Johnson & Johnson

views updated

Johnson & Johnson

founded: 1887

Contact Information:

headquarters: 1 johnson & johnson plz.
new brunswick, nj 08933 phone: (732)524-0400 fax: (732)524-3300 url: http://www.jnj.com

OVERVIEW

Johnson & Johnson is the world's leading manufacturer of health-care products for the consumer, pharmaceutical, and professional markets. The New Brunswick, New Jersey-based company produces literally hundreds of products, some well-known to a wide consumer market, such as Band-Aids and Tylenol, and others recognized for their specialty uses, like OrthoNovum contraceptives and Retin-A dermatological medicine. Still other products, such as wound closure and cardiology products, are known only among medical specialists. The company holds the top spot in many worldwide markets, including disposable contact lenses and blood glucose testing products.

Johnson & Johnson credits a steady stream of new products for fueling its growth. Accordingly, the company ranks among the top 10 companies in the United States for expenditures on research & development (R&D). More than one third of 1997 revenue for Johnson & Johnson came from newly introduced products.

COMPANY FINANCES

Johnson & Johnson reported $22.63 billion in sales for 1997, up 4.7 percent over 1996's $21.62 billion. Net income rose 14.2 percent, from $2.89 billion in 1996 to $3.30 billion in 1997. During a 52-week period from May 1997 to May 1998, Johnson & Johnson's stock reached a high of $77 and a low of $53. The company pays an annual dividend of $1.00 per share.

The company boasts spending more than $8 billion for R&D from 1992 to 1997, including $2 billion for R&D in 1997 alone. The R&D pays off—36 percent of sales came from new products in 1997.

ANALYSTS' OPINIONS

Johnson & Johnson, and its stock, have often received high praise in the national press. In March 1997, Fortune magazine rated Johnson & Johnson number six among "America's Most Admired Companies." Michael Sivy, in Money magazine's 1997 supplement, predicted the company's stock would enjoy 16 percent or higher growth rates in 1997. Black Enterprise's Bruce Hawthorne expressed high faith in the growth potential of Johnson & Johnson stocks, as did a number of other financial commentators in 1996 and 1997.

Less attractive was an ongoing battle between Johnson & Johnson's Tylenol brand and rival American Home Products' Advil brand. Many observers condemned both companies for their negative advertising campaigns. Thomas Petzinger, writing in the The Wall Street Journal in October 1996, expressed dismay over Johnson & Johnson's treatment of a small Canadian medical supplies firm, Hart Surgical Inc., whose distribution rights he says the company unfairly appropriated.

HISTORY

In the mid-1800s the concepts of germs and of sterilization against them were novel ones. In 1876 when English surgeon Joseph Lister spoke of germs as "invisible assassins," he still sounded like an alarmist; but one listener who took him seriously was the young American entrepreneur Robert Wood Johnson. Johnson envisioned the use of a practical, sterile surgical dressing, which could be individually wrapped and sealed for use as needed in the operating room. In 1885 he and brothers James Wood and Edward Mead Johnson established a Brunswick, New Jersey, company to produce just that. In 1887 they incorporated their enterprise as Johnson & Johnson.

Johnson & Johnson began mass-producing cotton and gauze dressings for sale throughout the country. The company also published a book in 1888, Modern Methods of Antiseptic Wound Treatment, to teach the new practices of maintaining a sterile operating room. In 1897 Edward left and later established the drug company Mead Johnson, which eventually became part of Bristol-Myers Squibb. Robert died in 1910 and James succeeded him as company president. During this era the company introduced its most famous product, Band-Aids, in 1921. The company also established its first foreign affiliate in Canada in 1923, as well as its first one overseas, Johnson & Johnson Ltd. of Great Britain, established in 1924.

Robert Wood Johnson, Jr. took the helm in 1932. Johnson, who would later serve as a general during

World War II, established the strategic principles of decentralization and community service embodied in the company Credo, which continued to prevail into the 1990s. In 1960 Johnson & Johnson introduced perhaps its second most well-known product, the pain-reliever Tylenol.

During the 1980s the company expanded into such product markets as acne medicine, with Retin-A, and contact lenses, with Acuvue. At the end of the decade, it entered into a joint venture with Merck for the marketing of Mylanta antacid medicine. With the fall of Communism, it began selling its products in eastern Europe, and by 1993 it had two facilities in China as well. In 1994 it purchased the Neutrogena line of skin- and hair-care products. The company introduced several revolutionary products in 1996, including Renova wrinkle-reducing cream and the Confide home HIV test. In 1998 Johnson & Johnson strengthened its commitment to women's health with the purchase of two companies: Biopsys, which makes products for minimally invasive breast biopsies; and Gynecare, which markets minimally invasive medical devices for treating uterine disorders.

