Johnson & Johnson- Case Study

Johnson &Johnson started with a simple idea that doctors and nurses should use clean and sterile
dressings. Robert Johnson and his two brothers James and Edward created J&J in 1886 with the
production of sterile dressings and medical plasters in 1886. J& J maintained its expansion and introduced
baby powder in 1921. Band Aid was created by an employee of the company. With continuing success
in USA, J& J started looked for global opportunities and entered Canada in 1919 and United Kingdom in
1924. This was the beginning of one of the largest multinational company of the world.
Johnson & Johnson is currently employing approximately 116,000 people worldwide and is engaged in
the manufacturing of products in 57 countries and sale of a broad range of products in 175 countries of
the world. Johnson & Johnson's primary interest, both historically and currently, has been in products
related to health and well-being.
The Company has experienced 49 consecutive years of dividend increases. Johnson & Johnson is
organized on the principles of decentralized management. The Executive Committee of Johnson &
Johnson is the principal management group responsible for the operations of Johnson & Johnson. In line
with this policy of decentralization, each international subsidiary is, with some exceptions, managed by
citizens of the country where it is located. The company is to be managed according to the famous
mission statement of Johnson and Johnson also known as Credo
J& J Credo, mission statement of the company a complete management philosophy authored more than
60 years ago by Robert Wood Johnson, former chairman from 1932 to 1963 and instructed all his offices
to display the Credo on the main lobbies and emphasized that this credo needs to be followed in letter
and spirit by all employees of the company.
Johnson & Johnsons Credo/ Mission Statement
We believe our first responsibility is to the doctors, nurses and patients, to mothers and fathers and all
others who use our products and services. In meeting their needs, every thing we do must be of high
quality. We must constantly strive to reduce our costs in order to maintain reasonable prices. Customers
orders must be served promptly and accurately. Our suppliers and distributors must have an opportunity
to make a fair profit.
We are responsible to our employees, the men and women who work with us throughout the world. Every
one must be considered as an individual. We must respect their dignity and recognize their merit. They
must have a sense of security in their jobs. Compensation must be fair and adequate and working
conditions clean, orderly and safe. We must be mindful of ways to help our employees to fulfill their
family responsibilities. Employees must feel free to make suggestions and complaints. There must be
equal opportunity for employment, development and advancement for those qualified. We must provide
competent management, and their actions must be just and ethical.
We are responsible to the communities in which we live and work and to the world community as well.
We must be good citizens support good works and charities and bear our fair share of taxes. We must
encourage civic improvements and better health and education. We must maintain in good order the
property we are privileged to use, protecting the environment and natural resources.

This case has been developed by Naveed M. Khan for class discussions only

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Our final responsibility is to our stockholders. Business must make a sound profit. We must experiment
with new ideas. Research must be carried on, innovative programs developed and mistakes paid for. New
equipment must be purchased, new facilities provided and new products launched. Reserves must be
created to provide for adverse times. When we operate according to these principles, the stockholders
should realize a fair return.
End of mission statement
J & J has three segments representing the operations of the company. Consumer products, medical
devices and equipment, and pharmaceuticals.
Pharmaceuticals
Pharmaceuticals segment focuses on meeting important patient needs. With sales of $22.4 billion in
2010, J&J saw rapid growth of recently launched products. For the year, the segment experienced an
operational sales decline of 1 percent. J&J Pharmaceuticals sales were adversely affected by competition
from generic medicine manufacturers. Generic drug manufacturers sell their medicines only with the
formula and chemicals mentioned on the labels and no brands are used for advertising. The
Pharmaceutical segment of J&J includes antifungal, antidepressant, heart, contraceptive, skin care, gastrointestinal and pain management. These products are distributed to wholesalers and retailers to be sold on
doctors prescription. The company achieved sales of $ 15 billion in USA for this segment in the year
2006 which has come down to $ 12.5 billion in 2010 while at the international markets sales were $ 8
billion for this segment in the year 2006 and have now increased up to $ 10 billion in year 2010 . It is still
less than the projection because of intense competition from the generic drug industry but the company is
hopeful that their new medicines in pipeline for hepatitis C, HIV diabetes and blood cancer will take their
sales to new levels. The company hopes that emerging markets will provide them the platform to increase
the sales significantly. This segment provided 31.6 % of the operating profit in 2010, the company had
spend $ 4.5 billion for research development in developing future star products for pharmaceutical
industry in the current year. Company is about to patent new medicine on Alzheimer disease in USA.
On March 22, 2011 a jury in USA after a month long trial decided that Johnson & Johnson makers of
Risperdal, violated the law by giving doctors deceptive information about the drug's risks and
effectiveness. "During the trial, there was compelling evidence in the form of internal e-mails from J&J
employees and officials" that the marketing staff was promoting the drug as better than what the science
showed, said John B. White Jr., one of the attorneys who presented the case for South Carolina.
$327 million civil penalty was imposed against health giant Johnson & Johnson, Attorneys for the state
said Wednesday that it's the biggest verdict in the country over the marketing of Risperdal. The pill for
schizophrenia and bipolar disorder once brought J&J more than $3.4 billion in annual sales.
Johnson & Johnson pleaded guilty in April 2011 of bribing European doctors and agreed to pay $70
million in fines, as a wide-ranging government investigation of corrupt overseas marketing practices by
drug and device makers scored its first major victory. Prosecutors said that Johnson & Johnson had
provided significant assistance in their investigation of others in the industry, resulting in a reduced
criminal fine for the health conglomerate. Company has introduced now the concept of Integrity
Selling in India and Pakistan in 2011. Integrity Selling is a new way to sell that focuses on Values and
Ethics and not just on strategies and techniques. It redefines the selling activity one of identifying and
filling needs or wants or solving problems of our Doctors than meeting sales targets and giving doctors
incentives.
In the pharmaceutical industry J&J is considered to be sixth largest multinational in the world.
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Medical Devices and Diagnostics

