J&J Chief says company won't break up

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J&J CEO Alex Gorsky
J&J CEO Alex Gorsky

Alex Gorsky's first earnings call as Johnson & Johnson's CEO rolled out in a typical fashion, beginning with stats: sales were down 0.7% for the second quarter compared to the same period last year, while net earnings dove 49.3% to $1.4 billon, compared to $2.8 billion for the same period the year before. Pharmaceutical sales eked out a 0.9% increase compared to last year's second quarter, despite a falloff of 4.5% in US sales for the period compared to that of 2011, and the Synthes acquisition helped cushion the 2.4% falloff in International Medical Device and Diagnostics sales for the quarter, compared to 2011 (sales were up 2.9% in the US).

And then came the bigger picture, which, according to Gorksy, means the company of 128,000 employees will not become employees of spin-offs. “We will remain committed to being broadly based in healthcare” he said. Gorsky also tried to cut off discussion about a tug-of-war between scope and departmental performance, saying the company is committed to “enlightened decentralization,” so that entrepreneurship is a product driver, but will standardize processes when it's a matter of efficiency.

Yet the statement appears open to interpretation – Goldman Sachs analyst Jami Rubin has lobbied for breaking the Johnson & Johnson empire into independent companies. She asked the CEO during the Q&A about the contrast between the monolithic Johnson & Johnson approach versus that of Pfizer and Abbot, which have parted ways with some of their businesses. Gorsky's response: “our diversified portfolio gives us additional strengths and will help us achieve other growth.”

However, minutes later, the CEO's response to another analyst said J&J is going to be very careful about “what businesses we are in and we're not in . . . where there are areas where, frankly, we don't think we're going to make the difference for patients or we're not as competitive as we should be.”

The company noted its priorities also include getting McNeil products back on store shelves, which will be an ongoing process from now to 2013. CFO Dominic Caruso said a promotional push will follow once production is stable, but “it's awfully difficult to predict the pace at which we'll ramp up.” The company is subject to a consent decree with the FDA over product quality issues that have made the company's OTC presence scarce.

The company said it saw solid sales for its prostate cancer drug Zytiga, and that its blood thinner Xarelto (rivaroxaban) has 90% coverage on commercial formularies, and is outpacing Boehringer Ingelheim's Pradaxa (dabigatran etexilate) on new brand prescriptions.

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