Prior Fiscal: $26.99 Billion
Percentage Change: -3.8%
No. of Employees: 132,200 (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, Executive VP and CFO
Ashley McEvoy, Executive VP, Worldwide Chairman, Medical Devices
Kathryn E. Wengel, Executive VP, Chief Global Supply Chain Officer
Michael H. Ullmann, Executive VP, General Counsel
Robert J. Decker Jr., Corporate Controller, Chief Accounting Officer
Matthew Orlando, Corporate Secretary
and Worldwide VP, Corporate Governance
Red is the color of passion. It is energizing, daring, intimidating; it denotes vitality and warmth. It can be intoxicating and empowering, all at once. Red is power. Red is strength. Red is never boring.
Red also commands attention: It can signify violence (blood), danger, and anger. It evokes compassion and curiosity, and is the prime spectrum color scientifically linked to a quicker pulse, higher blood pressure, and increased metabolism.
These physiological changes can partly be attributed to the eye’s photoreceptors, which are particularly sensitive to long-wavelength light (seen as red). “...red is the most visible color,” neuroscientist/artist/color expert Bevil B. Conway, Ph.D., of the National Eye Institute explained to Reader’s Digest. The Harvard University-educated scholar has spent much of his career studying the ways in which color translates across languages.
“There’s overwhelming evidence that red is a special color,” he said. “Of all the colors, across all of the world, in all of the world’s languages, we communicate red most efficiently.”
And quite frequently: Red is one of the top colors of choice in marketing (second only to blue, foundr Magazine reports). Its popularity can partly be attributed to its powers of persuasion—red logos make for strong first impressions, and they can effectively influence consumer behavior. Case in point: Red has been shown to boost hunger; hence its predominance in the food industry (ergo, Arby’s, DQ, Hardees, KFC, Red Robin, Sonic, Wendy’s). The hue also connotes a sense of urgency, which can drive impulse purchases (think H&M, HomeGoods, KMart, Lego, Target, and TJ Maxx).
Indeed, few colors are as electrifying as red—it is efficient, yet dynamic; edgy, yet streamlined. But it can be contradictory too, conveying conflicting feelings of joy-anger, sensitivity-aggression, comfort-danger, and warmth-wrath, depending upon circumstances. Consequently, it takes a back seat to blue in the medical field.
Contrary to its fellow primary pigment, the color of sky, sea, and spring starflowers lowers blood pressure and is an overall calming hue. It conveys strength as well as relaxation; it elicits trust and dependability while also imparting such medically important values as credibility, safety, and cleanliness.
“It should come as no surprise that the leading color used in healthcare marketing and branding is blue,” Deanna Garner, former creative services specialist at Gray Matter Marketing Inc., wrote in an August 2017 company blog. “With associations to trust, dependability, vitality and strength, all healthcare companies can make the argument that blue is a perfect color to represent their values.”
Perfect for some, but not for all. 3M, Aspen Surgical, Canon, Cardinal Health, and Thermo Fisher Scientific are all healthcare blue non-conformists, though they haven’t always sported red logos. Johnson & Johnson, on the other hand, has never bowed to marketing color theory convention.
ANALYST INSIGHTS: Having bought out Google Verily’s share in Verb Surgical, J&J continues on its quest toward having a comprehensive digital surgery platform in all major segments. They will seek to compete with Intuitive in general surgery while creating initiatives in orthopedics to compete with Zimmer Biomet, S&N, and others.
—Dave Sheppard, Co-Founder and Managing Director, MedWorld Advisors
Since its 1886 inception, J&J has incorporated red into its branding, either by name or by symbol. The distinctive cursive of J&J’s logo was modelled after co-founding brother James Wood Johnson’s written signature on an 1887 check; the timing and reasons for making the pseudo-autograph red remain unclear, though it may have been influenced by the company’s use of the American Red Cross symbol during its formative years.
Since its early days, J&J’s affinity for the color of fire, hearts, and roses has only grown; truth be told, the hue is actually more visible than ever now—emblazoned on products (Band-Aids, Tylenol), painted on (office) walls, preserved in furniture, incorporated online (website), and immortalized in the company’s sacred scroll, a.k.a., The Credo.
Created in 1943, the Credo is a blueprint of J&J’s principles—a moral compass, so to speak, that guides its collective actions. Chairman and CEO Alex Gorsky has called the Credo (pronounced Cray-dough) the “red thread” that connects the company’s heritage, workplace culture, and corporate DNA.