The Medical Devices and Diagnostics (MD&D) segment comprise the worlds largest medical technology
business, with sales of $24.6 billion in the year 2010, an increase of approximately 3 percent
operationally. Economic slowdown has led to a decline in surgical procedures and pricing pressures
across the world.
J&J achieved growth in six of seven product categories in all regions. J&J businesses advanced a very
strong pipeline, completed and integrated several acquisitions, and aggressively expanded into emerging
markets. The segment maintained or improved market share in the majority of its largest product
platforms, despite intense competition.
Double-digit growth in its advanced sterilization products and energy products were major contributors
in the current year. Johnson & Johnson Vision Care products had operational sales growth of 4 percent
based on its core ACUVUE Brand Contact Lens . Based on the strength of its orthopedic reconstruction,
sports medicine and neurological businesses experienced growth in sales.
The sales of this segment was $ 10 billion in USA for the year 2006 and now it is close to $ 11.5 billion in
2010 and in international market sales was $ 10 billion in year 2006 and now it is more than $13 billion
for this segment. Company has made operational profit of $ 8.2 billion in Medical devices and Diagnostic
segment in the year 2010. The company had invested $ 1.8 billion in research and development for this
section
The $21.3 billion deal has been done by J&J in year 2011 to buy Synthes Ltd., a Swiss-American
medical device maker, this acquisition would make Johnson & Johnson the largest player in the market
for surgical tools and implants to treat trauma patients, and would make it a more powerful competitor in
the $37 billion worldwide market for orthopedic medical devices.
Synthes is a leading maker of screws, plates and surgical tools used to stabilize traumatic injuries. The
deal is a move aimed at appealing to investors who have been troubled by Johnson & Johnsons failure to
quickly resolve significant and apparently systemic problems in the companys consumer products
division, which have tarnished once-golden brands like Tylenol.
Johnson & Johnsons chief executive, William C. Weldon, championed the new deal in an interview on
Wednesday, citing what he hoped would be cooperation between the companys existing orthopedic and
spinal implant division, Weve got the opportunity to create the most innovative and comprehensive
orthopedic business in the world, Mr. Weldon said.
In this segment J&J has number 3 position in the world.
Consumer
Consumer sales were $14.6 billion in the year 2010, a decline of approximately 9 percent operationally
when compared to year 2009. Sales were impacted by recalls, as well as the general economic slowdown
and greater consumer sensitivity to spending, reflected in a broad move towards store brands.

