.

Global pharmaceutical sales fell 4.7 percent to $5.71 billion, while medical device sales edged up 0.2 percent to $6.32 billion.

J&J forecast 2011 earnings per share, excluding special items, of $4.80 to $4.90 per share, below Wall Street expectations of $4.97. (Reporting by Ransdell Pierson, editing by Maureen Bavdek, Matthew Lewis and Carol Bishopric)