New Brunswick, N.J.-based Johnson & Johnson (NYSE: JNJ) is probably most famous as the parent company of multiple household products that double as household names. Listing them all would require more space than is practical, but they include Band-Aid, Listerine, Splenda, Stayfree, Lubriderm, Visine, Purell, Mylanta, Bengay, and dozens upon dozens of others. If you’ve ever bandaged a wound, rinsed your mouth, applied lotion, sanitized your hands, battled a headache, substituted sugar or treated heartburn, chances are excellent that you did so courtesy of Johnson & Johnson’s research and development.
Johnson & Johnson’s array of consumer goods isn’t merely wide, but dominant. To quote company Chairman and CEO Alex Gorsky, “approximately 70% of our sales come from products with the number one or number two global market share position.” Johnson & Johnson boasts no fewer than 275 subsidiary companies, up from 250 three years ago. These include LifeScan, which makes blood glucose monitoring systems; McNeil Nutritionals, maker of artificial sweeteners; and Ethicon, a provider to the laparoscopic surgery industry.
On Dec. 14, 2018, Reuters reported that Johnson & Johnson executives were aware that the company's baby powder contained asbestos — but continued to sell and advertise it anyway. The special investigation, which looked at company documents and trial testimonies, showed that Johnson & Johnson officials, mine managers, doctors, and lawyers knew that the company's raw talc powder tested positive for small quantities of asbestos between 1971 and the early 2000s. Johnson & Johnson shares were down nearly 11 percent following news of the report.
What Does Johnson & Johnson Make?
But as omnipresent in the collective consciousness as Johnson & Johnson’s consumer goods are, the company is first and foremost a medical supplier. A majority of Johnson & Johnson’s revenue consistently derives from its medical devices and pharmaceuticals. Johnson & Johnson’s preeminence in medical devices is particularly pronounced: the 70% sales figure for market-leading and market-runner-up products jumps to 85% when restricted to the company’s orthopedic instruments and surgical care items.
As for its global pharmaceutical business, Johnson & Johnson develops and sells some of the best-known over-the-counter drugs on the market. However, the true profit centers are the company’s higher-margin specialty pharmaceuticals. These include Remicade, Simponi, and Stelara, drugs that suppress autoimmune ailments (arthritis, Crohn’s disease) and that can cost more than $20,000 per year per patient; Zytiga, which fights particularly resilient forms of prostate cancer and which sells for around $89 a pill. This and similar drugs might not be as ubiquitous as their fever-reducing brethren, but their contribution to Johnson & Johnson revenue is unmistakable. Given the slow pace of drug approval in both the United States and Europe, the profits realized by Johnson & Johnson today are the result of years and billions of dollars’ worth of research previously undertaken. The company acknowledges that it files for approval for new drugs and line extensions of existing drugs up to 4 years in advance, and that lag doesn’t even include how long it takes said drugs to then appear on pharmacy shelves.
Johnson & Johnson remains one of the largest medical devices company on Earth. One doesn’t typically think of knee implants and catheters as carrying corporate brand names in the same way that shampoos or antihistamines do, but the former products are every bit as much Johnson & Johnson products as the latter are. The only difference is the per-unit profitability. A Johnson & Johnson Attune knee replacement package can sell for around $10,000, not counting the price of professional surgical insertion, of course. With over 23,000 such packages now joining various thighs to lower legs around the world, it’s easy to see how, given the company's expectation to file for approval of up to eight compounds by 2021, it expects each to have more than $1 billion peak revenue potential.
How Has Johnson & Johnson Grown its Business?
Not all of the company’s revenue derives organically. In those instances where Johnson & Johnson doesn’t innovate in its crucial fields of interest, it instead uses its substantial financial muscle to acquire. In 2012 Johnson & Johnson finalized its $22 billion purchase of Synthes, which had been a publicly-traded Swiss manufacturer of implements that treat traumatic injuries. That was Johnson & Johnson’s largest purchase since it bought Pfizer’s (NYSE:PFE) consumer healthcare unit in 2006, which instantly positioned Johnson & Johnson as a certifiable consumer products titan.
But pharmaceutical and medical devices together do not solely account for Johnson & Johnson revenue. The remainder derives from the aforementioned consumer products, and the lion’s share of that in the categories of over-the-counter medications and skin care.
The Bottom Line
Johnson & Johnson provides some of the most vital products in all of commerce; reducing the impact of AIDS, combating diabetes, even helping the deaf to hear and the lame to walk. Now well into its second century, Johnson & Johnson remains one of the most robust components of the Dow Jones Industrial Average, and one of the most influential and profitable companies in existence.