STRATEGY

Company president Robert Wood Johnson, Jr. (sometimes referred to as General Johnson) established the company strategy as one of decentralized operations. Instead of growing the central company until it became an unwieldy bureaucracy, he encouraged the establishment of semi-autonomous divisions and affiliates. Thus, the company is said to have as many subsidiaries as it has products. Johnson & Johnson has often acquired other businesses, some of them well known, such as Neutrogena, others involved in specialty product lines for professional use. Whatever the case, Johnson & Johnson strives to maintain the original company's identity and operational framework as much as possible; the company is as likely to enter into a joint venture with another corporate entity as it is to acquire that entity.

This practice of staying loose and flexible has helped it to maintain a competitive edge. When Fortune magazine rated Johnson & Johnson sixth out of 431 top U.S. companies in 1997, it cited innovation as the most important secret behind a company's success.

Looking beyond 1998, Johnson & Johnson feels to stay a strong, financially sound company, it must be a leader in the healthcare industry. The company plans to focus on patented advances, driven by technology, which usually have high profit margins. The areas the company sees ripe for growth are skin care, vision care, wound care and healing, diabetes, nutraceuticals, circulatory diseases, minimally invasive therapies, urology, and women's health.

INFLUENCES

General Johnson remained the leading influence on the company many decades after he stepped down from its leadership. In addition to his principle of decentralization that would continue to guide the company's operations, he framed its prevailing values in a succinct statement known as "The Credo," which Johnson & Johnson's corporate literature continues to quote in the late 1990s. The Credo lists four groups to whom the company is responsible—its customers, its employees, the community and environment, and its stockholders.

FAST FACTS: About Johnson & Johnson

Ownership: Johnson & Johnson is a publicly owned company traded on the New York Stock Exchange.

Ticker symbol: JNJ

Officers: Ralph S. Larsen, Chmn. & CEO, $2,593,371 1997 base salary; Robert N. Wilson, VC, $1,752,594 1997 base salary; Ronald G. Gelbum, Worldwide Chmn., Pharmaceuticals & Diagnostics Group, $965,014 1997 base salary; James T. Lenehan, Worldwide Chmn., Consumer Pharmaceuticals & Professional Group, $949,380 1997 base salary

Employees: 91,400

Chief Competitors: Because of its diverse product line, Johnson & Johnson competes with multinational companies in a variety of industries including manufacturers, wholesalers, and retailers of pharmaceutical and health care products. Competitors include: American Home Products; Bristol-Myers Squibb; Eli Lilly; Kimberly-Clark; Procter & Gamble; and Smith-Kline Beecham.

When a saboteur put cyanide in several bottles of Tylenol in 1983 and eight people died, it could have been the company's downfall. However, Johnson & Johnson handled the crisis in a forthright manner by recalling 31 million bottles and, in the process, spending $240 million, partly on a public relations campaign. The way the company took public responsibility for the product, then introduced a new tamper-resistant cap is now considered a classic business school study on crisis management.

While Johnson & Johnson received praise for its handling of the cyanide crisis, observers question the company's handling of other problems with Tylenol. It seems acetaminophen, the main ingredient in Tylenol, can cause serious problems or even death in doses not much higher than what is recommended. The company has defended over 100 lawsuits against the product, winning some, but losing or settling most. While Johnson & Johnson has been adding more warning labels to the product, some think the company should prominently explain to consumers the extreme consequences of taking too much Tylenol, or Tylenol in combination with certain products. The use of a dosage diary has also been recommended.

CURRENT TRENDS

In the mid-1990s Johnson & Johnson began marketing three revolutionary products. Disposable contact lenses entered the market in 1993, and in 1996 the company won FDA approval for Renova, believed to have a significant wrinkle-reducing effect. Potentially most history making, however, was Confide, the first home HIV test. With home testing becoming a more commonplace event, Johnson & Johnson continually updates its products to make them even more accurate. Hot home testing kits include those for pregnancy, ovulation, blood-sugar, and HIV.

Another leading trend for Johnson & Johnson in the late 1990s was litigation. The most notorious case, in late 1996, involved Confide itself. According to a suit brought by Elliott J. Millenson, the owner of the firm that had invented the breakthrough home HIV test, Johnson & Johnson owed Millenson all returns on sales of the product because the company had fired him without cause, thus violating their contract. Johnson & Johnson was found guilty of firing Millenson without cause and had to return all assets to him. Other complaints included charges in October 1996 that the McNeil Consumer Products division, makers of Tylenol, had misled consumers by marketing its pain relievers with the name of the American Arthritis Foundation on them; and a September 1996 lawsuit by Boehringer Mannheim, which claimed that Johnson & Johnson subsidiary LifeScan had stolen important research documents.

Litigation, and the high costs brought on by it, may be an almost inevitable by-product of the medical and pharmaceutical business; however, it is extremely unfortunate given the high costs for research and development faced by companies such as Johnson & Johnson. As the professional journal R&D reported in October 1996, research and development costs were growing at a faster rate than that of inflation.

