One Johnson & Johnson Plaza
Our Credo: We believe our first responsibility is to the doctors, nurses and patients, to mothers and fathers and all others who use our products and services. In meeting their needs everything we do must be of high quality. We must constantly strive to reduce our costs in order to maintain reasonable prices. Customers' orders must be serviced promptly and accurately. Our suppliers and distributors must have an opportunity to make a fair profit. We are responsible to our employees, the men and women who work with us throughout the world. Everyone must be considered as an individual. We must respect their dignity and recognize their merit. They must have a sense of security in their jobs. Compensation must be fair and adequate, and working conditions clean, orderly and safe. We must be mindful of ways to help our employees fulfill their family responsibilities. Employees must feel free to make suggestions and complaints. There must be equal opportunity for employment, development and advancement for those qualified. We must provide competent management, and their actions must be just and ethical. We are responsible to the communities in which we live and work and to the world community as well. We must be good citizens--support good works and charities and bear our fair share of taxes. We must encourage civic improvements and better health and education. We must maintain in good order the property we are privileged to use, protecting the environment and natural resources. Our final responsibility is to our stockholders. Business must make a sound profit. We must experiment with new ideas. Research must be carried on, innovative programs developed and mistakes paid for. New equipment must be purchased, new facilities provided and new products launched. Reserves must be created to provide for adverse times. When we operate according to these principles, the stockholders should realize a fair return.
One of America's most admired companies, Johnson & Johnson (J & J) is one of the largest healthcare firms in the world and one of the most diversified. Its operations are organized into three business segments: pharmaceutical, which generates 39 percent of revenues and 61 percent of operating income; professional, which accounts for 36 percent of revenues and 27 percent of operating income; and consumer, which contributes 25 percent of revenues and 12 percent of operating income. J & J's pharmaceutical products--which are sold under such brands as Janssen Pharmaceutica, Ortho-McNeil Pharmaceutical, and Centocor--include drugs for family planning, mental illness, gastroenterology, oncology, pain management, and other areas. The professional segment includes surgical and patient care equipment and devices, diagnostic products, joint replacements, and disposable contact lenses. The company's well-known line of consumer products includes the Johnson's baby care line, the Neutrogena skin and hair care line, Tylenol and Motrin pain relievers, o.b. and Stayfree feminine hygiene products, the Reach oral care line, Band-Aid brand adhesive bandages, Imodium A-D diarrhea treatment, Mylanta gastrointestinal products, and Pepcid AC acid controller. J & J generates about half of its revenues outside the United States, through its network of 190 operating companies in 51 countries and its marketing organization that sells in more than 175 countries.
Early History: From Surgical Dressings to Baby Cream
J & J traces its beginnings to the late 1800s, when Joseph Lister's discovery that airborne germs were a source of infection in operating rooms sparked the imagination of Robert Wood Johnson, a New England druggist. Johnson joined forces with his brothers, James Wood Johnson and Edward Mead Johnson, and the three began producing dressings in 1886 in New Brunswick, New Jersey, with 14 employees in a former wallpaper factory.
Because Lister's recommended method for sterilization--spraying the operating room with carbolic acid--was found to be impractical and cumbersome, Johnson & Johnson (which was incorporated in 1887) found a ready market for its product. The percentage of deaths due to infections following surgery was quite high and hospitals were eager to find a solution.
J & J's first product was an improved medicinal plaster that used medical compounds mixed in an adhesive. Soon afterward, the company designed a soft, absorbent cotton-and-gauze dressing, and Robert Wood Johnson's dream was realized. Mass production began and the dressings were shipped in large quantities throughout the United States. By 1890 J & J was using dry heat to sterilize the bandages.
The establishment of a bacteriological laboratory in 1891 gave research a boost, and by the following year the company had met accepted requirements for a sterile product. By introducing dry heat, steam, and pressure throughout the manufacturing process, J & J was able to guarantee the sterility of its bandages. The adhesive bandage was further improved in 1899 when, with the cooperation of surgeons, J & J introduced a zinc oxide-based adhesive plaster that was stronger and overcame much of the problem of the skin irritation that plagued many patients. J & J's fourth original design was an improved method for sterilizing catgut sutures.
From the beginning, J & J was an advocate of antiseptic surgical procedures. In 1888 the company published Modern Methods of Antiseptic Wound Treatment, a text used by physicians for many years. That same year, Fred B. Kilmer began his 45-year stint as scientific director at J & J. A well-known science and medicine writer, and father of poet Joyce Kilmer, Fred Kilmer wrote influential articles for J & J's publications, including Red Cross Notes and the Red Cross Messenger. Physicians, pharmacists, and the general public were encouraged to use antiseptic methods, and J & J products were promoted.
