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Executive Summary

Johnson & Johnson's Hismanal sales in the U.S. will be flat in 1992 (at approximately $200 mil.), the company is indicating in the wake of a third quarter sales decline due to new FDA-required warnings on cardiovascular side effects from overdoses of the nonsedating antihistamine (astemizole). The publicity surrounding the addition of a boxed label warning on cardiovascular events in late July pushed Hismanal sales down at a rate of decline in the "low teens" for the third quarter, J&J Treasurer JoAnn Heisen told securities analysts at an Oct. 20 quarterly briefing on July-September results. J&J maintained that the Hismanal decline has not been as severe as the drop experienced by the market leader, Marion Merrell Dow's Seldane (terfenadine) line. J&J estimates a 30-40% drop in the U.S. for the class of products in the third quarter; the firm maintained that the slower decline by Hismanal indicates that its product is actually gaining a bit of ground in the declining market (see related story, p. 10). J&J declined to predict an end to the Hismanal sales dip. Assistant Treasurer Clarence Lockett pointed out that, despite the third quarter fall, for the full nine months of 1992 total Hismanal U.S. sales were still running ahead of 1991. He would not, however, project full year sales for the brand. J&J's Janssen subsidiary, which markets Hismanal, has had to switch emphasis from promotion to assuring that the correct dosing information gets to the patient. The consumer-oriented Rx antihistamine market creates a special problem for marketing companies when they have to make a change in use information. When FDA stepped in to require a boxed label warning for Seldane two weeks before the Hismanal action, the agency indicated that it would require a corrective notice in future Seldane direct-to-consumer ads. J&J told the analysts that it has continued to make investments in terms of education to convey the dosing information to Hismanal users. Hismanal's drop combined with continuing problems for J&J's oral contraceptive line to produce a sluggish 2.5% volume gain (to $406 mil.) for the company's U.S. pharmaceutical business in the third quarter. Two of J&J's recent introductions produced strong gains: the oral quinolone Floxin (ofloxacin) was up nearly 60%; Duragesic (fentanyl in an Alza-developed transdermal patch) sales doubled. While oral contraceptive sales were off (in the mid-single digits Qby percentage) compared to the third quarter of last year, there are signs of an upturn. J&J says that compared to the second quarter of this year, OC sales were up 10%. The company has started a consumer advertising campaign for Ortho-Novum 7/7/7 to try to offset the decline ("The Pink Sheet" Sept. 14, T&G-3). In addition to the direct-to-consumer campaign, Ortho is launching Ortho-Cyclen, an ethinyl estradiol/norgestimate monophasic product. The OC has been delayed from entering the U.S. market since early 1990 because of a patent suit by American Home Products. AHP won one round of that court fight; J&J recently had an injunction decision overturned on appeal. Heisen told the analysts that Ortho-Cyclen is the "first new oral contraceptive in 20 years" in the U.S. The company is counting on another OC launch in 1993: a desogestrel/ethinyl estradiol combination product is pending at FDA. Ortho has a co- marketing and development agreement with Organon for that product in the U.S. and Canada. Organon calls the product Desogen. The new products will help Ortho to sell its full-line to Ob-Gyn specialists, Heisen maintained. With the new OCs and possible approvals for Hismanal-D and Renova (tretinoin for photoaging), J&J believes that its domestic drug business may return to double-digit sales gains in 1993. J&J's international drug business was the strongest performing segment of the company in the third quarter. Non-U.S. prescription drug sales climbed 25.6% in dollars to $687 mil. from $547 mil. in the same period in 1991. Without the positive effect of currency translations, the non-U.S. business would have been up in the mid-teens. For nine months, the non-U.S. drug business already has exceeded $2 bil. in sales and represents almost 20% of worldwide corporate sales of $10.25 bil. for that period. After-tax earnings at J&J remain strong, up 14 % to $1.35 bil. for the nine months. The company's after-tax profit margin climbed to 13.2% v. 12.8% in 1991. The effective tax rate has declined to 29%. In the international drug business, J&J touted big increases by Sporanox (more than doubling in sales to greater than $100 mil.), Nizoral shampoo (up more than 90%), the reflux esophagitis product Propulsid (up "in the neighborhood of about 50%"), and Eprex (which grew more than 40%). Two of the new products performing well outside the U.S. are also new to the domestic market through Janssen: Nizoral 2% shampoo (approved by FDA in August 1990) and Sporanox (launched at the beginning of October). Sporanox (itraconazole) labeling is narrower in the U.S. than overseas. The antifungal is approved by FDA for the treatment of infections caused by blastomycosis and histoplasmosis of which there are about 3,000-5,000 cases each year in the U.S. ("The Pink Sheet" Sept. 21, T&G-1). Propulsid is also approaching final approval. The product received an approval recommendation for the symptoms of GERD (gastroesophageal reflux disease) on April 13 ("The Pink Sheet" April 20, p. 3). The U.S. business has been operating without substantial price increases. J&J continues to hold its across-the-board domestic health (drugs, devices and OTCs) price increases below the general inflation rate. The company's low discount prices apparently also have been contributing to the slow growth. J&J has reported paying Medicaid programs 40% rebates as a result of the Medicaid best price program ("The Pink Sheet" Oct. 12, In Brief). Expressing concern about the political future for the drug business, one analyst asked the J&J execs what the company and industry have been doing to prepare for the possibility of a Clinton Administration. J&J Chief Financial Officer Clark Johnson maintained that the perception of pharmaceutical price increases is being questioned by the industry. He noted that the Pharmaceutical Manufacturers Association has developed a re-analysis of the market basket for calculating the Producer Price Index pharmaceutical index. The recalculations indicate that pharmaceutical prices were increasing at a 6.4% rate compared to the 8.4% rate calculated by the Bureau of Labor Statistics ("The Pink Sheet" May 18, p. 8). BLS is looking at the development of a new market basket from which to estimate pharmaceutical price changes. Johnson characterized that revision as "very well known in Washington." Johnson also referred to the communications effort by PMA to reach decision-makers within "the Beltway and thought-leaders throughout the country." He noted that J&J's top exec in the drug business, Vice Chairman Robert Wilson, has been heading an ad hoc committee of the PMA board in charge of the communications program. The J&J financial officer contrasted consumer spending on cigarettes and smoking to pharmaceutical purchases. He maintained that there are few complaints about the profits of tobacco companies "despite the fact that the smoking industry has more profits than the prescription pharmaceutical industry." Johnson observed that "our society spends more on smoking than on prescription drugs, more on cigarettes than prescription drugs." He contended that there must be a change in the "expectation" that pharmaceuticals "should be free."

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