That thread remained quite strong in 2019 but showed some signs of fraying. Although J&J increased its shareholder dividend for the 57th consecutive year and boosted pharmaceutical sales 3.5 percent, overall company growth slowed to a crawl, climbing just 0.58 percent—a far cry from the 6.3 percent increase recorded in fiscal 2017 and the 6.7 percent expansion registered in FY18. Gross profit ebbed as well, flatlining at $54.5 billion, and net earnings (both basic and diluted) barely budged, rising just two cents (to $5.72 and $5.63, respectively).
Those dismal statistics are largely a matter of interpretation, though. J&J’s “official” 2019 performance review (filed with the U.S. Securities and Exchange Commission) differs substantially from the version touted publicly by company executives. Their rendition analyzes the numbers from an operational standpoint, thus instantly improving last year’s pecuniary output. For example, the less-than-stellar 0.6 percent sales growth J&J recorded with the SEC swells to 2.8 percent operationally, and its 0.7 percent increase in international revenue balloons to 5.3 percent, with currency impacting results by 4.6 percentage points. Excluding the net impact of acquisitions and divestitures, adjusted operational sales growth was 4.5 percent worldwide, 2.3 percent in the United States, and 6.7 percent internationally.
Earnings improved as well in the operational universe: FY19 net earnings totaled $15.1 billion and diluted earnings per share (EPS) was $5.63. But on an operational basis, adjusted diluted EPS grew 8.8 percent.
“I’m proud to highlight that 2019 marked our 36th consecutive year of adjusted operational earnings growth for Johnson & Johnson. We delivered strong revenue and earnings growth in 2019, exceeding the financial performance that we set at the beginning of the year,” J&J Chairman and CEO Alex Gorsky told investors during a fourth-quarter and full-year 2019 earnings call in late January 2020. “Now we accomplished this while also making strategic investments that advance the pipeline of opportunities and innovation across all three of our business segments.”
One of J&J’s most significant strategic investments last year was the February purchase of surgical robotics developer Auris Health Inc. The $3.4 billion deal—historic from both a robotics and private investment perspective—accelerated the company’s entry into the digital surgery ecosystem.
J&J plans to leverage Auris Health’s FDA-cleared Monarch Platform to expand its digital portfolio across various surgical specialties. Currently used in lung diagnostic and therapeutic procedures, the system features a controller interface for navigating an integrated flexible robotic endoscope into peripheral lung nodules, and combines traditional endoscopic views with computer-assisted navigation based on 3D patient models.
“Consistent with our historical pioneering spirit...we are focused on the next frontier of surgery,” Gorsky noted in J&J’s 2019 annual report. “The acquisition of Auris Health Inc., a developer of robotic.
technologies...accelerated our entry into robotics as part of a digital surgery ecosystem designed to make medical intervention smarter, less invasive, and more personalized to elevate the standard of care. This is a critical component of a digital surgery ecosystem that we are creating.”
Another critical building block of that digital surgery ecosystem is Verb Surgical Inc., a sibling company of Google’s Verily Life Sciences. The entity is now under J&J’s full command following a buyout initiated in December 2019 (terms were undisclosed). The duo joined forces five years ago to incorporate robotics, visualization, advanced instrumentation, connectivity, and machine learning analytics into a digital surgical platform (Surgery 4.0). Verb Surgical subsequently unveiled a robot prototype in late 2016.
In their final months as separate entities, Verb and J&J were preparing for validation studies and had discussed their digital platform with American and European regulatory authorities. The platform itself also was involved in “end-to-end procedures” in multiple general surgery indications, according to J&J executives.
“With Verb Surgical, we set out with an ambitious mission to successfully harmonize the talent and expertise of two pioneers to design a platform with the potential to transform surgery,” Verily CEO Andrew Conrad said in a Dec. 20, 2019, statement announcing the buyout. “This evolution in the collaboration recognizes the significant achievement toward that mission and I’m excited for the future of this technology in Johnson & Johnson’s hands.”
