Johnson & Johnson 2009 Case Notes Prepared by: Dr.

. Mernoush Banton Case Authors: Sharynn Tomlin, Matt Milhauser, Bernhard Gierke, Thibault Lefebvre, and Mario Martinez

A.

Case Abstract

Johnson & Johnson (www.JNJ.com) is a comprehensive strategic management case that includes the companys calendar December 31, 2008 financial statements, competitor information and more. The case time setting is the year 2009. Sufficient internal and external data are provided to enable students to evaluate current strategies and recommend a three-year strategic plan for the company. Headquartered in New Brunswick in the U.S. state of New Jersey, Johnson & Johnson is traded on the New York Stock Exchange under ticker symbol JNJ.

B.

Vision Statement (Actual)

To maximize the global power of diversity and inclusion to drive superior business results and sustainable competitive advantage.

C.

Mission Statement (Actual)

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. (1, 2) 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. (6) 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. (9) 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. (3, 7, 8) Copyright 2011 Pearson Education Limited

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. (4, 5) 1. 2. 3. 4. 5. 6. 7. 8. 9. Customer Products or services Markets Technology Concern for survival, profitability, growth Philosophy Self-concept Concern for public image Concern for employees

D.

External Audit

CPM Competitive Profile Matrix

Critical Success Factors Price competitiveness Global Expansion Organizational Structure Employee Morale Technology Product Safety Customer Loyalty Market Share Advertising Product Quality Product Image Financial Position Total

Weight 0.11 0.10 0.04 0.05 0.10 0.11 0.10 0.06 0.08 0.10 0.08 0.07 1.00

J&J Weighte Rating d Score 4 4 3 4 4 4 4 4 3 4 4 4 0.44 0.40 0.12 0.20 0.40 0.44 0.40 0.24 0.24 0.40 0.32 0.28 3.88

P&G Weighte Rating d Score 2 3 2 3 3 3 3 3 4 3 3 3 0.22 0.30 0.08 0.15 0.30 0.33 0.30 0.18 0.32 0.30 0.24 0.21 2.93

Other Weighted Rating Score 3 2 4 2 2 2 2 2 2 2 2 2 0.33 0.20 0.16 0.10 0.20 0.22 0.20 0.12 0.16 0.20 0.16 0.14 2.19

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Opportunities 1. Smaller companies are coming up with new and innovative drugs. This creates an opportunity for larger drug companies to acquire or form a joint venture with smaller companies 2. Larger organizations have better purchasing power in buying raw material 3. The baby boomers are aging, therefore they have more need for health and medical services 4. More consumers are becoming health conscious by taking more vitamins and use better brand health related products 5. Due to economic downturn, many individuals may have more stress and depression and as such, may have a need for prescription drugs 6. Despite years of research, companies still spend money for developing new drugs for health issues related to cancer, heart problems, HIV and Alzheimers 7. Through the Internet, drug companies have found a more effective and less expensive way in advertising, educating, and promoting their products Threats 1. The cost of R&D has been increasing at an astounding rate, rising currently at a rate of eightfold per year 2. Due to economic downturn, there has been severe changes in the behavior and spending patterns of purchasers of healthcare products and services 3. Generic drug firms have filed Abbreviated New Drug Applications (ANDAs) seeking to market generic forms of most of the key pharmaceutical products, prior to expiration of the applicable patents covering those products 4. By 2012, many major patents, often referred to as Patent Cliffs, will expire, clearing the way for companies involved in the production of generics to begin manufacturing the most effective and high-grossing drugs on the market 5. Introducing a new drug into the market can take 10 to 15 years and require extensive amount of money to get it tested and receive FDA approval 6. Often, drugs could have side effects which create negative publicity and/or force the company to recall the drug or remove it from the shelves External Factor Evaluation (EFE) Matrix Key External Factors Opportunities 1. Smaller companies are coming up with new and innovative drugs. This creates an opportunity for larger drug companies to acquire or form a joint venture with smaller companies 2. Larger organizations have better purchasing power in buying raw material 3. The baby boomers are aging, therefore they have more need for health and medical services 0.1 4 0.4 Weight Rating Weighted Score

0.09 0.1

3 4

0.27 0.4

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4. More consumers are becoming health conscious by taking more vitamins and use better brand health related products 5. Due to economic downturn, many individuals may have more stress and depression and as such, may have a need for prescription drugs 6. Despite years of research, companies still spend money for developing new drugs for health issues related to cancer, heart problems, HIV and Alzheimers 7. Through the Internet, drug companies have found a more effective and less expensive way in advertising, educating, and promoting their products Threats 1. The cost of R&D has been increasing at an astounding rate, rising currently at a rate of eightfold per year 2. Due to economic downturn, there has been severe changes in the behavior and spending patterns of purchasers of healthcare products and services 3. Generic drug firms have filed Abbreviated New Drug Applications (ANDAs) seeking to market generic forms of most of the key pharmaceutical products, prior to expiration of the applicable patents covering those products 4. By 2012, many major patents, often referred to as Patent Cliffs, will expire, clearing the way for companies involved in the production of generics to begin manufacturing the most effective and high-grossing drugs on the market 5. Introducing a new drug into the market can take 10 to 15 years and require extensive amount of money to get it tested and receive FDA approval 6. Often, drugs could have side effects which create negative publicity and/or force the company to recall the drug or remove it from the shelves Total

0.1 0.06 0.06

4 3 3

0.4 0.18 0.18

0.07

0.28

0.09 0.08

2 3

0.18 0.24

0.07

0.14

0.06

0.12

0.05

0.05

0.07

0.14

1.00

2.98

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Positioning Map
Innovation (High)

Pfizer

Novartis Procter & Gamble

Brand Loyalty (High)

Merck & Co.

