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Market Update

Strong New Drug Launches Offset Generic Competition in J&J's 3Q

Total sales increased 3% as new product launches offset generic competition and continued manufacturing problems in the consumer over-the-counter business.

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 Johnson & Johnson (JNJ) reported third-quarter results that largely matched our expectations, and we don't expect any changes to our fair value estimate. Total sales increased 3% operationally versus the prior-year period as new product launches offset generic competition to anti-infection drug Levaquin and continued manufacturing problems in the consumer over-the-counter business. Earnings per share grew only 1% year over year as increased selling and marketing costs caused earnings to grow more slowly than sales. J&J increased the bottom end of its 2011 EPS guidance range by 3%, taking the target to $1.95-$2.00, which we expect the company to meet.

In the pharmaceutical division, drug sales increased operationally 5% versus the prior-year period. New product launches are offsetting generic competition primarily to Levaquin, which lost exclusivity in June. With three key approvals in 2011 already, J&J is well positioned to replenish its portfolio of branded drugs. The Edurant approval for HIV, Zytiga approval for prostate cancer, and Incivo approval for hepatitis C add three new potential blockbusters for the company. Also, despite a mixed Food and Drug Administration panel in September (9-2 positive vote, but FDA documents recommended against approval), Xarelto still holds blockbuster potential. We expect these new products will more than offset J&J's limited patent exposure over the next five years.

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Damien Conover does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.