R.W. Johnson died in 1910 and was succeeded as chairman by his brother James. It was then that the company began to grow quickly. To guarantee a source for the company's increasing need for textile materials, J & J purchased Chicopee Manufacturing Corporation in 1916. The first international affiliate was founded in Canada in 1919. A few years later, in 1923, Robert W. Johnson's sons, Robert Johnson and J. Seward Johnson, took an around-the-world tour that convinced them that J & J should expand overseas, and Johnson & Johnson Limited was established in Great Britain a year later. Diversification continued with the introduction in 1921 of Band-Aid brand adhesive bandages and Johnson's Baby Cream (Johnson's Baby Powder had debuted in 1893) and the debut of the company's first feminine hygiene product, Modess sanitary napkins, in 1927.
1932--63: The General at the Helm
The younger Robert Johnson, who came to be known as 'the General,' had joined the company as a mill hand while still in his teens. By the age of 25 he had become a vice-president, and he was elected president in 1932. Described as dynamic and restless with a keen sense of duty, Johnson had attained the rank of brigadier general in World War II and served as vice-chairman of the War Production Board.
The General firmly believed in decentralization in business; he was the driving force behind J & J's organizational structure, in which divisions and affiliates were given autonomy to direct their own operations. This policy coincided with a move into pharmaceuticals, hygiene products, and textiles. During Robert Johnson's tenure, the division for the manufacture of surgical packs and gowns became Surgikos, Inc.; the department for sanitary napkin production was initially called the Modess division and then became the Personal Products Company; birth control products were under the supervision of the Ortho Pharmaceutical Corporation; and the separate division for suture business became Ethicon, Inc. Under the General's leadership, annual sales grew from $11 million to $700 million at the time of his death in 1968.
Following his father's lead as a champion of social issues, Johnson spoke out in favor of raising the minimum wage, improving conditions in factories, and emphasizing business's responsibility to society. Johnson called for management to treat workers with respect and to create programs that would improve workers' skills and better prepare them for success in a modern industrial society. In 1943 Johnson wrote a credo outlining the company's four areas of social responsibility: first to its customers; second to its employees; third to the community and environment; and fourth to the stockholders. On the heels of the credo came the company's change from family-owned firm to public company, as J & J was listed on the New York Stock Exchange in 1944.
In 1959 J & J acquired McNeil Laboratories, Inc., maker of a non-aspirin (acetaminophen) pain reliever called Tylenol--which was at that time available only by prescription. Just one year after the acquisition, McNeil launched Tylenol as an over-the-counter (OTC) medication. Also in 1959, Cilag-Chemie, a Swiss pharmaceutical firm, was purchased, followed in two years by the purchase of Janssen Pharmaceutica, maker of the major antipsychotic drug Haldol, which had been introduced in 1958.
In 1963 Johnson retired. Although he remained active in the business, chairmanship of the company went outside the family for the first time. Johnson's immediate successor was Philip Hofmann, who, much like the General, had started as a shipping clerk and worked his way up the ladder. During Hofmann's ten-year term as chairman, J & J's domestic and overseas affiliates flourished. Hofmann was another firm believer in decentralization and encouraged the training of local experts to supervise operations in their respective countries. Foreign management was organized along product lines rather than geographically, with plant managers reporting to a person with expertise in the field.
1960s--70s: Increased Promotion of Consumer Products
In the early 1960s federal regulation of the healthcare industry was increasing. When James Burke--who had come to J & J from the marketing department of the Procter & Gamble Company--became president of J & J's Domestic Operating Company in 1966, the company was looking for ways to increase profits from its consumer products to offset possible slowdowns in the professional products divisions. By luring top marketing people from Procter & Gamble, Burke was able to put together several highly successful advertising campaigns. The first introduced Carefree and Stayfree sanitary napkins into a market that was dominated by the acknowledged feminine products leader, Kimberly-Clark. Usually limited to women's magazines, advertisements for feminine hygiene products were low-key and discreet. Under Burke's direction, J & J took a more open approach and advertised Carefree and Stayfree on television. By 1978 J & J had captured half of the market. Meantime, the company expanded its feminine hygiene line through the 1973 acquisition of the German firm Dr. Carl Hahn G.m.b.H., maker of the o.b. brand of tampons.