And in those hands, a promising future is likely to emerge —a world in which customized tools, personalization, predictive analysis, minimally invasive robotics, and artificial intelligence (AI) converge to redefine solutions in cancer diagnostics, soft tissue repair, and orthopedics, among other specialties. J&J’s DePuy Synthes unit has gradually been bolstering its prowess in the latter genre in recent years, first acquiring Orthotaxy, Medical Enterprises Distribution LLC, and JointPoint Inc. in 2018, then teaming with Chinese firm TINAVI Medical Technologies last fall to locally co-market and dis- tribute that company’s robotic arm for spine and trauma procedures, and finally tapping Zebra Medical Vision in December 2019 to develop and commercialize three-dimensional imaging technology for orthopedic surgery. The new technology is intended to be an addition to DePuy’s Velys Digital Surgery platform.
The Velys offerings will focus first on joint reconstruction procedures by incorporating existing products like the Kincise automated surgical mallet system and JointPoint’s hip navigation and planning software. DePuy plans to add new technologies to the Velys platform over time, including sensors, apps, robotics, and patient selection tools to address each point along a continuum of orthopedic care, from pre-op planning to post-op rehabilitation and monitoring.
Zebra Medical will work with DePuy’s Ireland-based subsidiary to co-develop and commercialize programs that create 3D models from cheaper 2D X-ray images, thereby enabling surgical planning without needing an MRI or CT scan.
TINAVI’s TiRobot arm incorporates 3D imaging as well, but it also uses optical navigation to pinpoint the precise anatomical location of a surgical procedure. Designed for maximum clinical reach, the arm also can drill holes and insert screws; can function in motorized or manual mode, is surgeon-driven, and has a small footprint. A third-generation form of the machine was approved in China four years ago, around the time of a phase III trial in spinal fusion procedures. J&J claims the TiRobot is the only arm-based robotic technology with multiple indications approved for use in China for spine and trauma fixes.
“I couldn’t be more bullish around how J&J is going to create value in the [digital surgery] space, and really kind of the goal that we’re trying to achieve is really to make medical interventions smarter, less invasive, more personalized, quite frankly to change the standard of care, not just for the next 10 years, but the [next] 20 and 30 years,” Ashley McEvoy, executive vice president and worldwide chairman, Johnson & Johnson Medical Devices, noted during a Q3 conference call last October. “I think we’re seeing the investments we made...having an effect...and clearly in innovation, both in digital surgery, through the Auris acquisition, and what we’re continuing to do with Verb and Orthotaxy, and some robotic programs in spine. We’ve invested about $12 billion in M&A since 2017 in Medical Devices to make sure that we’re playing in the most attractive spaces.”
Those spaces and investments have yet to pay off, though. Profits have historically been fickle in J&J’s Medical Devices business as the company struggles to define its role in a fast-changing healthcare market. Growth has been nominal in the last two fiscal years, with revenue rising 1.5 percent in 2018 (vs. 2017) then slipping 3.8 percent in FY19 to $25.96 billion.
Various factors contributed to last year’s $1.03 billion loss, including a 1.7 percent operational decrease, a 2.1 percent negative currency impact, and lower domestic and international sales. Acquisitions and divestitures also stymied gains, dragging down worldwide operational sales growth by 5.6 percent, according to J&J’s 2019 annual report.
Such sobering declines, however, failed to cloud the sunny portrait Gorsky painted of the Medical Devices unit’s financial health last year. Analyzing results through non-GAAP-colored lenses (they efficiently block out currency effects, special items, one-time M&A charges, and divestiture expenses), he touted the unit’s near-4 percent “underlying growth” and praised the Orthopaedics division’s improved performance.
“Medical Devices accelerated growth once again in 2019. As a result of our relentless focus on execution, improving our cadence of innovation and disciplined portfolio management, our underlying growth was just under 4 percent,” Gorsky said in the annual report. He cited electrophysiology, energy/endocutters, contact lenses, and orthopedics as major drivers of business growth.
Gorsky wasn’t totally off-base in his assessment—those areas were growth engines for the Medical Devices business last year, but their power was somewhat diminished by losses in other product silos. The 13.3 percent surge in Interventional Solutions sales, for instance, was offset by a 4 percent dip in overall Surgery revenue and a 31 percent descent in Specialty Surgery proceeds. The latter decrease primarily resulted from the $2.8 billion divestment of J&J’s Advanced Sterilization Products (ASP) business to Danaher spinout Fortive Corporation. Finalized in April 2019, the deal was part of J&J’s efforts to streamline its portfolio and jumpstart sagging device sales.