Brand Loyalty (Low)

Johnson & Johnson

Innovation (Low)

E.

Internal Audit
Strengths 1. J&J offers a wide variety of products and services to hospitals, retailers, and families 2. The company does business in three segments: pharmaceutical, medical devices and consumer products 3. In July 2009, J&J purchased an 18.4 percent stake in Irish biotech company Elan Corp. in order to gain access to the US$3 billion market for Alzheimers disease treatments. The effectiveness of the drug could help the companys sales by US$25 billion 4. In 2009, J&J acquired the small cancer drug-developer Cougar Biotechnology for about US$894 million in cash. Cougar has an excellent drug for late stage prostate cancer 5. At the end of 2008, J&J reported US$7.6 billion in research and developments expenditures, which was a slight decrease from 2007 6. Sales for both consumer health products and medical devices and diagnostics were up from 2007 to 2008 by 10.8 percent and 6.4 percent, respectively 7. The consumer products segments operating profit increased 17.4 percent from 2007 to US$2,674 million in 2008

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8. The pharmaceutical segment operating profit increased 16.3 percent from 2007, and operating profit increased to 31.0 percent to a total of US$7,605 million in 2008 9. Operating profit in medical devices segment increased 49.1 percent from 2007 to a total of US$7,223 million in 2008 Weaknesses 1. Sales for pharmaceutical segment was down from 2007 to 2008 by 1.2 percent 2. Patent on many of their popular and high volume drugs is about to expire 3. Increase in total liabilities by approximately US$4.8 billion from 2007 to 2008 4. In recent years, have not introduced any new innovative product unless by acquiring other companies 5. Per 2009 data, the companys quarterly sales dropped by 5.3 percent from the same period in prior year 6. The selling, general and administrating expenses to sales increased by 0.30 percent from 2007 to 2008 Financial Ratio Analysis (December 2009) Growth Rates % Sales (Qtr vs year ago qtr) Net Income (YTD vs YTD) Net Income (Qtr vs year ago qtr) Sales (5-Year Annual Avg.) Net Income (5-Year Annual Avg.) Dividends (5-Year Annual Avg.) Price Ratios Current P/E Ratio P/E Ratio 5-Year High P/E Ratio 5-Year Low Price/Sales Ratio Price/Book Value Price/Cash Flow Ratio Profit Margins % Gross Margin Pre-Tax Margin Net Profit Margin 5Yr Gross Margin (5-Year Avg.) 5Yr PreTax Margin (5-Year Avg.) 5Yr Net Profit Margin (5-Year Avg.) J&J -5.30 -1.70 1.10 8.77 12.46 14.18 J&J 14.1 25.3 10.5 2.94 3.53 11.50 J&J 71.1 27.5 21.1 71.5 25.4 19.1 Industry 3.20 5.10 38.80 8.49 15.83 14.40 Industry 15.3 18.2 5.0 3.08 8.10 12.20 Industry 72.9 24.0 18.7 72.1 21.3 15.9 S&P 500 -4.80 -6.00 26.80 12.99 12.69 11.83 S&P 500 26.7 16.6 2.6 2.25 3.48 13.70 S&P 500 38.9 10.3 7.1 38.6 16.6 11.5

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Financial Condition Debt/Equity Ratio Current Ratio Quick Ratio Interest Coverage Leverage Ratio Book Value/Share Adapted from www.moneycentral.msn.com Avg P/E 12/08 12/07 12/06 01/06 01/05 12/03 12/02 12/01 12/00 12/08 14.20 17.60 16.70 19.30 20.40 22.00 26.60 28.30 27.60 14.20 Book Value/ Debt/ Share Equity 12/08 12/07 12/06 01/06 01/05 12/03 12/02 12/01 12/00 $15.35 $15.25 $13.59 $13.01 $10.71 $9.05 $7.65 $7.95 $6.77 0.28 0.22 0.17 0.07 0.09 0.15 0.18 0.11 0.23

J&J 0.23 1.8 1.6 57.1 1.8 18.27

Industry 2.30 1.9 1.6 20.6 4.7 11.51

S&P 500 1.09 1.5 1.3 23.7 3.4 21.63

Price/ Sales 2.60 3.21 3.67 3.57 4.01 3.64 4.47 5.67 5.58 2.60 Return Equity (%) 30.5 24.4 28.1 26.0 25.7 26.8 29.1 23.4 24.3

