Earnings Preview: J&J Sales Seen Down for 3rd Time

Johnson & Johnson, a Dow component and the world's biggest healthcare company, reports earnings for the second quarter on Tuesday morning. The following is a summary of key developments and analyst opinion related to the period.

OVERVIEW: The maker of baby shampoo, Band-Aids, medical devices and biotech drugs, Johnson & Johnson, a household name seen as an economic bellwether, is showing some wear and tear from generic competition, unfavorable exchange rates, other pressures on the industry and the recession dampening consumer spending. Despite that, it's still making some strategic, midsize deals.

After years of reliable revenue and profit increases, J&J has seen revenue decline about 5 percent the last two quarters, and net income was down slightly in the first quarter.

This quarter, generic competition will sharply cut revenue of two top drugs, antipsychotic drug Risperdal and epilepsy treatment Topamax, which also recently got a new warning about suicidal behavior in some patients.

In April, J&J began cutting about 900 jobs, mostly salespeople in its U.S. marketing division handling drugs for psychiatric disorders, epilepsy, Alzheimer's, pain, heart conditions and contraception.

Also in April, J&J got FDA approval for U.S. sales of Simponi, a successor drug to the blockbuster biotech treatment Remicade for rheumatoid arthritis and other immune disorders. Partner Schering-Plough Corp. has rights to most foreign sales of the two products, but is being acquired by Merck & Co.

Given the nearly $6 billion in total annual revenue involved, J&J in May demanded arbitration to end its revenue-sharing deal with Schering-Plough Corp., citing change-of-control provisions in their contract that possibly would give J&J all the revenue. That legal battle is expected to drag on long after the $41.1 billion Merck-Schering-Plough merger closes in the fourth quarter.

Meanwhile, on July 2 J&J made a big jump into potentially lucrative Alzheimer's research, investing up to $1.5 billion initially in Irish biopharmaceutical company Elan Corp. The two will jointly develop two injected drugs to stop progression of Alzheimer's and a vaccine to prevent the buildup of plaque in the brain that causes memory loss and other symptoms.