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JOHNSON & JOHNSON (JNJ)Stock (Drug Manufacturers Industry, Drug Manufacturers - Major Industry, Pharma & Healthcare Industry)
 The consumer health market is expanding as consumers are taking greater responsibility and interest in their own health. Johnson & Johnson owns highly successful brands such as Tylenol, Band-Aid, and Neutrogena. The acquisition of Pfizer's Consumer Healthcare division in 2006 and addition of brands such as Listerine, Lubriderm, Visine, and Neosporin further solidified Johnson & Johnson dominance in consumer health care. Pharmaceutical sales have been stagnant as of the third quarter of 2008 due to the expiration of the patent of Risperdal in June 2008.[1] The company's pharmaceutical segment faces many of the challenges that face all pharmaceutical companies, including issues surrounding patent expiration and FDA approval. In addition, there are constant threats of litigation and a growing pressure in the US and abroad to lower the price of medication.
[edit] HistoryJohnson & Johnson Corporation was founded in 1886 by Robert Wood Johnson, an American entrepreneur and Industrialist. Inspired by the developing scientific understanding of proper of sanitation, Johnson aimed to make antiseptic surgical procedures easier. Through numerous targeted acquisitions and research over the next century, the company steadily diversified its business to encompass pharmaceutical, medical devices, and consumer packaged goods. [edit] Corporate OverviewJohnson & Johnson has interests in a broad spectrum of the health care market, and takes a decentralized approach to managing its 250 operating companies and franchises. In the company's continuing effort to diversify its business and increase profits, Johnson & Johnson is constantly acquiring new companies, including 8 in the last year alone. In 2007, worldwide sales totaled $61.1 billion, making Johnson & Johnson the second largest manufacturer of health care products, behind Pfizer. Johnson & Johnson's third quarter net income rose by 30% to $3.31 billion compared to $2.55 billion a year ago (which had included restructuring charges). Quarterly sales rose by 6.4 percent to $15.92 billion, of which 3.1 percent was due to favorable exchange rates. Sales of consumer products, such as Band-Aids and Tylenol, were particularly strong, rising by 13.1 percent from last year. Prescription drug sales were stagnant at a 0.2 percent increase, hurt due to the expiration of Risperdal's patent in June of 2008.[1] [edit] Business Segments [edit] Consumer Health Care: 24%Consumer products are non-prescription health care products marketed directly to the general public. Johnson & Johnson has diverse franchises in over-the-counter pharmaceuticals and nutritionals, skin care, baby & kids care, and women's health products, totaling $14.5 billion in sales in 2007. Although the Consumer Health Care division is the smallest of the company's three segments, it includes some of the company's most recognizable brands such as Tylenol, Neutrogena, and Band-Aid. In 2006, Johnson & Johnson bought Pfizer's Consumer Healthcare for $16.6 billion. This acquisition represents a significant expansion in Johnson & Johnson's Consumer Health Care division, adding brands such as Listerine, Sudafed, and Neosporin. In 2007 Q4, sales of over-the-counter products increased by 48% to $3.8 billion, largely driven by the Pfizer Consumer Health Care acquisition. [edit] Pharmaceuticals: 41%The Pharmaceutical division is the largest of the three business segments, bringing in $24.9 billion in revenue for 2007. Pharmaceutical products are usually prescription medications distributed to retailers, wholesalers, and health care professionals. Johnson & Johnson's pharmaceutical program is ranked third in sales in the United States and fourth in the world. It uses the same business model and faces similar challenges as other major pharmaceutical companies. Of Johnson & Johnson's pharmaceutical portfolio, the three most successful drugs each brought in over $3 billion in annual revenue, and are:
[edit] Medical Devices and Diagnostics: 36%Johnson & Johnson is the world's largest developer and manufacturer of medical treatment and diagnostic devices, with annual sales of $21.7 billion. This segment includes a wide variety of equipment and supplies used mostly in the professional fields, by physicians, nurses, therapists, hospitals, diagnostic laboratories and clinics. Major franchises in this division include:
[edit] Trends and Forces[edit] Product DevelopmentDeveloping a new product is a time-consuming and costly endeavor. In 2007, Johnson & Johnson spent a total of $7.7 billion in research and development in its three business segments. New products introduced in the last five years accounted for over 30% of sales. The company currently holds almost 54,000 patents domestically and internationally. For pharmaceutical products, hundreds of thousands of candidate compounds must be screened to identify a handful of potential drugs. Even fewer of these candidate drugs are found to be effective at treating a disease. The drug must then pass strict safety standards in several series of clinical trials. According to The Pharmaceutical Research and Manufacturers of America's 2006 Pharmaceutical Industry Profile, developing a new drug and bringing it to the market takes up to 10 to 15 years and on average costs $800 million. Over-the-counter products, such as Johnson & Johnson's Tylenol or LifeScan blood glucose monitors, are also subject to FDA regulation and approval. Medical devices, such as products by DePuy and Cordis, also must undergo clinical trials in order to meet efficacy and safety requirements. [edit] Generic DrugsDue to Food and Drug Administration (FDA) regulations, pharmaceutical patents last 17 years, during which a pharmaceutical company has an exclusive right to manufacture a particular drug. After the patent expires, generic versions of the product can be produced and sold by competitors. Generic medication is cheaper than brand medication, and the lower cost is often a strong incentive for consumers to choose generic over brands. In addition, the presence of a generic alternative may prompt a decrease in the brand name medication price. Like products of other major drugmakers, most of Johnson & Johnson's pharmaceutical products has been or will eventually be affected by the loss of market exclusivity. The U.S. patent for Risperdal, the company's most profitable drug, will expire in the end of 2007, and sales are likely to decline significantly after the loss of patent protection. [edit] LitigationCompanies in the health care industry face significant liabilities if a product is later found to be defective or produce adverse reactions. Even though such adverse effects are previously unknown and impossible to predict, damages claimed in such lawsuits are usually substantial. All three segment's of Johnson & Johnson's business face the risk of litigation. As of the end of 2006, Johnson & Johnson faces 1,500 such lawsuits against its products. Notably, there are 700 claimants for the antipsychotic drug Risperdal, which is also the company's bestselling drug. Although insurance covers some of Johnson & Johnson's litigation costs, unexpected liabilities could have a serious financial impact on the company. [edit] Health insuranceChanges in health care coverage may impact sales. If an insurance program changes its policies and removes coverage for a certain treatment, sales are likely to decrease. In general, insurance programs are more likely to cover essential expenses, such as heart disease medication, and less likely to cover nonessential expenses, such as cosmetic surgery. Johnson & Johnson's Procrit is often used by chemotherapy patients, and Risperdal is often prescribed to the elderly. These prescriptions are covered by Medicare, which helps to increase sales. [edit] Consumer HealthConsumers are beginning to take greater responsibility and interest in their own health, especially as technology makes health information readily accessible. In 2006, 53% of adults used the internet to find health information. This trend for increased consumer awareness affects Johnson & Johnson's consumer health and pharmaceutical segments, as products are now targeted more towards the consumer. [edit] Comparison to CompetitorsCompetition in the health care industry lies mostly in specific markets. For example, a new diabetes drug is not going to have any effect on an existing cholesterol drug, no matter how successful it is. This concept is especially true in the case of Johnson & Johnson, which due to its diverse product offerings in multiple segments of the industry, simultaneously competes in hundreds of distinct markets. With this in mind, success in this competitive environment requires substantial investments in research and sales. Johnson & Johnson's major competitors include Pfizer, Merck, and Novartis. In the medical devices space, its competitors include Medtronic (MDT) and Boston Scientific (BSX). In the orthapedic implants segment, it competes with Zimmer Holdings (ZMH) and Stryker (SYK).
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