Rank: #2 (Last year: #2)
$26.99 Billion ($81.6B total)
Prior Fiscal: $26.59 Billion
Percentage Change: +1.5%
No. of Employees: 135,100 (total)
Global Headquarters: New Brunswick, N.J.
Alex Gorsky, Chairman and CEO
Joaquin Duato, Vice Chairman
Paulus Stoffels, Vice Chairman, Chief Scientific Officer
Joseph J. Wolk, Exec. VP and CFO
Ashley McEvoy, Exec. VP, Worldwide Chairman, Medical Devices
Kathryn E. Wengel, Exec. VP, Chief Global Supply Chain Officer
Michael H. Ullmann, Exec. VP, General Counsel
Ronald A. Kapusta, Corporate Controller, Chief Accounting Officer
There’s no escaping the Credo.
It’s literally everywhere in Johnson & Johnson’s world headquarters building—inscribed on an 8-foot-tall limestone slab in the structure’s expansive front lobby, mounted in all offices and conference rooms, supersized for reference within the CEO’s workspace, posted at all significant company-sponsored events, and featured prominently in the annual report. It’s also present at all employee work stations and in the homes of most long-serving staff (that practice ended in 2006). Moreover, the Credo (pronounced “cray-dough”) appears in book form (a compilation of 65 copies from various countries), and the document itself has been translated into 35 languages/dialects for placement in 800 facilities worldwide.
The Credo truly is everywhere. But its purpose extends well beyond sheer decoration. The document serves as inspiration for regular company-wide events like “Credo challenges,” (similar to corporate crisis drills) where executives analyze business decisions through Credo parameters and biennial surveys that solicit input on J&J’s overall consummation of Credo standards.
“Our Credo has been a guiding light for our entire organization...” J&J Chairman/CEO Alex Gorsky said in a company-sponsored Q&A late last year. “Through periods of immense change, it clearly conveyed a set of values that influenced not only what we needed to achieve, but also the actions we needed to take to reach those achievements.”
Indeed, J&J’s Credo is a blueprint of the company’s principles—a moral compass, so to speak, that guides all collective actions. Although its origins can be traced to J&J’s founding, the Credo didn’t become an official document until 1943, when the late president/Chairman Robert Wood Johnson II reluctantly decided to take the company public. Concerned that market pressures and sales would eventually compromise corporate values, Johnson penned a 308-word mission statement establishing J&J’s now-iconic “patients before profits” ideology.
Such a hierarchy—patients first, followed by employees, communities, and shareholders (in that order)—might seem counterproductive to the very notion of capitalism, particularly considering J&J’s $81.6 billion healthcare empire wasn’t built entirely on goodwill. Yet history has clearly proven the value of adhering to Credo dogma.
It was the Credo, after all, that turned one of J&J’s darkest moments into perhaps its greatest triumph, rescuing the company’s sullied reputation after cyanide-laced extra-strength Tylenol capsules killed seven Chicago-area residents in the fall of 1982; the deaths, consequently, reduced J&J’s share of the $1.2 billion global analgesic market by five-fold (from 35 percent to 7 percent).
Guided by its patient-first philosophy, J&J initiated a $100 million national recall of Tylenol and re-launched the product two months later in tamper-proof packaging. The company’s honest, transparent approach to the ordeal is considered the gold standard in corporate crisis management, and has served as the basis for numerous business school case studies over the last three decades. More importantly, however, the Credo-inspired remedy saved both J&J’s reputation and the Tylenol brand: By the end of 1983, J&J (via Tylenol) had reclaimed its 35 percent share of the worldwide analgesic market.
“The Credo is structured in such a way that if we serve the patient, we will always do well. If you truly want to serve your shareholders, you should keep the patient in mind,” Kate Merton, head of Johnson & Johnson Innovation, JLABS New York, Boston, and Philadelphia, told Forbes in January. “If you want to help your employee base, you should keep the patient in mind. If we lose track of what we are really here for, then both of those groups will fail, and we will fail as a business to generate revenue and give a return to our shareholders.”
