Johnson & Johnson reported a 28% drop in net income and flat sales in the fourth quarter of 2014. The income falloff came about because of the impact of unfavorable currency fluctuations along with charges, including integration costs related to the 2012 acquisition of Synthes, and increased litigation costs.
The manufacturer of drugs, devices and diagnostics saw fourth-quarter revenue hit $18.25 billion, compared to $18.35 billion to the fourth quarter of 2013. Sales in the U.S. during the same quarter rose 7.4% to $8.60 billion.
The New Brunswick, N.J.-based company saw sales increase 4.2% to $74.33 billion for the full year, compared to $71.31 billion in 2013.
A quarter of the company's total sales were generated by products launched within the last five years.
Net income was $2.52 billion in the fourth quarter of 2014, compared to $3.52 billion in the fourth quarter of 2013. But net income for the year went up 18% to $16.32 billion, compared to $13.83 billion in 2013.
A bright spot for the company was its pharmaceutical business, which reported a 14.9% increase in worldwide sales to $32.31 billion and a 25% boost in domestic sales to $17.43 billion for the final three months of 2014.
Sales of Olysio, the first therapy in a new category of hepatitis C treatments to come to market over the last year, topped $2.3 billion in 2014. The drug received regulatory approval 14 months ago.
Remicade remains Johnson & Johnson's top-selling drug, bringing in $6.87 billion in revenue in 2014, up 2.9% from 2013.
Despite growth in the drug business, the medical devices segment struggled to keep pace with pharmaceutical sales. Revenue fell 9% to $6.65 billion in the fourth quarter of 2014, compared to $7.3 billion in the same period in 2013. Worldwide sales of medical devices and diagnostics dropped 3.4% to $27.52 billion for the year.
Medical device manufacturers are struggling to hit the price points they want in the U.S. market because increasingly savvy hospital customers are calling for lower prices and more data about the performance and quality of the products they buy. This major change has prompted the recent wave of consolidation among device manufacturers and is also forcing companies to develop more innovative ways to market their products.
“Having scale in the right areas is important … to payers and hospitals,” said Johnson & Johnson CEO Alex Gorsky.
One way that companies are evolving their marketing strategy is by engaging in risk-sharing contracts with hospitals, a fairly new tactic for the device sector. Johnson & Johnson is one of the first companies to do so. “We're changing the way we interact with our customers,” Gorsky said.
The company also has made divested several less successful businesses, including its blood-testing business last year for $4.15 billion.
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