Johnson & Johnson CEO: Drugmakers Want Higher Government, Insurance Payments

J&J executive Alex Gorsky says that while pharma firms are pleased at reforms, more change is needed.

Pharmaceutical companies are pleased that health-care reform means more patients have insurance and will be encouraged to take their medicine to avoid costly hospitalizations.

But, as Johnson & Johnson chief executive officer Alex Gorsky said Tuesday, drugmakers want private insurers or government programs such as Medicare and Medicaid to pay them for those drugs at a prices closer to their choosing.

"Be aware," Gorsky said, that cost-containment efforts must "ensure we continue to reward innovation," or risk not having new drugs to treat health problems.

"By focusing only on costs, we will not cure Alzheimer's, we will not take care of diabetes in a way we should," Gorsky told Wall Street analysts in a meeting at the Pierre Hotel to discuss the company's financial results for the fourth quarter and all of 2012.

Everybody -- patients, employers, hospitals, insurers, drug companies -- says they like the idea of spending less on health care, but everybody prefers the savings come from somebody else. Amid fiscal debates, most segments of health care are being pressured to reduce prices.

Price pressure was part of every discussion about J&J's three main divisions: prescription pharmaceuticals, medical devices and consumer products. Of the three, medical devices generate the most revenue for J&J since it completed the $19.7 billion purchase of medical device manufacturer Synthes Inc.

J&J's headquarters is in New Brunswick, and several key units are even closer to Philadelphia.

Though it was born and officially headquartered in Switzerland, much of Synthes was run from West Chester. The Animas diabetes unit is also in West Chester. McNeil Consumer Healthcare is based in Fort Washington.

J&J reported yearly sales increased from $65.03 billion in 2011 to $67.2 billion in 2012, an increase of 3.4 percent. Net earnings rose from $9.7 billion to $10.5 billion.

On the strength of new revenue from the Synthes acquisition in 2012, and a $1.9 billion charge for litigation losses in the previous year, fourth-quarter net earnings jumped from $218 million in 2011 to $2.57 billion in 2012.

Gorsky also said J&J was "absolutely committed" to keeping its McNeil Consumer Healthcare division in Fort Washington and restoring products to store shelves after production problems. There has been industry speculation on that issue for several years, including after the recent sale of Rolaids products to Chattem Inc.

McNeil makes over-the-counter consumer brands such as Tylenol and Motrin, but the Fort Washington factory has not produced medicine since April 2010 and factories in Lancaster and Puerto Rico have operated at lower levels because of dozens of recalls. Former employees told The Inquirer that J&J's 2006 acquisition of Pfizer's over-the-counter portfolio overloaded capacity at the Fort Washington plant, while senior managers were pushed out, all of which led to quality problems.

Gorsky said J&J has met its milestones to date for eventual recertification of the plant by the U.S. Food and Drug Administration and approval by a federal judge. "We are taking a prudent approach to production volume," Gorsky said, referring to the two facilities that have returned Children's Tylenol and Children's Motrin to some shelves.

Meanwhile, Gorsky said J&J is "initiating the first steps" in exploring the sale of its Ortho Clinical Diagnostics business, which is headquartered in Raritan, N.J.

Source: David Sell, Philadelphia Inquirer via NewsEdge

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