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Johnson & Johnson

Johnson & Johnson (US)

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Best-known for babycare and Band-Aids, Johnson & Johnson has long been one of the world's biggest healthcare manufacturers, and got even bigger in 2006 with the purchase of the consumer health division of Pfizer. Yet despite that deal, consumer products are still the group's smallest segment. The largest chunk of group revenues comes from pharmaceuticals - including blockbusters such as Remicade, Stelara and Invega - and medical devices. The group flavours a highly decentralised structure with a broad portfolio of almost separately branded subsidiary businesses, operating as Janssen Pharmaceuticals, Depuy and Ethicon among many others, rather than under the Johnson & Johnson banner. Despite its size and standing, Johnson & Johnson has endured difficult trading in recent years, especially in the US, as a result of a series of manufacturing problems and product recalls that tainted the reputations of several of its best-known consumer healthcare brands.

Advertising

Who handles advertising for Johnson & Johnson? Click here for Agency Account Assignments. Including unmeasured media, the group declared total advertising expenses of $2.6bn in 2018.

Competitors

See also Pharmaceutical Sector index for other companies

Brands & Activities

In 2006 Johnson & Johnson overtook Pfizer to become the world's biggest healthcare company, controlling a vast array of pharmaceutical and non-prescription products. However its largely decentralized structure means that most divisions do not trade off the main corporate name. This has both advantages and disadvantages. On one hand it allows operating units to act more entrepreneurially (though also responsibly). However synergies between units are not widely exploited, and for the most part, organic growth across the group is limited. Instead, the group has tended to grow through acquisition.

For many years, Johnson & Johnson enjoyed a position of trust among customers unrivalled by any other drug company, largely as a result of the widespread awareness of its consumer healthcare brands. However, production problems led to a series of recalls of different products in 2010 and 2011 because of potential contamination. That seriously dented the company's reputation, as well as sales of several top products. Another serious reputational battle erupted in 2016 after the company lost two legal cases which alleged a link between its talcum powder and ovarian cancer.

Johnson & Johnson now has more than 275 operating companies with offices in 60 countries, and distribution in many more. All group companies operate as independent businesses within a highly decentralised structure, reporting to central executive committees. There are three main business groups: prescription pharmaceuticals, medical devices & diagnostics, and consumer products, each by itself as big as many of its standalone rivals. Medical devices & diagnostics was the group's biggest business in 2013. However that contribution has slipped and it was overtaken by pharmaceuticals, now over 47% of group revenues. Medical devices generated only 35% of group revenues in 2017, and consumer products the remaining 18% of revenues.

Consumer Products

Despite being the smallest business within the group, consumer products is arguably also the one with which the Johnson & Johnson name is most widely associated. Combined sales of which jumped by almost 50% in 2007 as a result of the consolidation of the consumer healthcare portfolio previously owned by Pfizer. That deal was agreed in June 2006, with a price tag of $16.6bn, and completed at the end of the year. J&J now controls a number of separate operating subsidiaries offering products in five main areas of skin care, oral care, wound care, baby & kids' care, and general OTC pharmaceuticals & nutritionals. See separate profile

Prescription Pharmaceuticals

Despite its size, the consumer healthcare portfolio is still dwarfed by Johnson & Johnson's prescription pharmaceuticals business. Having operated for several years under the different names, the main pharmaceutical business was consolidated in 2011 as Janssen Pharmaceuticals. This has seen the impact of patent expiry and competition in recent years, and was overtaken in size between 2009 and 2013 by the group's medical devices business. However a surge in performance (and a corresponding decline in devices) has put pharma back in the lead again since 2014. Combined sales from prescription pharmaceuticals rose 8% in 2017 to $36.26bn. The group had 11 blockbuster products that year: Procrit slipped out of the top tier, but was replaced by fast-growing Darzalex.