One of Burke's biggest challenges was Tylenol. Ever since J & J had acquired McNeil Laboratories, maker of Tylenol, the drug had been marketed as a high-priced product. Burke saw other possibilities, and in 1975 he got the chance he was waiting for. Bristol-Myers Company introduced Datril and advertised that it had the same ingredients as Tylenol but was available at a significantly lower price. Burke convinced J & J Chairman Richard Sellars that they should meet this competition head on by dropping Tylenol's price to meet Datril's. With Sellars's approval, Burke took Tylenol into the mass-marketing arena, slashed its price, and ended up beating not only Datril, but number one Anacin as well. This signaled the beginning of an ongoing battle between American Home Products Corporation, maker of Anacin, and McNeil Laboratories.
Sellars, Hofmann's protégé, had become chairman in 1973, and served in that position for three years. Burke succeeded Sellars in 1976 as CEO and chairman of the board, and David R. Clare was appointed president. J & J had always maintained a balance between the many divisions in its operations, particularly between mass consumer products and specialized professional products. No single J & J product accounted for as much as five percent of the company's total sales. With Burke at the helm, consumer products began to be promoted aggressively, and Tylenol pain reliever became J & J's number one seller.
At the same time, Burke did not turn his back on the company's position as a leader in professional healthcare products. In May 1977 Extracorporeal Medical Specialties, a manufacturer of kidney dialysis and intravenous treatment products, became part of the corporation. Three years later, J & J acquired Iolab Corporation, maker of ocular lenses for cataract surgery, and effectively entered the field of eye care and ophthalmic pharmaceuticals. In 1981 the company extended its involvement in eye care through the acquisition of Frontier Contact Lenses. The increased in-house development of critical care products resulted in the creation of Critikon, Inc., in 1979, and in 1983 Johnson & Johnson Hospital Services was created to develop and implement corporate marketing programs.
1980s Tylenol Tampering Tragedy
In September 1982 tragedy struck J & J when seven people died from ingesting Tylenol capsules that had been laced with cyanide. Advertising was canceled immediately, and J & J recalled all Tylenol products from store shelves. After the Food and Drug Administration (FDA) found that the tampering had been done at the retail level rather than during manufacturing, J & J was left with the problem of how to save its number one product and its reputation. In the week after the deaths, J & J's stock dropped 18 percent and its prime competitors' products, Datril and Anacin-3, were in such demand that supplies were back-ordered.
J & J was able to recoup its losses through several marketing strategies. The company ran a one-time ad that explained how to exchange Tylenol capsules for tablets or refunds and worked closely with the press, responding directly to reporters' questions as a means of keeping the public up to date. The company also placed a coupon for $2.50 off any Tylenol product in newspapers across the country to reimburse consumers for Tylenol capsules they may have discarded during the tampering incident and offer an incentive to purchase Tylenol in other forms.
Within weeks of the poisoning incidents, the FDA issued guidelines for tamper-resistant packaging for the entire food and drug industry. To bolster public confidence in its product, J & J used three layers of protection, two more than recommended, when Tylenol was put back on store shelves. Within months of the cyanide poisoning, J & J was gaining back its share of the pain-reliever market, and soon regained more than 90 percent of its former customers. By 1989 Tylenol sales were $500 million annually, and in 1990 the line was expanded into the burgeoning cold remedy market with several Tylenol Cold products; the following year saw the launch of Tylenol P.M., a sleep aid. James Burke's savvy, yet honest, handling of the Tylenol tampering incident earned him a spot in the National Business Hall of Fame, an honor awarded in 1990. Litigation over the incident was finally resolved in 1991, almost a decade after the initial tampering. McNeil Labs settled with over 30 survivors of the poisonings for more than $35 million.
In 1989 Bristol-Myers launched an aggressive advertising campaign that positioned its Nuprin brand ibuprofen pain reliever in direct competition with Tylenol. The move compounded market share erosion from American Home Products' Advil ibuprofen. Both products claimed to work better than Tylenol's acetaminophen formulation.
There were a number of other important developments in the second half of the 1980s. In 1986 J & J acquired LifeScan, Inc., maker of at-home blood-monitoring products for diabetics. That same year, the company expanded its world leading position in baby care products through the acquisition of Penaten G.m.b.H., the market leader in Germany. Following the acquisition of Frontier Contact Lenses, which was renamed Vistakon, J & J introduced the Acuvue brand of disposable contact lenses in the United States in 1988. The popularity of the Acuvue lenses helped propel Vistakon into the number one position in contact lenses worldwide. In 1989 J & J and drug giant Merck & Co., Inc. entered into a joint venture--Johnson & Johnson-Merck Consumer Pharmaceuticals Co.&mdashø develop OTC versions of Merck's prescription medications, initially for the U.S. market, later expanded to Europe and Canada. One of the first product lines developed by this venture was the Mylanta brand of gastrointestinal products.
