Company Analysis — Johnson & Johnson
Introduction
Johnson & Johnson was incorporated in the State of New Jersey in 1887. It is a holding company, with operating companies conducting business in virtually all countries of the world. Johnson & Johnson and its subsidiaries (the Company) have approximately 132,200 employees worldwide engaged in the research and development, manufacture, and sale of a broad range of products in the health care field.
The Company’s primary focus is products related to human health and well-being. It is a public company and its common stock is a component of the Dow Jones Industrial Average and the company is ranked number 37 on the 2019 Fortune 500 list. The corporation includes some 250 subsidiary companies with operations in 60 countries and products sold in over 175 countries.
Management of the Company:
Plant Location
The Company’s subsidiaries operate 97 manufacturing facilities occupying approximately 15.2 million square feet of floor space. The manufacturing facilities are used by the industry segments of the Company’s business approximately as follows.
Within the U.S., five facilities are used by the Consumer segment, five by the Pharmaceutical segment, and 22 by the Medical Devices segment. Outside of the U.S., 25 facilities are used by the Consumer segment, 14 by the Pharmaceutical segment, and 26 by the Medical Devices segment.
The locations of the manufacturing facilities by major geographic areas of the world are shown above:
Business Segment
JNJ is a massive, kind, and highly diversified company with a three-key segment: Consumer, Pharmaceuticals, and Medical Devices. Each of its three-segment has its own competitive advantage.
In 2019, worldwide sales increased 0.6% to $82.1 billion as compared to an increase of 6.7% in 2018. Pharmaceutical generates higher sales (51%) whereas the consumer segment and the medical device generate $13.9 billion and $26.0 billion respectively.
- Consumer Segment
JNJ’s consumer segment consists of a broad range of products in baby care, oral, beauty (highest sale -33.04%), over-the-counter (OTC) pharmaceuticals, women’s health, and wound care. JNJ owns the most premier brands in these categories including Johnson’s, Listerine, Aveeno, Neutrogena, Tylenol, Sudafed, Benadryl, Band-Aid, Neosporin, and more.
The name brand of JNJ provides a higher competitive advantage when compared with peers & its brand recognition always attract more customers. Despite increased competition, due to e-commerce and innovative Direct to Consumer(D2C) start-ups, JNJ continues to increased sales.
The Johnson & Johnson Family of Consumer Companies offers the world’s largest range of consumer healthcare products. Their baby care, skin care, oral care, wound care, over-the-counter, and women’s health products feature brands are highly trusted by consumers and healthcare professionals worldwide. The major key products are as follows:
2. Pharmaceuticals
JNJ’s Pharmaceuticals segment is the largest segment of JNJ with $42.2B in 2019 sales, accounting for 51.4% of JNJ’s total sales. JNJ’s pharmaceuticals business operates under the subsidiary Janssen Pharmaceutical Company. Jansen is a leader in the global pharma industry. Janssen manufactures 17 different products that generate over $1B in annual revenue, several of which generate $2B+. Additionally, Janssen has a robust pipeline of over 40 drugs, with 10 of them expected to generate
over $500MM in revenue also, it has over 350 R&D programs and has spent $37B on the development of new drugs over the last five years. Product sales are generally seemed to be decline over of period time because of share loss from competitive pressure, safety labels update in the U.S., and due to increased competition from other markets.
3. Medical Device
JNJ’s medical device segment is the second-largest of JNJ’s three segments with $26B in 2019 revenues accounting for 31.6% of JNJ’s total sales. The medical device segment includes a broad variety of products and devices related to orthopedic, general surgery, bio surgical, endo-mechanical, sterilization and disinfection, vision such as disposable contact lenses. These products are distributed to wholesalers, hospitals, and retailers and used by physicians, nurses, hospitals, eye care professionals, and clinics.
Research and development (R&D) activities represent a significant part of the Company’s business. Research facilities are located in the U.S., Belgium, Brazil, China, France, Germany, India, Israel, the Netherlands, Poland, Singapore, Sweden, Switzerland, and the United Kingdom with additional R&D support in over 30 other countries.
