Wednesday, July 21, 2010

Johnson & Johnson Q2 2010 with commentary on EU Pricing Impact

Ethicon worldwide sales grew operationally by 8.2% with the U.S. up over 12.65%, and sales outside the U.S. up 5% operationally. Growth was driven by sutures, biosurgicals and Mentor products. Additionally, the acquisitions of Acclarent this year, contributed to the growth in the quarter. Ethicon Endo-Surgery achieved operational growth of 6.6% in the second quarter of 2010, with the U.S. sales growing 3.7% and sales outside the U.S. up with an operational basis by 8.8%. Growth was driven by of the Advanced Sterilization, Endo and HARMONIC products.

Frederick Wise – Leerink Swann LLC

OK, thank you. Next, Dominic, obviously, you're talking about the increased EU price pressures. Maybe I missed it, but during the Medical Device Day in early June, it seemed like you all hadn't seen it yet. Can you give us a little more color on what you're seeing, how you're seeing it? And obviously you're talking about the sort of an accelerating impact for the rest of this year, is this something we should be concerned about accelerating further into 2011 and beyond?

Dominic Caruso

Right, Rick. That's a great question. So, let me just be clear on the EU pricing pressure that we're seeing. They're much more significant in the Pharmaceutical business than they are in the Medical Device business. If you've been – I'm sure you've been following the various governmental austerity programs that include price reduction; those price reductions are specifically directed towards Pharmaceutical products where those governments have much more of an active role in pricing in those types of products.

With respect to the Medical Device business, that business is characterized quite differently than the Pharmaceutical business. It's characterized by largely a DRG system and largely a tender system. So, we have not yet seen much of an impact at all on pricing and medical devices. We do expect that it may begin to show up later in the year or into next year. But of the estimates that I gave you earlier of approximately $200 million from increased acceleration of pricing pressures in Europe, that is largely in the Pharmaceutical business, not in the Medical Device space.

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