The group's top-selling product remains Remicade, a treatment for rheumatoid arthritis. Janssen has rights in the US and selected other countries, but the product is handled by Merck in most of Europe, and in Japan by Mitsubishi Tanabe. J&J's share of total sales was $6.32bn in 2017, a decline of 9% on the year before. J&J's original international partner was Schering-Plough, not Merck. In 2009, following the announcement of the purchase of Schering by Merck, J&J launched a legal challenge to prevent the transfer of US rights to Remicade into the enlarged Merck-Schering group. Following court arbitration, the two companies agreed to split global rights. Janssen has control in the Americas, Asia apart from Japan and the Middle East, and Merck must pay over a share of profits from its European sales. However, Remicade faces increasing competition from generic copies following its patent loss in 2016 and is now in steady decline. Some of its losses are offset by follow-up product Simponi which joined the blockbuster club in 2014, and added a further 5% in 2017 to $1.83bn. Stelara, a new treatment for severe psoriasis introduced in 2008, has also enjoyed strong growth in recent years, reaching a new high of $4.01bn in 2017.

For several years, the group's biggest product was anti-psychotic Risperdal. However its patent expired at the end of 2007, causing sales to plunge, despite the introduction of long-acting variant Risperdal Consta. It slipped out of the blockbuster category in 2015, with sales taking another tumble in 2017 to $805m. A related anti-psychotic product, Invega, was launched in 2008. Together with faster-growing slow-release variant Invega Sustenna (also marketed as Xeplion) they contributed combined sales of $2.57bn, up 16% on the year before.

Another key product is anaemia treatment Procrit/Eprex, manufactured by Ortho Biotech. (The same product is marketed by Amgen under the name Epogen). Sales have come under some pressure following expiry of several international patents, with the result that it slipped out of Janssen's blockbuster portfolio in 2017 to $972m. Two other former blockbusters, antiepileptic Topamax and Levaquin/Floxin for bacterial infections, also lost their patents in 2010 and 2011 respectively, causing sales to plunge, while sales of AcipHex/Pariet for acid reflux almost halved in 2013 (co-marketer Eisai has rights in Japan and other markets).

Other key products include and a wide range of hormonal contraceptives and therapies from Ortho-McNeil Pharmaceutical including Ortho-Tricyclen pills and Ortho Evra skin patches. Painkiller Duragesic is marketed by Centocor, a biotech business acquired in 1999. A new powerful analgesic, Nucynta, was introduced in 2008, but was sold on in 2015 to Canadian developer Depomed. In 2001 the group acquired Alza Corporation, whose products include hyperactivity control Concerta (sales rebounded strongly in 2015 after several years of decline to $821m), chemotherapy drugs Doxil (now off-patent) and Ethyol and incontinence inhibitor Ditropan XL. In early 2003 J&J agreed to pay $2.4bn to acquire biotech drug company Scios, whose main product is Natrecor, a treatment for congestive heart failure. Also in 2003 the group's Ortho Biotech division agreed to spend up to $750m plus royalties to acquire international rights to Velcade, a cancer drug developed by Takeda's Millennium Pharmaceuticals division. Takeda has rights for the US. Janssen has Europe, Asia and Japan, and generated $1.33bn in 2015.

One of the group's newest areas is treatments for HIV. Prezista was one of the group's fastest-growing products for several years before peaking in 2016. It slipped back slightly in 2017 to $1.82bn. It is supported by Edurant, up strongly in 2017 to $714m. However the infections diseases portfolio has also suffered a disastrous turnaround in its hepatitis C portfolio. Introduced in the US at the end of 2013, Olysio/Sovriad achieved blockbuster status in its first full year with sales of $2.30bn for 2014. However the arrival of Gilead's more effective rival product Harvoni caused its sales to plunge in 2015 by 73%, and then by another 83% in 2016. Another group product, Incivo, was also badly affected. The group is developing several other hepatitis treatments, which joined the portfolio through the acquisition of Alios BioPharma in 2014.

In 2009, the group acquired an 18% stake in Irish developer Elan Corp, which is developing a new drug to target Alzheimer's. In 2010, it launched a $1.75bn bid to acquire full control of Crucell, a Dutch biotechnology company in which it already held a minority stake. Several new products were launched in 2010 and 2011 which are expected to do well over the next few years. The strongest of these is prostate cancer treatment Zytiga, sales of which have topped $2.5bn in 2017. Janssen has selected rights for another fast-growing blood or lymph node cancer product, Imbruvica, sales of which almost doubled in 2016, and rose by another 50% in 2017 to $1.89bn. However, the group was unsuccessful in an attempt to acquire developer Pharmacyclics in 2014, which was snapped up by AbbVie instead. Oral anticoagulant Xarelto, sold only in the US, has also done very well at almost $2.5bn. Another strong launch in 2014 was diabetes drug Invokana , sales of which topped $1.4bn in 2016 before slipping back the following year to $1.11bn. However the biggest success has been with 2015 approval Darzalex for myeloma. Sales more than doubled in 2017 to $1.24bn.

