Johnson & Johnson's headcount reduction program is on target, with 1,000 employees taking advantage of an early retirement option, CFO Robert Darretta said on an April 13 conference call.

"We had nearly 1,000 people avail themselves of that opportunity, and not surprisingly, if you looked at our overall headcount at the end of first quarter, you saw a reasonably comparable reduction in headcount."

The headcount reduction program is part of J&J's broader "Funding Our Future" initiative, which is intended to achieve an annualized run rate of $1 bil. in savings by the end of 2005.

"Things are proceeding very well," Darretta told investors. "We're confident in our ability to reach the goals that we previously had cited."

The early success of the cost-containment program contributed to J&J's strong results for the first quarter. Earnings increased 20.4% to $2.5 bil., and sales to customers were up 17.7% to $11.6 bil., representing operational growth of 12.3%.

Most of J&J's pharmaceutical products had strong sales for the quarter, with the exception of Aciphex (down 12% in the U.S. due to inventory swings) and Procrit (down 5% in the U.S. as a result of Aranesp pricing pressure) (see ¹ Also see "J&J Draws Line On Procrit Price; Will Not Meet Amgen Aranesp 40% Discount" - Pink Sheet, 19 April, 2004.).

J&J maintains that its pharmaceutical headcount will remain constant in 2004, despite some recent layoffs (² Also see "J&J Will Maintain Rx Headcount Through 2004 Under Cost-Cutting Plan" - Pink Sheet, 23 February, 2004., p. 22).

J&J will reinvest some of the savings into its late-stage pipeline for products entering Phase III in 2005 and beyond.

While the early retirement program is "probably the most visible single action" in terms of the cost-cutting measures, Darretta said, "there's a number of other, less visible actions not driven so much for savings this year," but "that are scheduled for 2005 and beyond."

The strong start to the year - including robust sales across most of J&J's product lines (notably the drug-eluting stent Cypher ) and positive currency rates - led J&J to raise its 2004 earnings guidance.

Darretta told analysts J&J would be "comfortable" with earnings estimates as high as $3 per share for the full year, versus consensus estimates of $2.95 per share. The guidance would be a 13% increase over the $2.65 earnings per share reported in 2003.

J&J is basing its decision to raise its earnings guidance in part on an assumption that the pain therapy Duragesic (transdermal fentanyl) will retain exclusivity for the duration of 2004.

In March, a federal court directed FDA to delay the effective date of Mylan's ANDA approval until after the expiration of J&J's patent in July - but left open the possibility of approval before pediatric exclusivity expires in January 2005 (³ Also see "Mylan Loses Duragesic Case; Generic Launch Timing Dispute Moves To FDA" - Pink Sheet, 5 April, 2004., p. 10).

The '580 patent was originally slated to expire on July 23, but received a six-month pediatric extension to Jan. 23, 2005. Although FDA approved Mylan's ANDA in November, the company waited to launch its generic until the court case was resolved (⁴ Also see "Mylan Plans Launch Of Generic Duragesic Despite Pediatric Exclusivity" - Pink Sheet, 8 December, 2003., p. 26).

J&J sent FDA a copy of the judge's ruling and is requesting a meeting with the agency to discuss next steps. Mylan maintains that its generic should not be blocked by the pediatric exclusivity period.

"We're expecting that we'll have a meeting with the legal team at the FDA sometime in the near future," J&J VP-Investor Relations Helen Short said. While no timeline has been set, J&J expects to get an answer from the agency prior to July 23.

Should J&J be "surprised" by FDA's decision on Duragesic following discussions with the agency, the company has the capacity to stay within its revised guidance, Darretta said.

J&J has a potential line extension for Duragesic pending at FDA. An electrically-assisted transdermal fentanyl ( Ionsys ) has a user fee deadline that coincides with the Duragesic patent expiration (July 23).

Development of another Duragesic follow-on, AP-48, has been terminated. J&J announced in December that the program was delayed indefinitely (⁵ 'The Pink Sheet' Dec. 15, 2003, In Brief). J&J filed a supplement for a 12.5 mcg/hour dose of Duragesic in April.

J&J Headcount Reduction Program On Target; Company Posts Strong Quarter

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