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Johnson & Johnson has had to recall such a variety of products because of quality-control problems
across product lines, in multiple factories and in several units last year. Some of its consumer products,
for instance, may have contained bits of metal. Others came in bottles with a moldy smell. And some
products have gone missing from stores with hardly an explanation. All of this has put the company and
its manufacturing under the intense scrutiny of lawmakers and officials at the Food and Drug
Administration.
J.& J.s troubles with some of its consumer products began in earnest last January, when J&J recalled
millions of pill bottles after some consumers complained that they smelled like mold. By December,
when it recalled 13 million packages of Rolaids soft chews that may have been contaminated with metal
or wood particles, the company had closed one plant in Fort Washington, Pa., for an overhaul and had yet
to solve the quality problems at another, in Puerto Rico.
The response of J.& J.s chief executive, William C. Weldon, has been to allocate more than $100 million
to upgrade plants and equipment, appoint new manufacturing executives, hire a third-party consulting
firm to improve procedures and systems at J& J and improve quality control processes companywide. In
Congressional testimony last fall, he promised that when the Pennsylvania plant reopened, it would
represent the state of the art in medicine production. And he has repeatedly tried to reassure consumers,
as he did when he promised that J.& J. had no higher concern than providing parents with the highestquality products for their children.
Those reassurances, however, have been followed by yet more recalls. What is most confusing is the
seeming inability of executives to solve and satisfactorily explain the manufacturing issues that
confront the company. Federal regulators have continued to fault the J & J unit for failing to identify and
address problems at its plants, and consumers remain mystified why such problems are occurring in the
company which has such strong Credo and a very strong operating model.
Consumer sales for USA in the year 2006 was $ 4.5 billion and now it is $ 5.5 billion in the year 2010 and
at international level from $ 5 billion in 2006 it has come up to $ 9 billion.
In this segment the companys brand value has diluted because of frequent recalls and the company is
facing major challenges to retain the lost position in this segment.
Industry Revenue of the Pharmaceutical Industry
For the first time ever, in 2010, global spending on pharmaceutical industry/prescription drugs topped
$875 billion, even as growth slowed somewhat in Europe and North America. The United States accounts
for almost 30% of the global pharmaceutical market, with $262 billion in annual sales followed by the EU
and Japan. Emerging markets such as China, Russia, South Korea and Mexico outpaced that market,
growing at the rate of huge 81 percent.
US profit growth was maintained even whilst other top industries saw little or no growth. Despite this, the
pharmaceutical industry is and has been for years the most profitable of all businesses in the U.S. In

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the annual Fortune 500 survey, the pharmaceutical industry topped the list of the most profitable
industries, with a return of 17% on revenue."
Patents/ Branded medicines and generics
Depending on a number of considerations, a company may apply for and be granted a patent for the drug,
or the process of producing the drug, granting exclusivity rights typically for about 20 years. However,
only after rigorous study and testing, which takes 10 to 15 years on average, will governmental authorities
grant permission for the company to market and sell the drug. Patent protection enables the owner of the
patent to recover the costs of research and development through high profit margins for the branded drug.
When the patent protection for the drug expires, a generic drug is usually developed and sold by a
competing company. The development and approval of generics is less expensive, allowing them to be
sold at a lower price. Patent expiration results in lot of competition from the generic sector of
pharmaceutical industry. It is resulting in less innovation and less budget allocation for research and
development by the big multinational pharma industry. It is expected that tough completion is going to
come from the generic drug industry after year 2015
Competitors
Novartis
Novartis with its head office in Switzerland offers over 60 Pharmaceutical products including the most
well known branded drugs and have developed most drugs than any other company since 2000. In
addition to its wide range of branded medicines it also sells generic drug through its division Sandoz,
making Novartis the only company to have obtained its leadership in both pharmaceutical and generic
drugs. The company follows an employee centered philosophy in that every employee will be heard and
is given the power to voice the opinion regarding the company ventures. Novartis got approval of 13 new
pharmaceutical products in 2010 to rejuvenate their product portfolio. It has 147 projects in pipeline. The
industry believes that they have the best innovations in pipeline for the future. The company has been able
to manage their costs and selling expense to a manageable level. Company has a good reputation and has
been able to avoid legal issues and product recalls. Sales in the pharmaceutical sector have been $ 30.5
billion in the year 2010. Pharmaceutical segment of Novartis contributes 67 % of sales and Sandoz
contributes 17% .

Pharmaceutical Segment Overview Novartis

US $ in Millions
2010
2009
Net sales
30,558 28,538
Operating income
8, 978 8,392
Research & Development
6,153 5,715
Addition to property, plant and Assets
777
922
Net Assets
15,212 14,519
Return on net sales %
28.8
29.4
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Abbott
Abbot is an American-based global, diversified (multi-division) pharmaceuticals and health care products
company. It has 90,000 employees and operates in over 130 countries. The company headquarters are in
Abbott Park, North Chicago, Illinois. The company was founded by Chicago physician, Dr. Wallace
Calvin Abbott in 1888. In 2010, Abbott had over $35 billion in revenue and pharmaceutical segment
contributed $ 20 billion in total revenue.
Company developed the first HIV blood screening test. The company's drug portfolio includes HUMIRA,
a drug for rheumatoid arthritis, psoriatic arthritis, ankylosing spondylitis, Crohn's disease, moderate to
severe chronic psoriasis and juvenile idiopathic arthritis; Norvir, a treatment for HIV;
Company has the right products in pipeline for future and is spending $ 2 billion in research. The
company has positioned itself in the right direction in all the emerging economies to benefit from their
growth. Abbot has consistently issued increased dividends to its share holders in the last 38 year and only
few companies in America have maintained such good performance
Abbot has purchased Zydus Cadilla in 2011 which has 24 branded generic and is operating in 15
emerging economies.. The acquisition of Solvay Pharmaceutical and Piramal Health Care by Abbot has
made # 1 pharmaceutical company in India.
The company is not currently facing any legal or product recall issues
US $ in Millions
Total
Pharmaceutical
Net Sales World wide
35,200
20,434
Research & Development
3700
2,000
Operating Income
6,087
3,788
Total Assets
59462
47,570

Attachments: a) five year selected financial data of Johnson & Johnson year 2006-2010
b) Johnson & Johnson segment of business information.

