It's difficult to get well without Johnson & Johnson (J&J). The diversified health care giant operates in three segments through more than 275 operating companies located in some 60 countries. Its Medical Devices and Diagnostics division offers surgical equipment, monitoring devices, orthopedic products, and contact lenses, among other things. J&J's Pharmaceuticals division makes drugs for an array of ailments, such as neurological conditions, blood disorders, autoimmune diseases, and pain. Top sellers are psoriasis drug Remicade and cancer medication Velcade. Its Consumer business makes over-the-counter drugs and products for baby, skin, and oral care, as well as first aid and nutritional uses.
While the US and Europe represent the company's largest markets (accounting for about 45% and 25% of sales, respectively), the firm has been working to expand its presence in markets in Asia (especially China) and other regions that are emerging as high-growth opportunities.
J&J prides itself on its decentralized operating structure, with the management teams of its myriad and far-flung operating units having wide latitude to make decisions. Each company belongs to one of J&J's three broad divisions: The Pharmaceuticals and Medical Devices segments each account for about 40% of sales, while the Consumer division contributes about 20% of annual revenues. J&J's diversified business model also allows for some insulation against troubles in any one market. For instance, growth in the Medical Devices segment, coupled with lagging sales in the Pharmaceuticals segment, led Medical Devices to pass Pharmaceuticals as the company's top revenue and profit earner each year from 2009 to 2012.
In its ever-expanding Medical Devices and Diagnostics division, many operating companies -- including surgical supplies companies Ethicon and Ethicon Endo-Surgery, orthopedics device maker DePuy, and vision care subsidiary Vistakon-- have experienced strong sales growth. The division also includes the LifeScan diabetes care unit, which includes the growing Animas insulin delivery offerings, and Cordis, a maker of cardiovascular products.
Operating companies in the Pharmaceuticals division include Janssen Biotech (formerly Centocor Ortho Biotech), Janssen Pharmaceuticals, and Noramco. Remicade is the company's top earner, bringing in more than $6 billion in annual sales; in addition to psoriasis, the drug treats Crohn's disease, rheumatoid arthritis, and ulcerative colitis. In addition, key drugs earning over $1 billion annually are Procrit (sold internationally as Eprex), schizophrenia medication Risperdal Consta, cancer treatment Velcade, attention deficit drug Concerta, AIDS therapy Prezista, and plaque psoriasis drug Stelara.
Through its selective expansion efforts and cost-control programs, J&J has managed to maintain a healthy bottom line in recent years despite challenges including recalls and patent losses on key pharmaceuticals. After two years of decline, the company returned to revenue growth in 2011. Revenues rose again in 2012 by 3% to some $67 billion due to higher sales in the pharmaceutical and medical device segments, both in the US and internationally, as well as from acquisitive growth efforts. Sales in the consumer products segment declined 3% due to divestitures, competitive pressures, and ongoing manufacturing issues within the McNeil Consumer Healthcare unit.
After a dip in net income levels in 2011 (largely due to restructuring, recall, acquisition, and product litigation expenses), J&J experienced 12% profit growth in 2012 to some $10.9 billion on higher revenues and lower expenses.
The units of the Medical Devices division have been vigilantly working to sustain growth by developing and launching new product offerings in recent years. For instance in 2011 Ethicon released new Physiomesh and Securestrap surgical offerings, and the Biosense Webster unit launched a new electrophysiology catheter, Thermacool, in 2012. J&J spends some $1.7 billion annually on R&D efforts within the Medical Devices segment.
J&J spends another $5.4 billion on its Pharmaceuticals segment's R&D pipeline in an effort to fight off the drug industry's biggest challenge: patent expiration. The company aims to launch a number of new drugs to replace former bestsellers in areas including immunology, pain, cardiology, infectious disease, and neurology. In 2012 J&J gained FDA approval for Sirturo for pulmonary, multi-drug resistant tuberculosis. J&J also works to add new indications for existing drugs, such as Xarelto, which was approved to treat deep-vein thrombosis and pulmonary embolism in 2012. Fighting generic competition will be a continuing challenge as more products fall off patent; for instance, top sellers Concerta and Levaquin (an anti-infective also known as Floxin) lost their patent protection in 2011.
In response to patent protection losses, as well as other competitive and product safety challenges, J&J completed a number of restructuring and cost-cutting programs between 2009 and 2011, including divestitures, workforce reductions, and manufacturing plant consolidations. In addition, in 2013 it agreed to sell three consumer women's health brands (Carefree, o.b., and Stayfree) to Energizer for $135 million. Continuing to narrow its focus on core businesses in high-demand product areas, in 2014 J&J sold its Ortho-Clinical Diagnostics business to The Carlyle Group for about $4 billion.
Mergers and Acquisitions
While it continues to streamline its businesses for optimal performance, J&J is also keeping pace with its acquisition strategy by pursuing company purchases both large and small.
One large acquisition came when J&J acquired orthopedic medical device maker Synthes for a whopping $20 billion in mid-2012. The purchase expanded the company's operations in the areas of trauma (bone screws and plates), spinal implants, tissue repair, and surgical power tools. J&J is integrating Synthes into its DePuy subsidiary to form the DePuy Synthes Companies of Johnson & Johnson organization. The new entity is not only the largest business within J&J's medical and diagnostic segment, it is also the top global orthopedics device manufacturer.
Like other drug and device makers, the company's emerging market strategy led to expansion in China in 2012 through the purchase of private surgical supply company Guangzhou Bioseal Biotechnology (Bioseal); the acquisition complements the Ethicon biosurgery product portfolio available in China.