Sectors in which the company is active include:
~ Aesthetics (Ethicon, Mentor)
~ Arrhythmias (Biosense Webster)
~ Bariatric Surgery for Obesity (Ethicon)
~ Cardiovascular Disease (Biosense Webster, Inc.)
~ Diabetes Care (LifeScan, Animas Corporation)
~ Ear, Nose, and Throat Conditions (Acclarent)
~ General Surgery (Ethicon, Codman Neuro)
~ Hernia Surgery (Ethicon)
~ Insulin Delivery Devices (Animas)
~ Neurovascular Disease (Codman Neuro, DePuy Synthes)
~Orthopaedics (DePuy Synthes): Joint Reconstruction, Trauma, Spine, Sports Medicine, and Power Tools
~ Self-Measured Blood Glucose Monitors (LifeScan)
~ Surgical Instruments and Infection Prevention (Advanced Sterilization Products)
~ Urologic Surgery (Ethicon)
JNJ Research Capabilities:
According to the company’s data available, it boasts that 25% of its sales are from new products launched in the past five years. With over $80 billion in annual revenue, that means J&J commercialized more than $20 billion worth of new products in five years or about $4 billion per year. Such results are a testament to Johnson & Johnson’s innovation, brand strength, scale advantages, and R&D processes.
In fact, with more than $10 billion invested in R&D activities each year, J&J’s R&D budget is among the 10 largest of any company’s spending in the world, according to Capital IQ. The firm focuses most of its investments on its high-margin patented pharmaceuticals segment.
Research facilities are located in the U.S., Belgium, Brazil, China, France, Germany, India, Israel, the Netherlands, Poland, Singapore, Sweden, Switzerland, and the United Kingdom with additional R&D support in over 30 other countries.
Pharmaceutical Segment
Johnson & Johnson’s disciplined spending on pharma has paid off with no less than 14 drugs being approved since 2011 that went on to generate over $1 billion in annual sales each. That’s helped the company’s base portfolio of pharmaceuticals grow two to three times faster than the industry historically, according to management.
Through 2021 the company expects its drug development pipeline to deliver another 14 blockbusters, including in fast-growing markets like oncology, immunology, and diabetes. J&J’s growth plan also calls for expanding indications for already approved winners, some of whom are already generating over $4 billion per year for the company.
Johnson & Johnson has a solid track record on drug approvals and pumping out many blockbusters over the years. Remicade is the company’s largest drug and accounts for less than 15% of the pharma segment’s sales and under 7% of company-wide sales.
Medical Device
The company is spending about $1.3 billion per year on R&D focused on medical devices to support a growing number of new product launches including:
~ 15 to 20 launches in 2018
~ 20 to 25 launches in 2019
~ 40 to 50 launches in 2020 and beyond
Those launches alone are expected to generate $7 billion in annual sales by 2022, which is significant even for a company of J&J’s immense size.
Across all three business segments, Johnson & Johnson has a total of 26 drugs and product platforms which each generate over $1 billion in sales, giving it the diversification, it needs to generate consistent free cash flow and steadily grow its dividend.
Mergers & Acquisitions
In 2017, JNJ acquired Actelion for $30 billion.
Actelion creates drugs to treat pulmonary hypertension (i.e. high blood pressure in the arteries to your lungs) and other rare diseases. As part of that deal, J&J also received Stelara ($5.2 billion in 2018 sales; psoriasis and arthritis) and Zytiga ($3.5 billion in sales; prostate cancer). Management expects the acquisition to result in long-term top and bottom lines sales growth acceleration of 1% and 1.5% to 2%, respectively.
The company bought the orthopedic products business Synthes for $21 billion in 2012 and acquired Pfizer’s consumer health care business for $17 billion in late 2006, for example. In total, J&J has acquired more than 100 companies over the past 20 years.
Financials
✔ In 2019, worldwide sales increased 0.6% to $82.1 billion as compared to an increase of 6.7% in 2018. Here, consumer sales grew by 0.3% to $13.9B and the Pharmaceutical segment done through subsidiary Janssen grew by 3.6% to $42.2B.