In early 2017, J&J finalised terms for the acquisition of Europe's biggest biotech developer Actelion after months of on-off negotiations. J&J is buying the Swiss company, makers of pulmonary hypertension drug Tracleer and potential blockbusters Opsumit and Uptravi, for $30bn in cash. As an extra incentive for Actelion investors, its research & development division will be spun out as a separate listed company, still majority-controlled by current shareholders and only part-owned by J&J. The Actelion portfolio contributed sales of $1.3bn for part-year 2017. In 2018, it added a new blockbuster to the group's portfolio, pulmonary hytpertension drug Opsumit.

In 2013, the group agreed to pay fines and settlements totaling $2.2bn to US regulators for off-label promotions - where medicines are prescribed for illnesses for which they have not been licensed - and kickbacks to doctors and pharmacists covering several drugs including the anti-psychotic Risperdal. It was the third largest pharmaceutical-related settlement in US history after GSK's 2012 fine of $3bn and a $2.3bn deal with Pfizer in 2009. Johnson & Johnson also agreed to submit itself to a five-year "corporate integrity" agreement, allowing the Department of Health & Social Services to scrutinise its ongoing business operations to ensure no further contravention.

Medical Devices & Diagnostics

This division became the group's largest for the first time in 2009, and has grown steadily, primarily through acquisition. However performance was dented between 2013 and 2016 by litigation and disposals. Combined sales for 2017 improved by 6% to $25.59bn. The group markets a wide range of surgical products for use in hospitals and care facilities.

The group's biggest business in this sector is now DePuy Synthes Companies, manufacturing a range of orthopaedic devices, under brands including Mitek, Codman, and Charite. In 2012, the group completed the acquisition for over $21bn of US-Swiss company Synthes, which makes orthopaedic implants and devices. That marked the group's biggest acquisition to-date. However this business has been involved in protracted litigation from patients who experienced complications after hip replacement surgery using DePuy devices with a flawed design. Johnson & Johnson settled all suits in 2013 with a $4bn compensation fund. Combined orthopaedic sales were $9.25bn in 2017.

Other businesses include Ethicon Endo-Surgery (advanced instruments for videoscopic and traditional surgery, including Realize gastric bands); Ethicon (wound management, soft tissue repair, and women’s health, with brands including Dermabond, Ethicon, Gynecare and Sterrad); LifeScan and Animas glucose monitoring and insulin delivery products for diabetics; and Johnson & Johnson Vision Care or Vistakon, which created the first disposable contact lenses in 1987 and is now the worldwide market leader with the Acuevue brand. In 2008, the group made two additional purchases, offering almost $1.1bn to acquire Mentor, one of the leading manufacturers of breast implants; and another $438m for Omrix, which makes products that control bleeding and treat immune deficiencies. Both companies will continue to operate as standalone units. Another purchase, agreed during 2009 and completed in early 2010, was of Acclarent, which develops devices that address conditions affecting the ear, nose and throat. In 2019, J&J agreed to pay $3.4bn to acquire Auris Health, a pioneer in robotic surgery.

Another significant unit was Cordis Cardiovascular Care, which makes devices for circulatory disease management, including the revolutionary Cypher coronary stent, a drug-coated device which protects propped-open arteries from scarring or reclosing. However after strong growth earlier in the decade, sales from that business came under intense competition. In 2015, J&J sold the business for $1.9bn to rival Cardinal Health. In early 2014, the group agreed to sell another of these units, Ortho-Clinical Diagnostics, which makes diagnostic products for hospital laboratories and commercial clinical laboratories, to private equity investor Carlyle for up to $4.2bn. J&J agreed to sell neurosurgey division Codman to Integra LifeSciences in early 2017 for $1.05bn.