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Johnson & Johnson and Subsidiaries:
Five-Year Selected Financial Data 2006-2010
(Dollars in Millions Except Per Share Figures)

Operating Results
Sales to customers
$
Earnings before provision for taxes on income
Net earnings
Basic net earnings per share
$
Diluted net earnings per share
$

2010 (1)

2009 (2)

2008 (3)

2007 (4)

61,587
16,947
13,334
4.85
4.78

61,897
15,755
12,266
4.45
4.40

63,747
16,929
12,949
4.62
4.57

61,095
13,283
10,576
3.67
3.63

2006 (5)

25.4
19.8
22.1
26.4
13.0

26.5
20.3
23.5
30.2
15.2

21.7
17.3
20.4
25.6
13.1

427.
720.
24.
328.
715.

4,084

53,324
14,587
11,053
763.
73.

Statistics
Before tax margin
Net profit margin
Effective tax rate
Return on average shareholders' equity
Return on total assets

27.5 %
21.7
21.3
24.9
13.0 %

Capital Structure
Cash and Current Marketable Securities
Debt
Equity
Total capital
Net cash/(debt)

27,658

19,425

12,809

9,315

16,773
56,579
73,352
10,885

14,541
50,588
65,129
4,884

11,852
42,511
54,363
957

9,537
43,319
52,856
(222)

22.3

21.8

18.0

2.110
20.66
61.85
2,751.4

1.930
18.37
64.41
2,759.5

1.795
15.35
58.56
2,802.5

1.620
15.25
67.38
2,882.9

1.455
13.59
66.02
2,936.4

2 , 788 . 8

2 , 789 . 1

2 , 835 . 6

2 , 910 . 7

2 , 961 . 0

5,804

5,327

5,024

4,670

4,267

$ 102,908
6,844
$
2,384
114.0

94,682
6,986
2,365
115.5

84,912
7,577
3,066
118.7

80,954
7,680
2,942
119.2

70,556
7,125
2,666
122.2

Total debt/total capital

22.9 %

6,593
39,318
45,911
(2,509)
14.

Common Stock Information

Dividends paid per share
Shareholders' equity per share
Market price per share (year end close)
Average shares outstanding (mm) - basic
-

$
$
$

diluted

Cash dividends

Other Data
Total assets
Research & development expense
Capital expenditures
Number of employees (thousands)

Johnson & Johnson and Subsidiaries:

Segments of Business
Sales to Customers
Consumer
United States
International
Total
Pharmaceutical
United States
International
Total
Medical Devices and Diagnostics
United States
International

Case Study

(Dollars in Millions)

2010 (1)
$

2009 (2)

2008 (3)

2007 (4)

2006 (5)

5,519
9,071
14,590

6,837
8,966
15,803

6,937
9,117
16,054

6,408
8,085
14,493

4,573
5,201
9,774

12,519
9,877
22,396

13,041
9,479
22,520

14,831
9,736
24,567

15,603
9,263
24,866

15,092
8,175
23,267

11,412
13,189

11,011
12,563

10,541
12,585

10,433
11,303

10,110
10,173

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Total
Worldwide
United States
International
Total

Operating Profit
Consumer
Pharmaceutical
Medical Devices and Diagnostics
Segments Total
Less: Expenses/(Income) not allocated to segments (6)
Worldwide Total
Operating Profit as % of Segment Sales
Consumer
Pharmaceutical
Medical Devices and Diagnostics
Segments Total
Worldwide Total

Case Study

24,601

23,574

23,126

21,736

20,283

29,450
32,137
61,587

30,889
31,008
61,897

32,309
31,438
63,747

32,444
28,651
61,095

29,775
23,549
53,324

2,342
7,086
8,272
17,700
753
16,947

2,475
6,413
7,694
16,582
827
15,755

2,674
7,605
7,223
17,502
573
16,929

2,277
6,540
4,846
13,663
380
13,283

1,374
6,894
6,126
14,394
(193)
14,587

16.1%
31.6%

15.7%
28.5%

16.7%
31.0%

15.7%
26.3%

14.1%
29.6%

33 . 6%

32 . 6%

31 . 2%

22 . 3%

30 . 2%

28.7%
27.5%

26.8%
25.4%

27.4%
26.5%

22.4%
21.7%

27.0%
27.4%

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