Johnson & Johnson: The $188 Billion Company That Sells More Than Just Band-Aids And Shampoo

7/31/2019 Johnson & Johnson: The $188 Billion Company That Sells More Than Just Band-Aids And Shampoo

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BUSINESS INSIDER

Inside healthcare giant Johnson & Johnson

Source: AP Images


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This is Johnson & Johnson a $188 billion business thattouches more than one billion people every day J&J employs 129,000 people, with headquarters in N.J. Founded in 1886 The company is made up of 3 main business lines:

Pharmaceuticals Medical Devices Consumer Healthcare

Fiscal 2011 Segment Sales:

Source: Company Filings


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Johnson & Johnson entered U.S. homes on the back of itsfamous commitment to doctors, nurses, and its patients,putting them above shareholders (written in 1943)

Source: Johnson & Johnson


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But J&J is very different todaythan when it drew up that credo

J&Js total sales in 2011

J&Js net income in 1980

J&Js total sales in 1980

$0.4Billion

$4.84Billion

$65.03Billion

Source: Johnson & Johnson

$9.67Billion J&Js net income in 2011


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Today J&J is made up of more than 250 operatingsubsidiaries. Take a look at some of the businesses J&Joperates in.

(We should note these are just the U.S. subsidiaries)



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J&J revenues now top $16 billion a quarter but havebeen range bound since the financial crisis began.



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J&J has diversified its sales channels generatinga larger share of revenue from outside the U.S.

Asias importance has magnified, now rivaling Europe with 19% Latin America has also picked up 5 points over the past eight year



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But even as the company has grown sales, massivesettlements have hit earnings

In 2011, net income fell 27 percent (to $9.6B) when includingcharges related to product liability, litigation settlements, and a

Hip recall program



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Americans know Johnson and Johnsons for itsiconic consumer healthcare business

Flagship products include Listerine, Tylenol, Neutrogena skin care, andBand-Aids

The division booked $14.9 billion in sales, making it the 6th largestconsumer healthcare business in the world.

Image: Johnson & Johnson


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But consumer healthcare isnt the companysbread and butter. That would be itspharmaceuticals unit

Sales reached $24.4 billion in 2011, an 8.8 percent increase over 2010. That led to $6.4 billion in operating profit, 51.8 percent of Johnson and

Johnsons total profit for the year.

Image: Wikimedia Commons


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(Dollars in Millions) 2011 2010 2009 % Change 11vs. 10

% Change 10vs. 09

Remicade (infliximab) $5,492 $4,610 $4,304 19.1% 7.1

Procrit/Eprex (Epoetinalfa)

$1,623 $1,934 $2,245 (16.1) (13.9)

Risperdal/Consta(risperidone)

$1,583 $1,500 $1,425 5.5 15.8

Velcade(bortezomib) $1,274 $1,080 $933 18 15.8

Concerta(methylphenidate)

$1,268 $1,319 $1,326 (3.9) (0.5)

Prezista (darunavir) $1,211 $857 $592 41.3 44.8

Aciphex/Pariet(rabeprazole sodium)

$975 $1,006 $1,096 (3.1) (8.2)

Levaquin/Floxin(levofloxacin/ofloxacin)

$623 $1,357 $1,550 (54.1) (12.5)

Other pharmaceuticals $10,319 $8,733 9,049 18.2 (3.5)

Total $24,368 $22,396 $22,520 8.8% (0.6)

Driving pharma sales are drugs like Remicade, Risperdal,and Levaquin



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Even with those impressive sales figures, J&J faces hugegeneric risk. When Levaquin lost exclusivity, salesplummeted more than 50 percent in one year

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

2004 2005 2006 2007 2008 2009 2010 2011

Procrit Levaquin/Floxin Topamax Duragesic



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To continue to drive top line results, J&J invested morethan $7.5 billion in research and development last year

Johnson spent $5.13 billion, or 71.9 percent of its total research anddevelopment spend, towards its prescription drug pipeline.

That paid dividends last year with the FDA approval of Xarelto, an anti-coagulant. Thomson Reuters estimates that the drug will book $2.2billion in sales by 2014.

Other recent approvals include Edurant in the U.S. and EU for HIV,Zytiga for prostate cancer, and Incivo for Hepatitis C in the EU.

Potentially significant unapproved drugs in Johnson and Johnsonspipeline include Canagliflozin for Type 2 Diabetes, Yondelis for softtissue sarcoma, and Prezista for HIV.

Image: Bristol Meyers


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Last of the three divisions is its medical device unit,the largest device business in the world, with 2011sales of $25.8 billion

The largest franchises are DePuy Orthopedics and Ethicon Endo-Surgery, which manufactures tools for minimally invasive surgery.

DePuy purchased Synthes, another orthopedics company, as part ofan ongoing effort to rebrand after a 2010 recall of hip replacements.


Sutures/woundclosure, $4.9

Diabetes Care, $2.6

Orthopedics, $5.8

CardiovascularCare, $2.3

Vision Care, $2.9

Diagnostics, $2.2

Non-Invasive

Surgery, $5.1

Sales in Billions


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The device division, formerly the most profitable, wasnegatively impacted by a 2010 recall of hip replacements

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

2008 2009 2010 2011

Consumer Pharmaceutical Devices and diagnostics

Profit Generation by Division



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Nonetheless, its still the largest medical devicemanufacturer in the world, bigger than Abbott, Baxter andPhillips combined

$0 $5 $10 $15 $20 $25 $30

Johnson and Johnson

GE Healthcare

Medtronic

Siemens Healthcare

Phillips Healthcare

Baxter international

Abbott Laboratories

Medical Sales (In Billions)



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To generate those sales, J&J spends more than $2.6billion on marketing globally each year, making itone of the largest advertisers

Source: Nielsen


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Most analysts believe J&Js stock price will appreciatefrom its current $68 level with some setting targets ashigh as $90 a share

Jefferies: Buy with $75 P.T.

Barclays: Overweight with $75 P.T.

J.P. Morgan: Overweight with $74 P.T.

Goldman Sachs: Neutral with $72 P.T.

Deutsche Bank: Hold with $69 P.T.

Piper Jaffray: Neutral with $68 P.T.

LOW MEDIAN HIGH

$65 $72 $90

Source: Bloomberg

Snapshot:


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But not everyone is so bullish. As Morgan Stanley notes,the firm has fallen below peers in the S&P 500

J&J needs to make more aggressive changes to its businessmodel to avoid another three years of underperformance, inour view. Since the beginning of 2010, J&J has returned only2%, falling 8% short of the DRG pharma index and 23% short ofS&P 500 returns. We see the key drivers of weak stock

performance as (i) soft revenue growth, (ii) lack of marginexpansion, and (iii) dilutive capital deployment. Doing thingsthe J&J way has not recently created value forshareholders, and negative structural shifts in the healthcarelandscape may make outperformance even morechallenging over the next several years.

Morgan Stanley

Image: Mario Tama/Getty Images


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Some of that negativity is also do to headlines which haveplagued the company, which recently include:

A tentative shareholder settlement to a lawsuit allegingmanagement failed to fix serious problems for manyyears

Shoddy manufacturing Illegal kickbacks to boost sales Improper marketing of drugs for unapproved uses

Source: Washington Post, The New York Times, AdAge


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Johnson & Johnson: The $188 Billion Company That Sells More Than Just Band-Aids And Shampoo

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