At the end of 2004 the group agreed to pay around $25bn to to acquire Guidant, a leading manufacturer of medical devices to treat heart and circulatory illnesses. However, the latter's performance dipped dramatically in 2005 after it was forced to withdraw a series of products as a result of defects. Johnson used this as justification to renegotiate the acquisition deal but the two sides were unable to agree a revised price. Johnson attempted to pull out altogether towards the end of the year, causing Guidant to file a lawsuit to force the larger company to honour its promise. In the end, the companies agreed a reduced sale price of $21bn. However that arrangement was interrupted by a rival bid by Boston Scientific, which issued its own bid of $25bn. A bidding war ensued, with both sides raising their offers until Johnson finally withdrew in January 2006. The company later issued a lawsuit against Boston Scientific for a breach of contract by Guidant, claiming $5.5bn in damages.

In 2016, J&J announced plans to expand its already extensive eyecare business with the acquisition of Abbott Laboratories' Medical Optics division, which makes lasers and other equipment used to treat cataracts and correct vision. The deal price is $4.3bn, around four times the Abbott unit's revenues last year.

Financials

Revenues rose 6% in 2013 to a record $71.31bn, boosted by growth in the pharmaceutical business and the first full-year contribution from Synthes. Net earnings jumped 27% to $13.83bn, even after a $2bn one-off charge for restructuring. For 2014 there was a further 4% increase in revenues to $74.3bn. Without the impact of currency fluctuation, the increase was over 6%. The increase was driven primarily by the US where combined revenues rose by 9%, including a 25% jump for the pharmaceutical division. That offset weak performance from both consumer healthcare and medical devices, where sales decline both in the US and in international markets. Net earnings powered up 18% to $16.32bn.

Having peaked in 2014, revenues slipped back in 2015 to $70.07bn as a result of exchange rates. Higher R&D expenses and restructuring charges resulted in a 6% decline in net earnings to $15.41bn. For 2016, group revenues came in at $71.9bn, up 2.6%. A 6% increase in the US was offset by a currency-prompted decline from international markets. Net earnings rose 7% to $16.54bn.

Johnson & Johnson seized the opportunity offered by President Trump's tax reform bill at the end of 2017 to repatriate several billion dollars of cash held outside the US, thereby incurring a massive $13.6bn charge against its 4Q results, resulting in a near-$11bn loss. However, the write-off accompanied strong topline growth. For the full year, revenues increased by over 6% to $76.5bn. However the huge 4Q loss caused net earnings for the year to plunge by 92% to $1.3bn. Excluding exceptional items, EBITDA was up almost 7%.

The biggest recent change in the group's global profile has been the steady increase in international revenues. The US accounted for less than half of sales for the first time in 2009. However the strong dollar has pushed that contribution back over 50% again since 2015. The percentage for 2017 was 52%. Europe is the biggest regional market, accounting for 22% of sales, with 8% from the rest of the Western hemisphere, and almost 18% from Africa and Asia Pacific.

For 2018, revenues rose 7% to $81.6bn. Without the prior year's exceptional write-offs, net income soared to $15.3bn.

Background

Johnson & Johnson was formed in the early years of modern medicine, initially to combat high rates of infection among operative patients. In the late 19th century, surgical dressings were generally made from dirty cotton, swept from the floors of textile mills. But medical practice was gradually being revolutionized by Sir Joseph Lister's discovery of bacteria, and the realization that they could spread infection within the largely unhygienic theatres in which operations were performed. In 1886, brothers James and Edward Mead Johnson established a company to manufacture surgical dressings which would protect wounds from these bacteria, then a completely novel concept. However the driving force behind the business was the third brother Robert, who joined the firm in 1887, and suggested coating the inside of the dressings with an antiseptic compound to aid recovery. Despite the presence of three brothers, the business kept its original name of Johnson & Johnson. Ten years later, Edward Mead Johnson left the firm and set up his own business making nutritional products for babies. That company, Mead Johnson, is now a division of Reckitt Benckiser.

Johnson & Johnson's antiseptic plasters were followed by absorbent gauze dressings, and in 1888 the company published the textbook Modern Methods of Antiseptic Wound Treatment, which for many years remained a standard text on antiseptic practices. In 1890, in answer to a complaint from a doctor that their plasters had caused skin irritation in one of his patients, the company began packaging Italian talcum powder with their dressings. It was soon apparent that the same powder was also invaluable for preventing skin irritation in babies, and the scented talc began to be sold separately under the name of Johnson's Baby Powder in 1892. The same year the company developed the first dressing which was not only antiseptic but also pre-sterilised, followed by zinc oxide plasters in 1899. Continued experimentation finally led to the creation of one of the company's most successful products, the Band-Aid plaster, first launched in 1921. The product is credited to Johnson Kenyon, manager of the company's textiles mill. According to company legend, his accident-prone wife had a habit of cutting her finger while preparing dinner. To save her time when bandaging the wounds, Kenyon laid out a long strip of the company's surgical tape on the table sticky side up, and placed small pads of gauze along the strip. Then he attached a separate strip of non-stick crinoline on top and rolled up the whole device, so she could just cut off a piece of the bandage each time she needed a piece.

