Johnson & Johnson Pharmaceutical Company Analysis Report
Company overview
Incorporated
in New Jersey in 1887, Johnson & Johnson (J&J) is involved in the
R&D, manufacturing and marketing of healthcare products. J&J has over
250 operating companies across the globe and operates through three business
segments: consumer, pharmaceuticals, and medical devices and diagnostics.
|
Table 10: J&J snapshot
|
|
|
Headquartered
|
New Jersey, US
|
|
Established
|
1887
|
|
Consolidated revenue (FY2009)
|
$61.9bn
|
|
OTC revenue (FY2009)
|
$5.6bn
|
|
Employees (2009)
|
1,15,500
|
Source: Company reports
The
consumer segment comprises baby care, skincare, oral care, wound care, women's
health, nutritionals and OTC pharmaceutical products. Its major brands include
Aveeno, Band-aid, Clean & Clear, Listerine, Neutrogena, Reach, Johnson's
and Lubriderm. Key brands in its OTC product portfolio include Zyrtec, Tylenol,
Motrin, Pepcid, Benadyrl and Nicorette.
The
pharmaceutical segment comprises products in multiple therapeutic categories
including: anti-infective, antipsychotic, cardiovascular, contraceptive,
dermatology, gastrointestinal, hematology, immunology, neurology, oncology,
pain management, urology and virology. Key brands include Remicade, Risperdal,
Consta, Duragesic, Prezista, Velcade, Concerta, Invega and Procrit.
The
medical devices and diagnostics segment comprises products that are used by
physicians, nurses, therapists, hospitals, diagnostic laboratories and clinics.
The product range includes: circulatory disease management products; orthopedic
joint reconstruction, spinal care and sports medicine products; surgical care,
aesthetics and women’s health products; blood glucose monitoring and insulin
delivery products.
J&J
has a decentralized management structure, with each subsidiary being managed by
the local representatives. However, J&J also has an executive committee to
oversee the operations and resource allocation for each subsidiary.
Leading consumer healthcare products
R&D:
consumer healthcare
J&J's
consumer R&D activities are focused on the development of new products and
improving existing products. It also provides technical and regulatory support
in the process of developing and improving products. In 2009, the company
invested around $7bn in R&D activities accounting for 11.3% of its total
revenues. New products introduced by J&J in the last five years accounted
for almost 25% of sales in 2009.
In
2009, J&J invested $632m in R&D for its consumer segment, around 4% of
the total revenues of the segment. Although the company invests less in the
R&D activities of its consumer segment than in the pharma segment, the
amount was slightly higher than the previous year. R&D activities in
pharmaceuticals, require more investment. In 2009, the company invested $4.6bn
(20.4% of pharmaceutical segment sales) on R&D in the pharmaceutical
segment, the most out of any other categories. Most of the consumer healthcare
products are existing products switched from the prescription drug portfolio,
and thus require lower R&D investment.
Financial performance
In
2009, the company recorded revenues of $61.9bn, witnessing a decline of 2.9%
over 2008. The decline in sales was primarily due to the economic downturn,
patent expiry and increased competition. The consumer segment recorded revenues
of $15.8bn, a decline of 1.6% over 2008. The OTC and nutritional division also
witnessed a decline of 4.5% to reach $5.6bn. This was primarily due to the
lower sales of Zyrtec, an anti-allergen launched in 2008, and negative currency
conversion impact. The key OTC brand Tylenol also faced quality issues which
led to recalls of the product. However, the company claims that the recall did
not have a significant impact on sales. In January 2010, J&J as a
precautionary measure again undertook a voluntary recall of Tylenol and certain
other OTC products including Benadryl and Motrin. Tylenol was already under
scrutiny for the side effects of acetaminophen, the active ingredient in the
drug. This is expected to have a significant impact on the sales of Tylenol in
the US. The baby care and women’s health divisions also recorded declines of
4.5% and 0.8%, respectively, while the sales of the skincare segment grew by
2.5%.
Table 11: J&J's consolidated financial performance, FY2009
| ||
FY2009($m)
|
Y-o-Y growth FY2008–09 (%)
| |
Total revenues
|
61,900
|
-3
|
Operating income
|
16,582
|
-5
|
Source: Company reports
In
2009, the pharmaceutical segment recorded sales of $22.5bn, a decline of 8.3%
over 2008, while the medical devices and diagnostics segment witnessed an
increase of 1.9% and reached $23.6bn. In 2009, the operating profit of the
consumer and pharmaceutical segments witnessed a year-on-year decline of 5%,
primarily due to restructuring. However, the operating profit for the medical
devices and diagnostics segment witnessed a growth of 6.5%, primarily due to
its product mix, manufacturing efficiencies and cost control initiatives.
|
Table 12: J&J's segmental performance of consumer healthcare,
FY2009
|
||
|
Segments
|
Sales FY2009 ($m)
|
Y-o-Y growth FY2009–08 (%)
|
|
OTC pharmaceuticals and nutritionals
|
5,630
|
-4.5
|
|
Skin care
|
3,467
|
2.5
|
|
Baby care
|
2,115
|
-4.5
|
|
Women's health
|
1,895
|
-0.8
|
|
Oral care
|
1,569
|
-3.4
|
|
Wound care/other
|
1,127
|
9.4
|
|
Total consumer healthcare
|
15,803
|
-1.3
|
Source: Company reports
Growth strategies
Acquisition to build-on consumer segment
In
2006, J&J acquired the consumer healthcare portfolio of Pfizer, in an
attempt to strengthen its market share in the consumer healthcare industry. The
acquisition led to the diversification of J&J's product portfolio and
resulted in the company gaining a leading position in nine additional
categories including smoking cessation, mouthwash and skin care. The
acquisition added brands such as Nicorette, Sudafed and Listerine to J&J's
product portfolio, and also provided J&J with the OTC switch rights for
Zyrtec after patent expiry.
Focus on building strong brands
J&J
intends to grow its market beyond the developed countries and for its medical
devices and diagnostics segment, the company has already started to target
emerging markets including the BRIC nations. The company is expected to pursue
a similar strategy for its consumer segment going forward. J&J is also
actively collaborating with the Chinese government to establish a Chinese OTC
legislation framework. The company has opened an in-house OTC department in
China, with an aim to conduct regular meetings with the Chinese pharmaceutical
authorities, as the experience of Chinese authorities in the OTC market is
limited. Although recently, there have been some recalls made by the company
for its key OTC brands in the US due to quality issues, the company claims that
the recall has not affected sales.