✔ Merger and Acquisitions (13 major deals) have accounted for 40% of operational growth
✔ Coming to profitability, EBITDA decreased by 3.72% to $17.328B, PAT was under pressure and declined by 1.16% to $15.11B in 2019.
✔ The company’s revenue can also be segmented on the basis of Geographic region.
✔ In 2019, the Company utilized three wholesalers distributing products for all three segments that represented approximately 15.0%, 12.0%, and 11.0% of the total consolidated revenues.
✔ JNJ indicates 35 consecutive years of earnings growth, 56 years of dividend increases (44.78%), and 50% of 10-year free cash flow being returned to shareholders.
✔ Its innovation is evident from the fact that 25% of its 2019 sales are coming from products launched in the last 5 years. JNJ is the 5th largest spender on R&D in the US and 8th globally with $11B in 2019 R&D investment.
✔ In addition to aggressive R&D spending, JNJ creates value through acquisitions/licenses (40% OF operational growth over past 5 years), strategic deals, and partnerships, and optimizing its current portfolio of companies, and leveraging its distribution capabilities.
✔ Merger and Acquisition is a much-needed source of growth for the company. In total, throughout 2019 company completed 13 major acquisitions and noteworthy licenses, and 100 innovation deals.
✔ The company’s dividend quality is high.
The share price of JNJ along with the balance book seen a downfall in 2019 as Litigations challenged JNJ stock. A number of consumers claimed the firm’s baby and talcum powders caused them to develop cancer. The pharmaceutical company also faces claims that it used misleading marketing, playing a role in the nation’s opioid crisis.
Company’s response to COVID’19
Johnson & Johnson committed over $1 billion toward the development of a not-for-profit COVID-19 vaccine in partnership with the Biomedical Advanced Research and Development Authority (BARDA) Office of the Assistant Secretary for Preparedness and Response (ASPR) at the U.S.
Janssen Pharmaceuticals, in partnership with Beth Israel Deaconess Medical Center (BIDMC), is responsible for developing the vaccine candidate, based on the same technology used to make its Ebola vaccine. The vaccine candidate is expected to enter phase 1 human clinical study in September 2020.
Demand for the product Tylenol surged two to four times normal levels in March 2020. In response, the company increased production globally. For example, the Tylenol plant in Puerto Rico ran 24 hours a day, seven days a week.
In response to the shortage of ventilators, Ethicon, with Prisma Health, made and distributed the VESper Ventilator Expansion Splitter. Using 3D printing technology, the product is used to expand the capacity of one ventilator to support two patients.
In June 2020, Johnson & Johnson and the National Institute of Allergy and Infectious Diseases (NIAID) confirmed their intention to start a clinical trial of J&J`s vaccine in September 2020, with the possibility of Phase 1/2a human clinical trials starting at an accelerated pace in the second half of July.
On 22nd Jan. 2021, as per Mint single dose, Johanson & Johnson vaccine could soon move to regulators as it has sufficient data from its late-stage Covid-19 vaccine. J&J had previously said it would have a first chance to review data from its late-stage trial of 45,000 volunteers in the last week of January or the first week of February, consistent with Mr. Antony Fauci’s, the government’s top infectious disease doctor, timeline.
From there, J&J would need one to two weeks to analyze the data and prepare documents for regulators in the U.S. and elsewhere seeking emergency-use authorization, if the data demonstrates the shot’s safety and efficacy, Chief Scientific Officer Paul Stoffels told Bloomberg on Jan. 12.
Pfizer Inc. and its partner BioNTech SE, for example, submitted such an application for the two-dose Covid-19 vaccine regimen on Nov. 20. The FDA then convened a panel of outside experts, known as the Vaccines and Related Biological Products Advisory Committee, on Dec. 10. The Pfizer-BioNTech vaccine was cleared for use on Dec. 11, three weeks after the companies’ submission.
J&J’s progress is being closely watched by infectious-disease experts because its vaccine has the potential to become the first that can protect people after just one shot, making mass-vaccination campaigns easier.
Disclaimer: The purpose of this document is purely educational in nature. All information has been sourced from publicly available data such as annual reports and news items and the veracity of the sources has not been independently established.
