J&J Talc 4/15

Client Attorney Privileged/Attorney Work Product/At Request of Counsel

US Coverage

1. J&J Baby-Care Sales Down With Second Talc Cancer Trial Underway

   Apr 22, 2016 | Rose Sheet

   By Eileen Francis
   
   
   Johnson & Johnson's baby-care business declined 14.4% stateside and 11.7% worldwide in the firm's fiscal 2016 first quarter, creating perhaps the biggest drag on overall results as the firm battles allegations linking its iconic Johnson's Baby Powder to cancer.
2. 9 Things That Stand Out in Johnson & Johnson's Q1 Report

   Apr 22, 2016 | Motley Fool

   By Sean Williams
   
   
   ...Dealing with the backlash of consumers is never fun, but that's exactly what happened in February when a Missouri court ordered it to pay $72 million in combined actual and punitive damages after some of its talcum-based products were found by a jury to have caused ovarian cancer in a now-deceased consumer who'd used these products. Though J&J plans to appeal the decision and a reduction in damages seems likely, J&J's consumer segment took a hit with baby care in the U.S. down 14.4% operationally. Of course, in the grand scheme of things, U.S. baby care sales accounted for just 0.5% of total sales in Q1.

Client Attorney Privileged/Attorney Work Product/At Request of Counsel

US Coverage

1. J&J Baby-Care Sales Down With Second Talc Cancer Trial Underway

   Apr 22, 2016 | Rose Sheet

   By Eileen Francis

   Johnson & Johnson's baby-care business declined 14.4% stateside and 11.7% worldwide in the firm's fiscal 2016 first quarter, creating perhaps the biggest drag on overall results as the firm battles allegations linking its iconic Johnson's Baby Powder to cancer.

   The New Brunswick-N.J.-based firm returned April 11 to Missouri Circuit Court, 22nd Judicial District (St. Louis), for a second trial focused on the alleged role that perineal use of its talcum-based powder products played in a woman's ovarian cancer.

   Plaintiff Gloria Ristesund claims that 40 years of applying J&J's powder for feminine hygiene purposes led to her 2011 diagnosis of ovarian cancer, and that the company has withheld related safety information from the public in order to protect its sales.

   In February, a St. Louis jury ordered J&J to pay $72m in damages to the family of late Alabama woman Jacqueline Fox, who likewise attributed her ovarian cancer to daily use of Johnson's Baby Powder and Shower to Shower powder, a former J&J offering, for more than three decades ("J&J Talc Verdict Spells Opportunity For Plaintiffs, Talc-Free Powder Market" — "The Rose Sheet," Feb. 29, 2016).

   J&J has plans to appeal the ruling and continues to maintain the safety of its talc-based products, pointing to findings from FDA and other authorities that support the mineral's safe use. However, the firm has taken a significant PR hit, with many consumers vowing online to take their business elsewhere.

   Meanwhile, more plaintiffs are lining up. Bloomberg reported in March that Beasley Allen, the law firm that represented Fox, is exploring as many as 7,000 similar cases, many of which presented following the national headline-making verdict.

   Interested parties can view the Ristesund trial proceedings via "gave-to-gavel" webcasting from Courtroom View Network, a subscription service that offers live and on-demand video and editorial coverage of "high-stakes" civil litigation to an audience primarily consisting of attorneys, business professionals and investors.

   In an April 11 blog post, CVN points out that the suit "could help predict whether the historic verdict reached in February was a fluke or the start of a trend."

   According to the webcasting company, roughly 1,000 similar cases are pending in Missouri and another 200 in New Jersey.

   "With J&J claiming roughly 19% of the nearly $18.8 billion baby power market in the United States, the products at issue represent a major business line for the company," CVN notes.

   J&J's baby-care sales totaled $95m in the US and $451m globally, according to the firm's April 19 release. The worldwide result was heavily impacted by the devaluation of Venezuelan currency, company leadership suggested, citing women's health and oral care as other segments that also were particularly affected.

   Reportedly, J&J has plans to re-launch its baby-care business, with details expected to be released in May.

