J&J beats forecasts, helped by hepatitis drug

By Ransdell Pierson

REUTERS - Johnson & Johnson reported strong quarterly earnings on surging sales of a new treatment for hepatitis C, but the company said it had sharply reduced prices for its artificial hips and warned that profits could be hurt next year by the stronger dollar.

Sales of the J&J drug, called Olysio and approved in November, reached $796 million in the third quarter. As with other hepatitis C drugs that began with rapid ascents, however, its commercial success is expected to be short-lived.

Morningstar analyst Damien Conover predicted 2015 sales of Olysio will plunge more than 50 percent due to the approval on Friday of a new pill called Harvoni from Gilead Sciences Inc that can rid patients of the liver-destroying viral infection within as little as 8 weeks.

Conover said strong quarterly sales of other relatively new J&J drugs, including its Zytiga treatment for prostate cancer and blood clot preventer Xarelto, bode well for J&J and the drug industry over the long term.

"The core drugs are doing well, with a lot of strength from newer brands, and that signifies a healthy environment for pharmaceutical stocks," Conover said.

J&J's global drug sales jumped 18 percent to $8.3 billion, a slowdown from 21 percent growth in the second quarter.

But sales of J&J's medical devices fell 5.2 percent to $6.6 billion, after the recent divestiture of the company's Ortho-Clinical Diagnostics unit and a 5 percent price cut for its artificial hips.

J&J Chief Financial Officer Dominic Caruso told analysts on a conference call that J&J cut prices of the hip implants as it attempted to renew contracts with hospitals and other customers.

On another cautionary note, Caruso said the strengthening dollar could hurt 2015 earnings by 15 to 20 cents per share.

Sales of company consumer products, including Tylenol, slipped 0.6 percent to $3.6 billion in the quarter.

The company earned $4.75 billion, or $1.66 per share. That compared with $2.98 billion, or $1.04 per share, in the year-earlier period, when J&J took special charges for legal expenses and merger-related costs.

Excluding special items, J&J earned $1.50 per share. Analysts on average had expected $1.45 per share, according to Thomson Reuters I/B/E/S. A net gain from after-tax items of about $500 million was seen, mostly due to tax benefits from the Ortho-Clinical Diagnostics divestiture.

Company sales rose 5.1 percent to $18.47 billion, topping the average analyst estimate of $18.38 billion.

J&J said it now expects 2014 earnings, excluding special items, of $5.92 to $5.97 per share. In July, it forecast $5.85 to $5.92 per share.

J&J shares slipped 0.6 percent to $98.52 shortly after midday, amid moderate gains for the drug sector.

(Reporting by Ransdell Pierson; Editing by Chizu Nomiyama, Meredith Mazzilli and Richard Chang)