UPDATE: Johnson & Johnson 3Q Net Up 1.1%; Boosts 09 Outlook

(Adds detail, background.)

By Peter Loftus

Johnson & Johnson (JNJ) eked out a 1.1% increase in third-quarter profit, despite generic competition for several former big sellers pushing revenue below expectations.

Earnings, though, beat Wall Street's views, prompting the health-care-products maker to boost its 2009 target.

The weakness in J&J’s pharmaceutical unit was partially offset by sales growth in the company's medical-device unit. For the second quarter in a row, device sales were higher than pharmaceutical sales. Last quarter was the first time in about 10 years that had happened.

J&J's diversified business model has proved to be a buffer against some of the negative trends that have hurt competitors more concentrated in the pharmaceutical industry.

Still, 2009 has shaped up to be one of the health giant's more difficult years, with all three of its main business units showing signs of weakness. Heightened generic competition has hurt its prescription-drug business, while unfavorable currency-exchange rates have pulled down sales growth for consumer-healthcare and medical-device products as well.

In premarket trading, J&J shares fell 1.7% premarket to $61.50.

J&J, whose products range from Band-Aids to the Procrit anemia drug, said profit rose to $3.35 billion, or $1.20 a share, from $3.31 billion, or $1.17 a share, a year earlier. Analysts surveyed by Thomson Reuters were expecting, on average, earnings of $1.13 a share.

After the better-than-expected results, J&J raised its per-share earnings guidance to between $4.54 and $4.59, up from its prior target - first given in January and repeatedly affirmed since - was $4.45 to $4.55.

Earnings were helped by cost cuts. Earlier this year J&J cut about 900 jobs from its U.S. pharmaceuticals unit, and in August the company consolidated its management structure.

Revenue fell 5.3% to $15.08 billion, below the Thomson Reuters estimate of $15.22 billion, as 2.5 percentage points of the decline coming from currency changes. U.S. sales fell 8.1%. International sales dropped 2.5% but rose 2.4% on a constant-currency basis.

Drug sales fell 14% to $5.3 billion, due largely to generic competition. That included a 19% drop in the U.S. The declines included antipsychotic Risperdal and epilepsy and migraine treatment Topamax, both of which lost patent exclusivity in the past year.

J&J has tried to offset the pharmaceutical weakness by trying to bring new drugs to market - with successes and setbacks alike - and by acquiring or licensing experimental drugs that could hit the market in the future. For example, J&J paid $885 million for an 18% stake in Elan Corp. (ELN).

The latest quarter saw the formerly fast-growing consumer health-care unit post a 2.7% sales drop to $4 billion; excluding currency changes, it would have reported 1.1% growth.

The device unit, which includes contact lenses and diabetes test strips, saw sales rise 2.3% to $5.8 billion; excluding currency impacts, unit sales rose 4.1%.

Drug-coated stent sales remained weak, falling 7.2% to continue a trend from recent quarters amid increased competition in the U.S. Revenue slumped 10% domestically. J&J late last month said it wrung a $716 million payment from Boston Scientific Corp. (BSX) to settle more than a dozen stent patent-infringement lawsuits, most of which will be recorded in the fourth quarter.

-By Peter Loftus, Dow Jones Newswires; 215-656-8289; [e-mail]

(Mike Barris contributed to this report.)