Johnson & Johnson (NYSE: JNJ) derives its profitability from three segments: pharmaceuticals, medical devices and consumer products. What follows is a breakdown of the profit contribution, measured by each segment's pretax income, in the first nine months of 2018.
The pharmaceuticals segment generates the majority of the company's profits. It produced $10.2 billion of Johnson & Johnson's pretax income, or about 33% of the total, in the first nine months of 2018. Profits are adjusted at the segment and company level for certain one-time items such as gains from the sale of a brand and litigation expenses. Pharmaceuticals also had the highest pretax margin of the three segments at roughly 33%.
Although profitability is not broken down by region, the company does disclose sales totals for the United States and international areas. Johnson & Johnson conducts business in more than 60 countries throughout the world. Pharmaceuticals' domestic sales were $17.4 billion, while international sales reached $13.2 billion. The pharmaceutical business is focused on the therapeutic areas of immunology, infectious diseases, neuroscience, oncology, and cardiovascular and metabolic diseases.
Immunology is the biggest component of the segment's sales at $9.8 billion, which is about 32% of pharmaceuticals' sales. Three drugs are the primary drivers: Remicade, which is used to treat a variety of immune-mediated inflammatory diseases; Simponi or Simponi Aria, which are treatments for adults with moderate to severe rheumatoid arthritis, plaque psoriasis and active psoriatic arthritis; and Stelara, a treatment for adults with moderate to severe plaque psoriasis and active psoriatic arthritis. While Remicade accounts for the most sales, increased competition following the expiration of patents has hurt sales and profitability in recent years.
The medical devices segment generated pretax income of $3.6 billion in the first nine months of 2018, or 24.5% of total earnings for the period. The business generated $20.3 billion in sales, more than half of which were international sales. Pretax margin was around 18%.
The medical devices segment sells a broad range of products in areas such as orthopaedics, surgical care, specialty surgery, cardiovascular care, diagnostics, diabetes care and vision care, which are distributed to wholesalers, hospitals and retailers. The orthopaedic segment generates the largest amount of sales for the medical devices segment.
This segment was responsible for $1.9 billion in pretax income in the first nine months of 2018, or around 12.7% of the company's total. It generated $10.3 billion in sales, with pretax margin around 18%. Most of this segment's sales came from outside the United States, with international sales of $6 billion.
The business offers a broad range of products used in baby care, oral care, beauty products, women's health, wound care and over-the-counter (OTC) medicines. Beauty and OTC products accounted for the largest amount of sales for the consumer products segment. Johnson & Johnson has taken steps to improve the business' profitability over the past couple of years. This included a new management team, which led to getting OTC products back on the shelves in the United States and implementing new manufacturing quality standards.
Management has been undertaking acquisitions across all segments. In 2018, the company acquired Orthotax, which develops software-enabled surgery technologies, supplement company Zarbee’s Naturals and Japanese cosmetics company Ci:z Holdings.