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Healthcare Stocks: Second Quarter Earnings a Bitter Pill to Swallow

Healthcare stocks have been a hot topic since the Obamacare ruling marked a historic turning point for the industry – but so far companies' earnings have failed to keep the excitement going.

Johnson & Johnson (NYSE: JNJ) was the first of the big healthcare stocks to release earnings, and the health care giant was in need of one of its trademark B and-A ids when it reported second- quarter net income fell by half.

With others in the sector set to report in the coming days, the mainstream numbers look weak.

J&J, dealing with tough market conditions, continuing manufacturing problems and other issues, lowered its profit forecast for the year. Second- quarter net income suffered due to a spate of litigation and acquisition- related charges.

The New Brunswick, N J – based company's r evenue slid by 0.7% on lower sales in the United States and lagging sales for consumer health products worldwide.

While results beat analysts' expectations for adjusted profit by a penny, they missed revenue forecasts by nearly $250 million.

Since 2009, a slew of J&J nonprescription products have remained off store shelves due to some three dozen recalls. All won't be back in stores until next year.

New CEO Alex Gorsky said in the conference call that followed earnings, "We remain committed to and optimistic about the future of our (over-the-counter) business."

In referring to J& J's longtime stance of putting patients, doctors and employees ahead of profits, Gorsky added, "I am resolute to keep our credo as the foundation of Johnson & Johnson."

J&J was dealt another blow late Monday when partner Pfizer Inc. (NYSE: PFE) reported its highly anticipated experimental drug for Alzheimer's D isease, bapineuzu mab, was not effective at slowing memory loss in a large, late-stage clinical trial in patients with a high-risk genetic mutation.

The news was not the shot in the arm Pfizer, J&J and third partner Elan Corp (NYSE ADR: ELN) had hoped for. The blow was most severe for Elan, which has a 25% stake in the drug.

"While we are disappointed in the topline results of Study 302, a more complete understanding of bapineuzumab and its potential utility in mid-to-moderate Alzheimer's disease will be gained following the availability of additional data, including data from the soon-to-be available non-carrier Study 301," Steven J. Romano, M.D., senior vice president and head of Pfizer's Medicines Development Group, said in a statement.

Romano continued, "We recognize that Alzheimer's disease is very complex, but Pfizer, along with Janssen Al, remains committed to advancing the science of Alzheimer's disease, with the ultimate goal of delivering innovative and meaningful new treatment option to patients."

While the follow-on study for patients involved in the trail has been canceled, all other studies are continuing as planned.

Healthcare Stocks: Earnings to Watch


Pfizer is scheduled to report earnings next Tuesday before the market open. Estimates are for the company to report earnings of 54 cents per share.

First quarter 2012 revenue was $15.4 billion, down 7% from the same period a year ago. The company was hurt by losing the exclusivity of its blockbuster cholesterol- lowering drug Lipitor (on Nov. 30, 2011) and the unfavorable impact of foreign exchange. Global economic conditions grew more acute in the second quarter and are sure to have weighed on Pfizer's bottom line in the second quarter.

While the Alzheimer tria l results were disappointing, Pfizer has myriad other studies in the pipeline, including crizotinib to treat small cell lung cancer and bazedoxif ene for the treatment of symptoms associated with menopause and osteoporosis.

Eli Lilly and Bristol-Myers

Indianapolis-based Eli Lilly & Co. (NYSE: LLY ) reports earnings Wednesday before the open. Estimates are for earnings per share of 77 cents , a 34.7% decline from the same period a year ago. Revenue is expected to dip 10.7% from the previous year's qu arter to $5.58 billion.

Also reporting Wednesday is Bristol Myers Squibb Co. (NYSE: BMY). The mean estimate is for second- quarter results to come in at 50 cents per share, a 10.7% decrease year-over-year, on revenue of $4,460 million, down 17.9% from the same quarter a year ago.

In an effort to offset several regulatory setbacks, Bristol Meyers had ramped up partnership deals and acquisitions. Its most recent purchase was in June when it bought Amylin Pharmaceuticals Inc. (Nasdaq: AMLN) for $5.3 billion in an all- cash deal.


On Friday, Merck & Co Inc. (NYSE: MRK) could deliver a healthy dose of profits amid the frail sector. The consensus is for Merck to report earnings of $1.01 per share, an increase of 6.3% from the same quarter a year ago. Revenue is expected to have increased 0 .2% to $12.17 billion for the quarter. The bulk of analysts maintain a "Buy" on Merck stock.

Something to remember though when investing in healthcare stocks: While many stable health care stocks look pale at the moment, the giants sport healthy dividends in an environment where yield is hard to find. J&J has a yield of 3.60%; MRK's yield is 3.90%; PFE boasts a yield of 3.70%; LLY 4.40% and BMY 3.80%.

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