Burke and Clare retired in 1989 and were succeeded by three executives: CEO and Chairman Ralph S. Larsen, who came from the consumer sector; Vice-Chairman Robert E. Campbell, who had headed the professional sector; and President Robert N. Wilson, who had headed the pharmaceutical sector. The three men were responsible for overseeing the network of 168 companies in 53 countries.
Larsen moved quickly to reduce some of the inefficiencies that a history of decentralization had caused. In 1989 the infant products division was joined with the health and dental units to form a broader consumer products segment, eliminating approximately 300 jobs in the process. Over the next two years, the reorganization was extended to overseas units. The number of professional operating departments in Europe was reduced from 28 to 18 through consolidation under three primary companies: Ethicon, Johnson & Johnson Medical, and Johnson & Johnson Professional Products. In 1990, meantime, J & J formed Ortho Biotech Inc. to consolidate the company's research in the burgeoning biotechnology field, an area J & J had been active in since the 1970s.
Dealmaking in the 1990s and Beyond
J & J was able to counter increasing criticisms of rising healthcare costs in the United States and around the world in the 1990s due in part to the company's longstanding history of social responsibility. The company pioneered several progressive programs including child care, family leave, and 'corporate wellness' that were beginning to be recognized as healthcare cost reducers and productivity enhancers. In addition, weighted average compound prices of J & J's healthcare products, including prescription and OTC drugs and hospital and professional products, grew more slowly than the U.S. consumer price index from 1980 through 1992. These practices supported the company's claim that it was part of the solution to the healthcare crisis. In 1992 J & J instituted its 'Signature of Quality' program, which urged the corporation's operating companies to focus on three general goals: 'Continuously improving customer satisfaction, cost efficiency and the speed of bringing new products to market.'
J & J grew at a relatively slow pace in the early 1990s, in part because of the difficult economic climate. Revenues increased from $11.23 billion in 1990 to $14.14 billion in 1993, an increase of just 26 percent. A series of acquisitions in the mid-1990s, however, ushered in a period of more rapid growth, with revenues hitting $21.62 billion by 1996, a leap of 53 percent from the 1993 level. The skin care line had received a boost in 1993 through the purchase of RoC S.A. of France, a maker of hypoallergenic facial, hand, body, and other products under the RoC name. More significant was the acquisition the following year of Neutrogena Corporation for nearly $1 billion. Neutrogena was well-known for its line of dermatologist-recommended skin and hair care products. J & J spent another billion dollars in 1995 for the clinical diagnostics unit of Eastman Kodak Company, which was particularly strong in the areas of clinical chemistry, which involves the analysis of simple compounds in the body, and immuno-diagnostics. In 1997 J & J combined its existing Ortho Diagnostics Systems unit with the operations acquired from Kodak to form Ortho-Clinical Diagnostics, Inc. (LifeScan remained a separately run diagnostics company.)
Another subsidiary that grew through acquisitions in this period was Ethicon Endo-Surgery, Inc., which had been spun off from Ethicon in 1992 to concentrate on endoscopic, or minimally invasive, surgical instruments. J & J acquired Indigo Medical, which specialized in minimally invasive technology in urology and related areas, in 1996, while Biopsys Medical, Inc., specializing in minimally invasive breast biopsies, was purchased in 1997. Another large acquisition occurred in 1996 when J & J spent about $1.8 billion for Cordis Corporation, a world leader in the treatment of cardiovascular diseases through its stents, balloons, and catheters. In 1997, in exchange for several consumer products, J & J acquired the OTC rights to the Motrin brand of ibuprofen pain relievers from Pharmacia & Upjohn. Other important developments during this period included the 1995 introduction of an Acuvue disposable contact lens designed to be worn for just one day but priced at a reasonable level, and the 1995 U.S. approval of the antacid Pepcid AC, an OTC version of Merck's Pepcid that was developed by the Johnson & Johnson-Merck joint venture.
The company's aggressive program of acquisition continued in the late 1990s, beginning with the 1998 purchase of DePuy, Inc. for $3.7 billion in cash, J & J's largest acquisition yet. DePuy was a leader in orthopedic products, such as hip replacement devices. J & J already marketed one of the leading knee replacement devices in the United States, making for a nice fit between the two companies. On the negative side, J & J was forced to initiate a restructuring in 1998 following a number of difficulties. J & J had been a pioneer in the market for coronary stents, devices used to keep arteries open following angioplasty, but its stent sales fell from $700 million in 1996 to just over $200 million in 1998 after competitors introduced second-generation stents and J & J did not. Also troubled was the firm's pharmaceutical operation, which in 1997 and 1998 had seen nine drugs in the development pipeline fail in testing, fail to get government approval, or be delayed. In late 1998 J & J announced that it would reduce its workforce by 4,100 and close 36 plants around the world over the succeeding 18 months. Taking $697 million in restructuring and in-process research and development charges, J & J aimed to save between $250 million and $300 million per year through this effort.