J&J reinforced its allegiance to patients and employees last year by giving the 75-year-old Credo a 21-century makeover, tweaking the document’s language to foster better job fulfillment, and a more diverse, healthy, inclusive workforce. The company also added phrasing to address the changing healthcare ecosystem and the importance of improved global access to medical care.
“...Our Credo is a living and breathing document. It’s both timely and timeless. Several times over the years, we’ve revised it slightly to ensure it remains just as forward-thinking as the day it was introduced,” Gorsky noted in the company Q&A. “In 1987, the last time changes were made, the word ‘fathers’ was added to accompany ‘mothers’ in the first paragraph, and a nod to work/life balance was included...Each time Our Credo has been updated, it has reflected the changing world in which we live and operate.”
The Credo’s most recent updates likely were inspired by the rapid rise of digital health and data analytics—the building blocks of connected, personalized care solutions. J&J has invested heavily in these areas in recent years to remain on the forefront of the digital revolution, devising mobile apps for joint pain and blood glucose management, as well as an online ecosystem for knee surgery consults. The company also is developing a digital surgery platform through its well-publicized partnership with Alphabet’s life sciences arm, Verily; details of the project are scant, but the technology reportedly combines robotics, visualization, advanced instrumentation, data analytics, machine learning, and Cloud-based connectivity to create a solution that will rival the likes of Intuitive Surgical’s da Vinci robotic system.
Currently slated for debut next year, the Verily innovation is destined to become a cornerstone of J&J’s digital surgery platform and boost the company’s role in the burgeoning medical robotics arena. J&J fortified that role last year with the February 2018 acquisition of Orthotaxy, a privately held developer of software-enabled surgical technologies, including a robotic-assisted surgery solution.
Like its Verily-developed counterpart, the Orthotaxy robotic system has a 2020 launch date. And while it certainly qualifies as a medical “robot,” the device in no way resembles other systems currently in use: It’s small, portable, and does not use disposable instruments (a potential cost savings of $1,500-$2,500 per procedure). Also, no CT scans or special technicians are required to design and execute the surgical plan.
“We took our time looking at robotics. What we were looking for in robotics was something that really would move the needle in terms of outcomes, without interrupting workflow or adding to the complexity of a procedure,” Euan Thompson, Ph.D., J&J’s global head of R&D, Digital Technology, and Innovation, told In Vivo last July. “We see large, cumbersome systems in the million-dollar range that have to be wheeled into the OR for each procedure, get in the surgeon’s way and very often require support from a dedicated team to enable the surgeon to operate it. We didn’t want to go in that direction. When we found the Orthotaxy system, we believe we saw a very different type of robot—a platform rather than a system.”
ANALYST INSIGHTS: With its shared $450 million investment (with Google Verily) in robotic company Verb Surgical, J&J is another entity with a heavy commitment to robotics in its future. They will have a challenge to displace industry robotic leader Intuitive Surgical in general surgery. In orthopedics and spine segments, their competitors are also ahead in robotic assist platforms—creating pressure on the DePuy division to continue to make investments for its future ability to compete in these areas.
—Dave Sheppard, Co-Founder and Managing Director, MedWorld Advisors
“The concept can be applied to different techniques,” he continued. “In total knee replacement, the end effector is a guide system that is continually adjusting the guide block, with the surgeon remaining in control and using the saw through the guide block. The surgeon is doing the cut, but the accuracy is being controlled by the robotic alignment assisted by the continuously updating Orthotaxy system. In spine procedures, the saw guide block would be replaced with a drill guide component—the system refreshes in the same way for, say pedicle screws, to continuously guide alignment. It’s a modular concept. It doesn’t get in the way of work flows. We’ve found it easy to use, intuitive and extremely accurate. This is what we feel is the future.”
J&J is banking heavily on that future to rescue its underwhelming Medical Devices business. Despite increasing its total sales last year, the struggling unit posted the lowest growth rate among the healthcare behemoth’s three major product segments—total revenue rose just 1.5 percent (1.1 percent operational) to $26.99 billion in 2018, trailing the 1.8 percent hike in Consumer proceeds and the 12.4 percent jump in Pharmaceutical sales.
