It's difficult to get well without Johnson & Johnson (J&J). The diversified health care giant operates in three segments through more than 270 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.
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 2013.
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 Synthes, 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 or 9% of total revenue; 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, AIDS therapy Prezista, and plaque psoriasis drug Stelara.
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. In 2013 the company reported that 22% of sales came from emerging markets Brazil, Russia, India, and China. J&J has research facilities in about a dozen countries in North America, Asia, Europe, and the Middle East. It sells its products in about 275 countries.
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 2013 by 6% to some $71 billion due to higher sales in all segments, both in the US and internationally, as well as from acquisitive growth efforts.
After a dip in net income levels in 2011 (largely due to restructuring, recall, acquisition, and product litigation expenses), J&J experienced profit growth in 2012 and in 2013 reported another 27% jump, to some $13.8 billion, on higher revenues and lower expenses.
All that growth lead to a $2 billion increase in cash from operations, from $15 billion to $17 billion.
The units of the Medical Devices division have been vigilantly working to sustain growth by developing and launching new product offerings in recent years. In 2014 Depuy Synthes Products, J&J's orthopedics device maker, combined forces with Tissue Regeneration Systems to use 3-D printing in the development of patient-specific large bone implants that can be absorbed by the body once the bone has healed.
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. For instance, in 2014 the Janssen Pharmaceuticals unit was granted approval for Invokamet to treat type 2 diabetes. It combines J&J's existing Invokana diabetes treatment, which promotes the loss of glucose in urine, with a drug that decreases production of glucose in the liver and improves the body's insulin response. 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.
The Consumer segment has been troubled by supply issues that the company has been addressing. It ended 2013 with the top OTC sellers for adults and children with its Tylenol and Motrin products. J&J is counting on its Neutrogena, Listerine, and Johnson's Baby brands to deliver growth for the segment going forward.
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 sold 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 integrated Synthes into its DePuy subsidiary. The new entity is not only the largest business within J&J's Medical Devices and Diagnostics 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.
In 2013 J&J purchased drug discovery and development firm Aragon Pharmaceuticals, which focuses on hormone-driven cancers. The following year Janssen Pharmaceuticals acquired Covagen AG, a biopharma company specializing in protein therapies. It also bought Alios BioPharma, which is developing a treatment for pediatric respiratory synctial virus (RSV), a respiratory viral infection.