ASP manufactures low-temperature sterilization systems to disinfect and clean surgical instruments; its products include the Sterrad line, which uses hydrogen peroxide vapor to kill dangerous pathogens. The company’s 2018 net revenue approached $775 million.
The massive drop in Specialty Surgery sales last year (from $1.34 billion to $926 million) left the Surgery franchise $400 million poorer—revenue fell to $9.5 billion. Contributing to that shortfall was a 1.7 percent decrease in General Surgery proceeds, which were impacted by volatile currency rates, but sales gains in wound closure products averted further damage in the division (revenue totaled $4.48 billion).
Advanced Surgery managed to avoid the Surgery franchise’s financial carnage, as it increased revenue 2.3 percent to $4.09 billion on the strength of its endocutter, biosurgery, and energy products. J&J added to its biosurgical lineup in June 2019 with the U.S. Food and Drug Administration 510(k) clearance of its VISTASEAL applicators (35 cm and 45 cm), which spray a biological sealant to stem moderate bleeding during open or laparoscopic surgical procedures.
VISTASEAL’s airless spray products were the first to result from J&J’s partnership with plasma-derived medicine manufacturer Grifols, which developed the human fibrin sealant as an alternative to standard bleeding control techniques. The VISTASEAL dual applicator simultaneously delivers two biological components, the clotting proteins fibrinogen and thrombin. J&J is hopeful that VISTASEAL can help reduce the frequency of excessive bleeding during open surgeries and the potentially harmful complications arising from both fluid and air leaks.
“In our Surgery business, what you’re seeing is strong performance in areas like electrophysiology...14 percent growth in this [fourth] quarter with great new technology,” Gorsky said in a full-year 2019 earnings call. “You also saw good performance in our Energy business...We think one of the growth drivers is just overcoming our supply issue in 2020 that probably cut our biosurgery growth rate in half, especially in the latter part of the year. We think once we work our way through that, that’s going to be a growth driver for us.”
Maybe so, but that growth driver would have to reach far beyond the biosurgery division to effectively boost profits in Medical Devices. Only half of the business’s four franchises turned a profit last year, and only one posted growth in the double digits (Interventional Solutions). J&J officials linked that division’s stellar performance to strong growth in electrophysiology, which expanded 14 percent worldwide and 16 percent for the year. Electrophysiology moneymakers included the THERMOCOOL SMARTTOUCH SF Contact Force Sensing Cathether and the EMBOTRAP II Revascularization Device, a next-generation stent retriever designed to capture and remove life-threatening blood clots from the brain following an ischemic stroke. Last January, Cerenovus launched a global registry to gather and examine stroke-inducing blood clots removed from the brain with the EMBOTRAP device; the registry is intended to clarify the correlation between blood clot variations and treatment/outcomes.
Vision was the other cash cow for Medical Devices last year, though it turned out to be more of a cash calf due to U.S. competitive pressures and a sales tax jump in Japan that limited growth in both the Contact Lenses and Surgical divisions. Above-average market performance in intraocular lenses, primarily in Asia-Pacific, helped offset weak U.S. sales and lower market growth in refractive surgery, giving the Surgical (vision) unit a 1.6 percent loss for 2019 ($1.23 billion total revenue).
Contact Lenses/Other sales, conversely, climbed 2.7 percent to $3.39 billion, helping bump overall Vision franchise sales up 1.6 percent to $4.62 billion. In J&J’s glass half-full world, however, growth improved—nearly doubled—to 3 percent when adjusted for the impact of Japan’s higher sales tax, which took effect Oct. 1, 2019.
That same adjustment also bolstered Contact Lenses/Other growth in 2019 to 5 percent (vs. the GAAP-recorded 2.7 percent), pushing total sales to $3.39 billion. The improvement mostly came from robust demand for J&J’s ACUVUE OASYS lenses, particularly the OASYS with Transitions Light Intelligent Technology, which became available in the United States last March. The Transitions lenses seamlessly adapt to changing light, helping eyes recover from bright light up to five seconds faster, reducing halos and starbursts at night, and delivering more “effortless” sight with less squinting from dawn to dusk, according to the company.
“Born out of in-depth research and development around bothersome light, including clinical trials of more than 1,000 patients, ACUVUE OASYS with Transitions is an entirely new category of contact lenses,” Thomas Swinnen, president, North America at J&J Vision Care Inc., said last spring. “This product will give contact lens wearers a seamless way to managing changing light conditions in their everyday lives and activities, building on our commitment to helping people see better, connect better, and live better.”