CHRONOLOGY: Key Dates for Johnson & Johnson

1885:: James Wood and Edward Johnson establish Johnson & Johnson
1887:: The company incorporates
1888:: Modern Methods of Antiseptic Wound Treatment is published by the company
1897:: Edward Johnson leaves to establish a drug company
1921:: Band-Aids are introduced
1949:: Johnson & Johnson develops a separate division for the suture business
1959:: McNeil Laboratories is acquired
1960:: Tylenol is introduced
1981:: Frontier Contact Lens is acquired
1989:: Johnson & Johnson form a joint venture to manufacture non-prescription products
1994:: Purchases the Neutrogena line of skin care products
1996:: Confide home HIV test is introduced
1997:: Johnson & Johnson is rated sixth out of 431 large U.S. companies by Fortune magazine

PRODUCTS

Johnson & Johnson has more product divisions than most companies have products. These fall generally under the headings of consumer goods, contributing 29 percent of sales; pharmaceuticals, 34 percent of sales; and professional products, 37 percent of sales. The most profitable line is the pharmaceuticals, since the products in that category contributed 56 percent of Johnson & Johnson's net income.

Consumer goods include analgesics, baby care products, contact lenses, feminine hygiene products, first aid products, gastrointestinal products, oral care products, and skin and hair care products. In early 1998 Johnson & Johnson acquired international marketing rights to Benecol, a margarine with an ingredient that reduces cholesterol. In mid-1998 the Food and Drug Administration (FDA) allowed the company to use sucralose, a zero-calorie sweetener, in 15 products. In 1998 Johnson & Johnson planned to introduce disposable contact lenses for those with bifocal and toric prescriptions.

Pharmaceuticals include antibacterials, antifungals, antipsychotics, and family planning products. In 1997 the company introduced Levaquin for treatment of bacterial respiratory illnesses such as community-acquired pneumonia. In 1998 there were plans to introduce Smartstrip, which will allow diabetics to get accurate blood sugar readings without a monitor.

Professional product lines include asepsis/sterilization, biotechnology, diagnostics, endoscopic surgery, interventional cardiology, orthopedics, and wound closure products. In 1998 Johnson & Johnson introduced its second-generation coronary stent, the Palmaz-Schatz Crown Stents. The company is developing crush-resistance stents, stents that will deliver low radiation doses to arteries, and stents that have plaque-fighting medicines already in them.

CORPORATE CITIZENSHIP

Johnson & Johnson, in adherence to its Credo, attempts to "do well by doing good," as one of its brochures states. For instance, the "Focused Giving Program" puts money into biomedical research, which can help find cures for diseases while also opening up profit potential for the company and its shareholders.

The company sponsors a myriad of programs for the community and the environment. Workers in parts of the country participate in "Christmas in April," in which they assist needy local homeowners with repairs, maintenance, and cleaning. The company also supports such charities as the United Way, SAFE KIDS (education for accident prevention), several local arts initiatives, the LIVE FOR LIFE nursing education program, Bridges to Employment (which encourages potential high-school dropouts to explore careers in health care), the Arthritis Foundation, various environmental activities, and global relief for victims of natural disasters.

GLOBAL PRESENCE

Johnson & Johnson has facilities in 50 countries and sells its products in 175 countries worldwide. Of 1997's $22.63 billion in sales, 52 percent were in the United States, 26 percent in Europe, 13 percent in Africa, Asia, and the Pacific, and 9 percent in Canada and Latin America. The Asian market, especially in China, was a ripe area for growth in the latter part of the twentieth and the beginning of the twenty-first century.

EMPLOYMENT

The second item in the four-part Credo that governs Johnson & Johnson's values relates to creating a positive work environment for its employees. Company literature states that Johnson & Johnson strives to provide workers with a situation in which they feel encouraged to make suggestions or even just to complain.

One concrete initiative the company makes on behalf of its employees—and as a corporate citizen—is called the Volunteer Support Program, whereby the company contributes $2 for every $1 contributed by an employee to a qualifying charity. Also, Johnson & Johnson provides extensive child care and even early childhood education facilities for children of its workers.

SOURCES OF INFORMATION

Bibliography

easton, thomas, and stephen herrera. "j&j's dirty little secret." forbes, 12 january 1998.

greenwald, john. "bitter ads to swallow." time, 1 april 1996.

johnson & johnson. discovering better health care products. new brunswick, nj: johnson & johnson, 1997.

the johnson & johnson home page, 5 may 1998. available at http://www.jnj.com.

"johnson & johnson." hoover's online, 5 may 1998. available at http://www.hoovers.com.

"johnson & johnson outlines 'platforms for growth' increases dividend for 36th consecutive year." company news on call, 11 may 1998. available at http://www.prnews.com.

"johnson & johnson agrees to settlement over arthritis drugs." the wall street journal, 17 october 1996.

petzinger, thomas j. "the front lines: giant j&j gains a sales territory—and a new enemy." the wall street journal, 11 october 1996.

"pharmaceutical companies confront high cost of drug development." r&d, october 1996.

social responsibility in action worldwide. new brunswick, nj: johnson & johnson, 1995.