JNJ LifeScan reported 4Q05 earnings yesterday morning. Results were definitely on the weaker than expected side with worldwide sales up just 5% for the quarter – results haven’t been this weak for LifeScan since mid-2003, when sales fell 7% -- since then, global sales have always increased at least 10%. While this quarter was a “tough comparison” in that fourth quarter 2004 sales had risen a whopping 19% (up 12% domestically and 28% internationally), there is no doubt that it's getting very tough to keep up such high historic growth rates. Some of this is that the base is getting bigger and some is probably that this is just becoming a business where it is difficult to squeeze out such high profits as has been seen in the last decades! What’s notable here is that neither LifeScan's US or international sales were supremely strong – although historically, there have been times when LifeScan sales were weak from either a US or international perspective, almost always either the US or international sales were very strong and could bolster the other. This is actually the first quarter in nearly five years (since the second quarter of 2001) where both domestic and international sales growth was under 10%. Still, reaching $1.9 billion in sales for the year is an incredible achievement. LifeScan will benefit from pump sales starting in 2006 and the extra revenue will certainly benefit LifeScan – the $100 million in sales that Animas would add for 2006 would add about 5 percentage points of growth.
Conference call comments:
Medical Devices and Diagnostics (MD&D) sales were $19.1 billion in 2005, with 12.5% operational growth in 2005. Profit contribution from (MD&D) has increased more than threefold. Highlights related to diabetes and obesity from the call:
• Lifescan achieved operational growth of 5% in 4Q05 as compared to the same period in 2004. This growth was led by U.S. growth of 8%.
• One Touch Ultra was the major growth driver of both U.S. and WW sales
• One Touch Ultra achieved 34.9% scrip share as of 3Q05 - we look for this to strengthen further when the new Ultra is introduced this year.
• The only comment about the very weak international growth was that growth outside the U.S. was negatively impacted by sharp reductions in retail trade inventory.
• CEO Bill Weldon highlighted the “alarming” increase in the prevalence of diabetes worldwide.
• Currently J&J is focused on episodic glucose monitoring with its One Touch line.
• However, J&J is moving from measurement towards “broad management of the entire diabetes spectrum.” (they began this at the summer 2005 meetings, when they started positioning as “not just a monitoring company.”)
• It is introducing “transformational technology” to develop diabetes management solutions that will transform patient care, and “bringing affordable BG monitoring to new geographies.” Its strategy is focused on continuous monitoring.
• Weldon highlighted the pending acquisition of Animas, which will “broaden [J&J’s] reach in diabetes management,” as one of J&J’s key acquisitions.
He also briefly mentioned obesity as one of the “best opportunities for significant and sustainable growth” that J&J is pursuing, along with nutrition and colon cancer. Splenda was also touted as am important alternative for patients struggling with diabetes and obesity. We didn't hear anything about Obtech, its obesity device company.
J&J will hold a full-day review of its MD&D segment in September 2006.
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