   Firm 'Squashes' Consumer Divestiture Chatter

   During a same-day earnings call, J&J CFO Dominic Caruso dismissed once again the idea that J&J should spin off its consumer business and focus purely on pharmaceuticals and medical devices ("Future Of J&J Consumer Biz Is Bigger, Not Bygone" — "The Rose Sheet," Apr. 6, 2016).

   On the contrary, J&J is committed to growing its consumer unit and capturing market share, he indicated.

   “Just in general, we’re looking at M&A as an important additional growth driver in all of our businesses, including consumer,” the exec said.

   “Consumer can generally benefit from taking very, very specific brands in certain regional categories. We’re in our sweet spot of skin care, baby, oral care, et cetera, where we think we could do better with a combination of the technology that we have and the overall market and distribution presence.”

   Deutsche Bank analysts said in a report that they expect J&J to retain its current businesses while additionally eyeing acquisitions since it has cash on hand of about $17bn. "We don’t foresee a split. In our view it's part of its DNA," they said.

   BMO Capital Markets analyst Joanne Wuensch said the firm’s performance in the consumer segment should put to rest suggestions on divesting.

   “While investors have hammered for JNJ to split the company up, management squashed the idea on its [first-quarter] earnings call and delivered the goods to prove it. The rebound of the OTC franchise is firing on all cylinders,” Wuensch said.

   In the January-March period, OTC product sales in the US grew 13.8% to $461m, but declined 5.1% internationally to $558m.

   A "very, very soft flu season" weighed on OTCs' global performance, according to Caruso, but the segment benefited from modest market-share gains from the Tylenol and Motrin franchises as the brands continue rebounding from a sales dive associated with recalls more than five years ago.

   Skin-care product sales for the quarter were flat in the US and down 9% internationally, for a worldwide total of $862m in the quarter, representing a global decline of 4.5%. Oral-care sales advanced 7.6% to $170m in the US thanks to a strong performance from Listerine products, but dipped 12.2% internationally to $215m.

   Overall consumer sales in international markets slumped 9.6% to $1.84bn, while worldwide consumer sales of $3.2bn were down 5.8% from the year-ago quarter.

   J&J's total revenue grew 3.9%, excluding currency effects, to $17.48bn.

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2. 9 Things That Stand Out in Johnson & Johnson's Q1 Report

   Apr 22, 2016 | Motley Fool

   By Sean Williams

   In case you missed it, earnings season has officially kicked off for the pharmaceutical and biotech industries, with Johnson & Johnson (NYSE:JNJ) reporting its first-quarter earnings results on Tuesday morning.

   For the quarter, J&J generated $17.5 billion in revenue, a 0.6% year-over-year sales increase, and net earnings of $4.3 billion, or $1.54 per share. Headline numbers like these tend to get all the attention, but if we dig deeper into J&J's report, there were quite a few data points and statements that stood out beyond just these numbers. Here are nine in particular that shareholders and those on the outside looking in will want to be aware of.

   1. Adjusted Q1 earnings per share increased to $1.68
   J&J's adjusted EPS, which excludes a number of one-time items such as divestitures and removes the effects that currency fluctuations in foreign markets can have on profits, grew by nearly 8% and surpassed Wall Street's expectations by $0.03 per share. The company's streak of surpassing Wall Street's quarterly EPS estimates has moved well beyond three full years.

   2. Operational sales results increased 3.9%
   Building on the first point, J&J's $17.5 billion in sales includes a number of one-time, uncontrollable factors that adversely dragged down its results. For instance, translating its sales in overseas markets back into U.S. dollars wound up costing J&J 3.3% of its sales. On paper, J&J looks like it grew its top line by a meager 0.6%. However, if everything were done on a constant currency basis, J&J's operating growth was a much more impressive 3.9%.

   3. Updated guidance 
   J&J is known for its relatively conservative full-year guidance, so it shouldn't come as too huge a shock that it upped its full-year forecast for 2016 compared to the sales and profit range it previously offered. The company now expects $71.2 billion to $71.9 billion in sales and adjusted EPS of between $6.53 and $6.68. Prior guidance had called for $70.8 billion to $71.5 billion in sales, and Wall Street had J&J pegged for only $6.53 in EPS in 2016.

