Projection for 1985, ’86 : Johnson & Johnson Chief Sees ‘Pretty Good’ Profit

Johnson & Johnson, which since 1982 has been rocked by a series of developments affecting its products and finances, said Wednesday that profit for the next two years “appears to be in pretty good shape.”

While declining to make a specific forecast, Chairman and Chief Executive James E. Burke said strong profits for 1985 and 1986 will result largely from productivity gains and sharply reduced spending to market consumer products.

Before 1982, the company had been posting annual profit increases in the range of 12% to 20%. That year, however, it spent heavily--$100 million before taxes--to withdraw and then reintroduce its hugely profitable Tylenol product line after the cyanide contamination of several Tylenol capsules that killed seven persons in Chicago.

Hurt by Recession

Profit was hurt further by the recession in Latin America, where the company does much business; by adverse foreign currency translations because of the strong dollar; by the withdrawal from the market of the widely used prescription painkiller Zomax in 1983, when an unexpectedly large incidence of side effects surfaced, and by the slowdown in the hospital products field since 1984.

More recently, profit was hurt by marketing costs spent to fend off new competition to Tylenol and the company’s feminine sanitary protection products.

(Just this week, the company abruptly halted testing of Bepridil, a drug used to treat heart problems, because of deaths among patients in its study. The company said it has notified the Food and Drug Administration.)

In repairing earnings, company officials have remained dedicated to their oft-stated goal of managing for long-term growth, Burke said. Decisions the company has made and will continue to make reflect a willingness to “take short-term losses in order to achieve long-term” gains, he noted.

Thus, Burke said the company will continue to invest at least 14% of sales in research and development to pump new products out of its consumer and pharmaceutical and hospital-services business and to “dig in our heels and fight as hard as we can” to protect the leading market shares of its Tylenol and women’s personal hygiene consumer products.

Last year, Tylenol had sales of about $550 million and the feminine care products had $750 million.

Some analysts say that Tylenol’s pretax profit margin is down to 15% from 30% before 1982 and that the feminine line’s pretax margin is down to 5% from 20% a few years ago.

High-Margin Businesses

Burke declined to comment on these figures, saying instead that “these were once very high-margin businesses and they have been very adversely impacted. It is hard to tell” whether the product lines will regain their former high rate of profitability “because neither of these (marketing) fights is over.”

Last year, Tylenol fought off competition from two new non-prescription pain-relief products--Advil, sold by American Home Products’ Whitehall Laboratories unit, and Nuprin, sold by Bristol-Myers.

Both products contain ibuprofen, a drug formerly available only by prescription. Burke wouldn’t comment on industry speculation that Johnson & Johnson’s McNeil Pharmaceuticals unit is developing its own ibuprofen product.

The company’s market share of the feminine protection products business fell to about 38% early this year from 50% about a year after the introduction of a product by Procter & Gamble, which last year grabbed 17% of the market.

Burke declined to say whether the company could regain lost shares, noting only that it plans to introduce new products and line extensions to retain its leading position.

He said, however, that the company has sharply reduced its promotion spending for these consumer products from last year. The 30% profit rise posted in the most recent second quarter reflects a sharp downturn in marketing costs compared to the second quarter of 1984, when a large portion of the 1984 spending was recorded, he said.

Burke said the company won’t divest its Technicare diagnostic- equipment company, which has lost money every year since it was acquired in 1979. While some analysts say Technicare will break even or post a modest profit in 1985, Burke declined to comment on its prospects.