The company expanded rapidly to market its new discoveries. Robert Johnson had died in 1910, succeeded as president by his brother James. But his sons came to play an important part in the business. International expansion began in 1919, with a Canadian affiliate, followed by the establishment of a UK division in 1924. Robert Wood Johnson Jr became president in 1932, and set in place a process of a rapid growth. As the company grew, its different divisions were established as independent operating units. In 1941, the group's suture business was separated from the rest of the group, and renamed Ethicon in 1949. Johnson & Johnson also introduced a range of birth control products under the Ortho brand. In 1959, the group acquired pharmaceutical laboratory McNeil Laboratories. The following year, McNeil launched pain reliever acetaminophen under the Tylenol brandname. The same year, the group acquired Swiss drug company Cilag-Chemie and Janssen Pharmaceutica of Belgium. The two were merged to form Janssen-Cilag. Other acquisitions included Dr Carl Hahn Company in Germany, the manufacturer of sanitary protection products for women (1974); and the Penaten Group, Germany's leading baby toiletries company (1986).

A series of other acquisitions followed during the 1980s and 1990s. Frontier Contact Lens was acquired in 1981 and became Vistakon, the leading contact lens company in the US. The business introduced Acuevue contact lenses in 1983. In 1986, Johnson & Johnson acquired LifeScan, which makes home blood glucose monitoring systems for people with diabetes. J&J claims to prefer forging partnerships with smaller, entrepreneurial businesses whose innovative products can benefit from J&J's marketing muscle. However, it also operates joint ventures with bigger partners in the industry. A joint venture was formed in 1989 with Merck to develop and market a range of non-prescription products acquired from ICI. The group was also one the first into China - Janssen Pharmaceutica entered the market in 1985, followed by Johnson & Johnson's Band-Aid business in 1990.

In 1993 and 1994, the group acquired French skincare business RoC as well as Neutrogena in the US. Other purchases included Mitek Surgical Products (1995), circulatory remedy business Cordis (1996), orthopaedic products maker DePuy (from Roche in 1998) and FemRX (1999). Also that year, Johnson acquired SC Johnson & Son's skincare business, based around the Aveeno brand, and agreed a partnership with Shiseido. Johnson launched the latter's Super Mild shampoo in Asia-Pacific outside Japan, while Shiseido marketed Neutrogena in Japan. In 1998, the company secured North American rights to Benecol, an innovative Finnish margarine product made from wood pulp which reduces cholesterol levels. The product launched in 1999 in the US.

In 1999 Johnson agreed the purchase of biotechnology group Centocor for $4.9bn, after more than six months of negotiations. The following year the group announced it would stop marketing its heartburn drug Propulsid in the US after reports of serious cardiovascular side effects. Also in 2000, the group acquired Innovasive Devices, specialising in surgical devices for sports injuries. Group subsidiary Cordis acquired Atrionix, a company manufacturing catheter-based systems for the treatment of heart conditions. In 2001 the group acquired online business BabyCenter Inc from failed dotcom retailer eToys. A few months later it announced a new partnership with Danone to produce a new range of nine skincare products under the Evian Affinity brand. The group launched another major acquisition in early 2001, agreeing to buy Alza Corporation for around $12.3bn, then its biggest ever purchase.

The group's most significant purchase in recent years was the deal to acquire Pfizer's mammoth OTC portfolio. That deal was agreed in June 2006, with a price tag of $16.6bn, and completed at the end of the year. In early 2007, J&J disclosed that it had uncovered evidence that two of its international subsidiaries in the medical devices division had made improper payments relating to sales of products. No further details were released, but the improper payments were thought to constitute bribes. Although he did not appear to have been personally involved in the matter, Michael Dormer, chairman of the group's medical devices division, accepted responsibility for the actions and resigned.

Last full revision 4th October 2017

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