And move better, too: J&J’s commitment to musculoskeletal care led to a bevy of new product introductions in 2019, including spine, hip, and knee implants. The company bolstered its hip portfolio in January with a new solution for femoral neck fracture repair, and added a cementless option to its ATTUNE Knee system in early September. The ATTUNE Cementless Knee features several patented technologies designed to improve knee function, including the ATTUNE GRADIUS Curve to provide stability through range of motion, and GLIDERIGHT Articulation to more accurately replicate the normal relationship between the patella and femur.
Despite a fourth-quarter surge in Cementless Knee sales and continued demand for the ATTUNE Revision Knee System throughout the year, total Knees product revenue fell 1.4 percent in 2019 to $1.48 billion. That loss, however, was equalized by a 1.4 percent gain in hip proceeds ($1.43 billion total), driven by strong market demand for the ACTIS stem, the KINCISE surgical automated system, and the anterior approach to hip replacement.
Spine & Other sales posted the largest decline in Orthopaedics last year: Revenue tumbled 2 percent to $3.2 billion but the loss was partially offset by a 0.8 percent increase in Trauma proceeds ($2.72 billion total). Trauma products fared better at home than abroad, rising 3.3 percent in the United States and falling 2.9 percent internationally.
Still and all, the gains in Trauma and Hips were no match for the losses recorded by Spine & Other and Knees. Consequently, Orthopaedics franchise sales slipped 0.5 percent to $8.83 billion, with a 1.2 percent operational growth neutralized by a negative currency impact of 1.7 percent compared to 2018.
Q1 2020 Revenue: $20.69 Billion
Q1 2019 Revenue: $20.02 Billion
Percentage Change: +3.3%
The novel coronavirus has spared no one or nothing in its wake. And that includes the world’s largest healthcare conglomerate.
Like countless other businesses worldwide, Johnson & Johnson succumbed to the economic turmoil wrought by the virus, though it seems to have weathered the storm relatively better than many. So far.
The company reported a 3.3 percent increase in Q1 2020 sales ($20.69 billion total), a massive 54.6 percent surge in net earnings, and an equally impressive 56.1 percent jump in earnings per share, to $2.17. J&J also announced a 6.3 percent increase in the quarterly dividend rate, from 95 cents per share to $1.01 per share.
Consumer Health and Pharmaceutical revenue flourished in the quarter (ended March 31), rising 9.2 percent and 8.7 percent respectively, but Medical Devices sales fell 8.2 percent (6.9 percent operational) to $5.93 billion as hospitals suspended elective and non-essential surgical procedures to free up resources. The deferral mostly impacted the Devices unit’s Interventional Solutions, Orthopaedics, Surgery, and Vision franchises.
In addition to stifling Medical Devices proceeds, the virus also forced J&J to cut its 2020 guidance; as of mid-April, the company forecast full-year sales to range between $77.5 billion and $80.5 billion, down from a previous estimate of $85.4 billion to $86.2 billion. Adjusted EPS is now predicted to fall from $8.95-$9.10 per share to $7.50-$7.90.
J&J expects sales to worsen in the second quarter (ended June 30), even as elective surgeries gradually resume. Chairman/CEO Alex Gorsky is confident his company can weather the storm, telling investors on a first-quarter conference call that J&J “was built for times like this,” adding: “We have a century-plus history of leading in times of great challenge. We’ve done it before and we can do it again. We are leveraging our scientific expertise, operational scale, and financial strength in the effort to advance the work on our lead COVID-19 vaccine candidate.”
J&J is spending $500 million to develop and manufacture a SARS-CoV-2 vaccine built around an engineered version of adenovirus 26 (Ad26), a disabled, non-replicable version of the common cold virus. The company expects to begin human testing in September in hopes of having the vaccine ready for emergency use early next year.
J&J also has pledged to scale up its global vaccine manufacturing capacity so more than 1 billion doses of a vaccine can be made “at risk”—i.e., before its ultimate design is finalized and approved by the FDA. Production is expected to occur in both The Netherlands and the United States.
“We’re manufacturing at risk to ensure that should the clinical development and the trials be successful, we are in a position to kind of flip the switch and ready to go,” J&J CFO Joe Wolk told Yahoo Finance in April, “to create great access across the globe.”