   4. Talc product scare has made a difference (but it's really small)
   Dealing with the backlash of consumers is never fun, but that's exactly what happened in February when a Missouri court ordered it to pay $72 million in combined actual and punitive damages after some of its talcum-based products were found by a jury to have caused ovarian cancer in a now-deceased consumer who'd used these products. Though J&J plans to appeal the decision and a reduction in damages seems likely, J&J's consumer segment took a hit with baby care in the U.S. down 14.4% operationally. Of course, in the grand scheme of things, U.S. baby care sales accounted for just 0.5% of total sales in Q1.

   5. Darzalex gets a solid mention
   Although J&J didn't break out sales for it and its partner Genmab's newly launched multiple myeloma drug Darzalex in its press release, Darzalex doesn't seem to be having any issue finding its niche in the third-line and higher indications.

   In late-stage clinical studies, Darzalex elicited a clinical response in 29% of patients who'd progressed on a median of five prior therapies. When Amgen's competing drug Kyprolis was approved by the Food and Drug Administration in a coincidentally similar study where patients had progressed on a median of five therapies, it elicited a response in just 23% of patients. Darzalex appears to be gaining quite the following, but it remains to be seen if that following is hurting Kyprolis.

   6. Imbruvica sales more than double
   If there was any doubt that blood cancer drug Imbruvica, which was co-developed by J&J and Pharmacyclics (now a part of AbbVie) is going to grow into a megablockbuster, I believe this report essentially seals it. During the quarter, Imbruvica sales perfectly doubled in the U.S. from Q1 2015, and they rose by a brisk 158% in international markets. On J&J's end, Imbruvica is on pace to provide more than $1 billion in sales this year.

   7. Invokana delivers strong double-digit growth
   Despite worries that Eli Lilly's and Boehringer Ingelheim's Jardiance was going to gobble up SGLT2-inhibitor market share in type 2 diabetes after its successful long-term cardiovascular study (where it led to a statistically significant 32% reduction in all-cause deaths compared to the current standards of care), J&J's competing Invokana continues to expand, implying that the Jardiance performance results are being perceived as class-wide.

   In Q1, Invokana sales grew by 17% year over year, including a better than doubling in overseas markets, many of which have only recently launched. Shareholders should be eagerly waiting for Invokana's long-term cardiovascular study results due out later this year.

   8. Zytiga slows to a crawl 
   If there's any nitpicking to be done, it looks as if Zytiga has run its course as a treatment for metastatic castration-resistant prostate cancer. Zytiga still produced an impressive $558 million in Q1 sales, so it'll be on pace to deliver more than $2 billion in revenue for 2016. However, sales of the drug rose by a meager 0.4% on an operating basis -- and I'm willing to bet a good chunk of that came from modest year-over-year price increases in the U.S.

   Zytiga's big issue is that Astellas Pharma's andMedivation's Xtandi is coming on strong, especially in the treatment-naïve setting. Xtandi wound up delaying the need for chemotherapy by an additional 17 months over the placebo during clinical trials, possibly making it the mCRPC drug of the future.

   9. Obamacare is probably not a big factor on medical device sales anymore
   Finally, J&J's medical device unit continues to show signs of life, especially in U.S. markets. Even though operational growth was only 0.5% in the segment, operating growth in the U.S. was 2.2%, led by a 6.3% improvement in orthopedic sales, particularly hip and knee replacements. Things look even rosier if divestitures are removed from the equation, with operating growth overall of 3%.

   Looking at the big picture, though, it appears as if tight spending habits by hospitals and consumers are no longer a major concern given J&J's modest domestic medical device growth.

   After reviewing J&J's Q1 report we're once again left with the feeling that the company remains on the right path to grow all three operating segments -- consumer healthcare, medical devices, and pharmaceuticals -- over the long term, and that J&J's stellar shareholder yield should help shield investors against market volatility and any excessive downside. In other words, if you're a J&J shareholder, there's nothing in this report suggesting your investment thesis has changed one iota.

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