Growth was inconsistent throughout the segment, with solid gains in Surgery, Vision, and Interventional Solutions (previously Cardiovascular) offset by losses in Orthopaedics and Diabetes Care. The latter product franchise posted the largest deficit in 2018 ($606 million), thanks primarily to the $2.1 billion divestiture of J&J’s LifeScan business last spring. Inherited via the 2005 Animas Corporation acquisition, LifeScan developed and sold blood glucose monitoring products (meters, testing strips, lancets), point-of-care testing devices, and integrated digital solutions under the OneTouch brand. The business served nearly 20 million patients in more than 90 countries.
LifeScan’s sale nearly completes J&J’s retreat from the lucrative but increasingly competitive diabetes care market. In the fall of 2017, the company shut its insulin pump manufacturing unit (Animas) and consigned customers to rivals Medtronic plc, Insulet Corporation, and Tandem Diabetes Care Inc. With LifeScan gone, J&J has only a few assets in the space, namely, offerings in bariatric surgery, its SGLT-2 inhibitor Invokana (canagliflozin), and related products.
“...following a thorough review of all strategic options, we feel confident the [LifeScan] business would have a promising future with Platinum Equity,” Ashley McEvoy, company group chairman for consumer Medical Devices, said when J&J was first approached about the sale in March 2018. “This initiative is part of our ongoing, disciplined approach to portfolio management to focus on our most promising opportunities to help patients and drive growth.”
Those opportunities clearly resided last year in surgical products, contact lenses, electrophysiology devices, and atrial fibrillation treatment, according to J&J’s 2018 annual report. Surgery franchise sales increased 3.6 percent to $9.9 billion, with growth fueled by gains in two of its three product divisions.
Advanced Surgery proceeds swelled 6.5 percent to $4 billion amid solid demand for endocutter, biosurgery, and energy devices, while General Surgery revenue climbed 2.1 percent to $4.55 billion. Specialty Surgery finances, on the other hand, flatlined at $1.34 billion, owing largely to stagnant sales in Ethicon Inc.’s Advanced Sterilization Products (ASP) business, a provider of equipment, consumables, and software used in low-temperature terminal sterilization and high-level surgical instrument disinfection.
Such languor ultimately inspired another round of portfolio molting last summer. With negotiations barely underway in the LifeScan deal, J&J agreed to unload the ASP unit to Everett, Wash.-based Fortive Corporation for $2.8 billion. The sale—which closed only three months ago—marked the company’s fifth major divestment in as many years and further proves J&J’s dedication to portfolio optimization. Since 2014, the company has shed underperforming business units like Ortho-Clinical Diagnostics, Cordis, Codman, and Animas, in order to focus on more profitable medical technologies. “As we balance the interests of all our stakeholders to deliver the greatest value to customers, health care providers, and shareholders, we must continuously assess strategic fit and explore alternatives for our businesses,” Shlomi Nachman, company group chairman for Interventional Solutions and Specialty Surgery, said in announcing the ASP sale in June 2018.
Such a strategy is likely to continue as J&J strives to reinvigorate growth in its medtech unit. Hence, Orthopaedics might be next on the chopping block unless the franchise can stop hemorrhaging profits: Annual sales have tanked 8.17 percent since 2015, with Spine the worst offender (down 16.4 percent). Last year, Orthopaedics revenue fell 1.9 percent to $8.88 billion, as losses in Knees and Spine offset gains in Hips and Trauma. Knee proceeds slipped 1.4 percent to $1.5 billion due to U.S. competition, but the decline was somewhat muted by growth in Asia-Pacific, according to J&J’s annual report. Spine’s 7.3 percent sales slide (to $3.26 billion) resulted mostly from market share loss and lingering effects of the Codman Neurosurgery divestment in 2017. Contrarily, new products fueled Hip and Trauma sales growth—1.7 percent and 3.2 percent, respectively.
The Vision franchise was J&J’s second-best performing unit in fiscal 2018 (year ended Dec. 31), growing revenue 12.1 percent to $4.55 billion on solid sales of contact lenses and cataract surgical products. Surgical proceeds, in fact, posted the best annual growth in the Medical Devices segment, surging 21.8 percent to $1.25 billion; contact lens revenue was a distant second, ballooning 8.8 percent ($3.3 billion) due to robust demand for OASYS astigmatism and daily disposable contact lenses.