To bolster its drug R & D efforts, J & J completed its first major pharmaceutical deal since the 1961 purchase of Janssen Pharmaceutica. In October 1999 J & J merged with major biotechnology firm Centocor, Inc. in a $4.9 billion stock-for-stock transaction, the largest such deal in company history. With Centocor and Ortho Biotech under its wing, J & J was now one of the world's leading biotech firms. Soon after the merger with Centocor was completed, the FDA approved a key Centocor-developed drug, Remicade, for the treatment of rheumatoid arthritis. Centocor was also developing other pharmaceuticals in the areas of cancer, autoimmune diseases, and cardiology. Also in 1999 J & J acquired the dermatological skin care business of S.C. Johnson & Son, Inc.--which was primarily made up of the Aveeno brand--for an undisclosed amount.
Despite its late 1990s troubles, J & J reported record results for 1999, earning $4.17 billion on revenues of $27.47 billion. Net earnings had nearly quadrupled since 1989, while net sales nearly tripled over the same period. The year 2000 got off to a rough start for the company, however, as it was forced to withdraw from the market a prescription heartburn medication, Propulsid, after the drug had been linked to 100 deaths and hundreds of cases of cardiac irregularity. Propulsid had nearly $1 billion in sales in 1999. Also in early 2000, J & J joined with General Electric Company's GE Medical Systems unit, Baxter International Inc., Abbott Laboratories, and Medtronic, Inc. in a venture to create a global Internet-based purchasing exchange for healthcare providers.
Principal Subsidiaries: Advanced Sterilization Products; Centocor; Cordis Corporation; DePuy; Ethicon, Inc.; Ethicon Endo-Surgery, Inc.; Independence Technology; Indigo Medical, Inc.; Janssen Pharmaceutica Inc.; Johnson & Johnson Consumer Products, Inc.; Johnson & Johnson Development Corporation; Johnson & Johnson Health Care Systems Inc.; Johnson & Johnson Medical; Johnson & Johnson-Merck Consumer Pharmaceuticals Co. (50%); Johnson & Johnson Sales and Logistics Company; Johnson & Johnson Vision Care, Inc.; LifeScan, Inc.; McNeil Consumer Healthcare; McNeil Specialty Products Company; Neutrogena Corporation; Noramco, Inc.; Ortho Biotech Inc.; Ortho-Clinical Diagnostics, Inc.; Ortho Dermatological; Ortho-McNeil Pharmaceutical, Inc.; Personal Products Company; R.W. Johnson Pharmaceutical Research Institute; Therakos, Inc. The company has additional subsidiaries in Canada, Argentina, Brazil, Chile, Colombia, Mexico, Panama, Peru, Uruguay, Venezuela, Austria, Belgium, the Czech Republic, France, Germany, Greece, Hungary, Ireland, Italy, the Netherlands, Poland, Portugal, Russia, Scotland, Slovenia, Spain, Sweden, Switzerland, Turkey, the United Kingdom, Australia, China, Egypt, Hong Kong, India, Indonesia, Israel, Japan, Korea, Malaysia, Morocco, Pakistan, the Philippines, Singapore, South Africa, Taiwan, Thailand, the United Arab Emirates, and Zimbabwe.
Principal Operating Units: Consumer and Personal Care Group; Medical Devices and Diagnostics Group; Pharmaceuticals Group.
Principal Competitors: Abbott Laboratories; Affymetrix, Inc.; Alberto-Culver Company; American Home Products Corporation; Amgen Inc.; Aventis; Bausch & Lomb Incorporated; Baxter International Inc.; Bayer AG; Beckman Coulter, Inc.; Becton, Dickinson & Company; Bristol-Myers Squibb Company; Carter-Wallace, Inc.; Colgate-Palmolive Company; Dade Behring Inc.; The Dial Corporation; Eli Lilly and Company; Genentech, Inc.; The Gillette Company; Glaxo Wellcome plc; Kimberly-Clark Corporation; L'Oréal USA, Inc.; Medtronic, Inc.; Merck & Co., Inc.; Minnesota Mining and Manufacturing Company; Nestlé S.A.; Novartis AG; Perrigo Company; Pfizer Inc.; Pharmacia Corporation; The Procter & Gamble Company; Roche Holding Ltd.; SmithKline Beecham plc; St. Jude Medical, Inc.; Unilever; United States Surgical Corporation.
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