J&J is attempting to increase that demand with new light-sensitive, vision-correcting contact lenses it developed in partnership with Transition Optical. Named one of the best inventions of 2018 by Time magazine, the contacts (ACUVUE OASYS with Transition Light Intelligent Technology) contain a photochromic filter that continuously balances the amount of light entering the eye for maximum comfort and protection against blue light and ultraviolet rays.
“This innovation was born out of deep research into consumer lifestyle needs and fits our future-forward approach to caring for human sight,” Dr. Xiao-Yu Song, global head of R&D for Johnson & Johnson Vision, said in unveiling the new lenses. “ACUVUE OASYS with Transitions creates and defines an entirely new category of contact lenses that will address unmet needs for patients.”
Addressing unmet patient needs helped the Interventional Solutions franchise achieve double-digit growth last year. Revenue spiked 15.2 percent to $2.64 billion on strong electrophysiology product demand, higher numbers of atrial fibrillation procedures and continued uptake of the company’s THERMOCOOL SMARTTOUCH Contact Force Sensing Catheter, a U.S. Food and Drug Administration-approved device released in August 2016 that pairs contact force technology with a porous tip for optimum efficiency.
“In Medical Devices, consistent sales momentum throughout the year was fueled by Interventional Solutions, Advanced Surgery and Vision,” Gorsky told analysts during an earnings conference call earlier this year. “We promised improved performance starting in 2018, and our team is delivering on this promise by improving our cadence of innovation, coupled with continued portfolio optimization...that we expect will further augment our future growth.”
That cadence of innovation produced 21 major product launches last year in the Medical Devices segment. Some of the more notable debuts included:
- SURGICEL Powder Absorbable Hemostat, a powdered adjunctive hemostat designed to help surgeons control disruptive bleeding more efficiently. The powder spreads across broad surfaces to quickly stop bleeding (reportedly in 30 seconds, 89 percent faster than rival products). The powder also provides surgeons with added handling and versatility for various procedures.
- TruDi Navigation System, a real-time, 3D image-guided navigation system designed for ENT (ear, nose, throat) procedures. TruDi is designed specifically for intranasal and paranasal image-guided navigation procedures, though it also enables the use of the RELIEVA Spinplus Nav 3D navigation-enabled balloon sinuplasty system for treating chronic sinusitis.
- Ethicon’s Bariatric Revision Surgical Solution, a portfolio featuring bariatric revision surgery training and education packages as well as the HARMONIC HD 1000i Shears for dissection and tissue sealing; the ECHELON FLEX GST stapler, STRATAFIX Knotless Tissue Control Devices for suturing, and SURGICEL SNoW Absorbable Hemostat.
- MENTOR Worldwide LLC’s CPX4 Breast Tissue Expanders with a smooth surface for easy insertion and removal. The device also features additional suture tabs for better fixation and minimal rotation risk in subcutaneous and submuscular breast reconstruction procedures.
- DePuy Synthes’ ACTIS Total Hip System, an implant suitable for both tissue-sparing (Anterior) and traditional approaches in hip replacements. The product incorporates features like a medial collar, triple-taper geometry, and 12 sizes to allow for a precise anatomical fit.
- SENTIO MMG, a digital mechanomyography platform designed to assess nerve status and identify and avoid peripheral nerves during spine surgery. SENTIO’s platform uses adhesive smart-sensors that are applied to the skin and provide surgeons with real-time feedback on nerve location. The technology has a minimal O.R. footprint and eliminates the need for a neuromonitoring specialist to be present during surgery.
- EMBOTRAP II Revascularization Device, a stent retriever made to capture and retrieve blood clots from the brain after an ischemic stroke. Manufactured by Cerenovus, the device is most effective within eight hours of the onset of stroke symptoms. The best candidates for treatment with EMBOTRAP II are patients who are ineligible for intravenous tissue plasminogen activator (IV t-PA) or who fail IV t-PA therapy.