Price/ Book 3.81 4.42 4.86 4.62 5.92 5.59 6.95 7.43 7.76 3.81

Net Profit Margin (%) 20.3 17.3 20.7 19.9 17.3 17.2 18.2 17.5 17.0 20.3

on Return on Interest Assets (%) Coverage 15.2 13.1 15.7 17.1 15.3 14.9 16.3 14.7 14.5 15.2 38.9 44.9 231.5 242.9 65.9 49.8 58.1 51.6 33.7 38.9

12/08 $15.35 0.28 30.5 Adapted from www.moneycentral.msn.com Internal Factor Evaluation (IFE) Matrix Key Internal Factors Strengths

Weight

Rating

Weighted Score

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1. J&J offers a wide variety of products and services to hospitals, retailers, and families 2. The company does business in three segments: pharmaceutical, medical devices and consumer products 3. In July 2009, J&J purchased an 18.4 percent stake in Irish biotech company Elan Corp. in order to gain access to the US $3 billion market for Alzheimer's disease treatments. The effectiveness of the drug could help the company's sales by US$25 billion 4. In 2009, J&J acquired the small cancer drugdeveloper Cougar Biotechnology for about US$894 million in cash. Cougar has an excellent drug for late stage prostate cancer 5. At the end of 2008, J&J reported US$7.6 billion in research and developments expenditures, which was a slight decrease from 2007 6. Sales for both consumer health products and medical devices and diagnostics were up from 2007 to 2008 by 10.8 percent and 6.4 percent, respectively 7. The consumer products segment's operating profit increased 17.4 percent from 2007 to US$2,674 million in 2008 8. The pharmaceutical segment operating profit increased 16.3 percent from 2007, and operating profit increased to 31.0 percent to a total of US$7,605 million in 2008 9. Operating profit in medical devices segment increased 49.1 percent from 2007 to a total of US$7,223 million in 2008 Weaknesses 1. Sales for pharmaceutical segment was down from 2007 to 2008 by 1.2 percent 2. Patent on many of their popular and high volume drugs is about to expire 3. Increase in total liabilities by approximately US$4.8 billion from 2007 to 2008 4. In recent years, have not introduced any new innovative product unless by acquiring other companies 5. Per 2009 data, the company's quarterly sales dropped by 5.3 percent from the same period in prior year 6. The selling, general and administrating expenses to sales increased by 0.30 percent from 2007 to 2008

0.08 0.08 0.07

4 4 4

0.32 0.32 0.28

0.07

0.28

0.08

0.24

0.06

0.18

0.06 0.06

3 3

0.18 0.18

0.06

0.18

0.06 0.09 0.05 0.07 0.04 0.07

1 1 2 1 2 2

0.06 0.09 0.1 0.07 0.08 0.14

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Total

1.00

2.7

F.

SWOT Strategies
Strengths 1. J&J offers a wide variety of products and services to hospitals, retailers, and families 2. The company does business in three segments: pharmaceutical, medical devices and consumer products 3. In July 2009, J&J purchased an 18.4 percent stake in Irish biotech company Elan Corp. in order to gain access to the US$3 billion market for Alzheimers disease treatments. The effectiveness of the drug could help the companys sales by US$25 billion 4. In 2009, J&J acquired the small cancer drugdeveloper Cougar Biotechnology for about US$894 million in cash. Cougar has an excellent drug for late stage prostate cancer 5. At the end of 2008, J&J reported US$7.6 billion in research and developments expenditures, which was a slight decrease from 2007 6. Sales for both consumer health products and medical devices and diagnostics were up from 2007 to 2008 by 10.8 percent and 6.4 percent, Weaknesses 1. Sales for pharmaceutical segment was down from 2007 to 2008 by 1.2 percent 2. Patent on many of their popular and high volume drugs is about to expire 3. Increase in total liabilities by approximately US$4.8 billion from 2007 to 2008 4. In recent years, have not introduced any new innovative product unless by acquiring other companies 5. Per 2009 data, the companys quarterly sales dropped by 5.3 percent from the same period in prior year 6. The selling, general and administrating expenses to sales increased by 0.30 percent from 2007 to 2008

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respectively 7. The consumer products segments operating profit increased 17.4 percent from 2007 to US$2,674 million in 2008 8. The pharmaceutical segment operating profit increased 16.3 percent from 2007, and operating profit increased to 31.0 percent to a total of US$7,605 million in 2008 9. Operating profit in medical devices segment increased 49.1 percent from 2007 to a total of US$7,223 million in 2008 Opportunities 1. Smaller companies are coming up with new and innovative drugs. This creates an opportunity for larger drug companies to acquire or form a joint venture with smaller companies 2. Larger organizations have better purchasing power in buying raw material 3. The baby boomers are aging, therefore they have more need for health and medical services 4. More consumers are becoming health conscious by taking more vitamins and use better brand health related products 5. Due to economic downturn, many individuals may have S-O Strategies Increase R&D on products related to curing Alzheimers, Cardiovascular, and Cancer diseases (S2, S3, S4, S8, O3, O6) Acquire additional companies that are innovative and have pending patents on popular health related products (S2, S8, O1, O3, O4, O6) W-O Strategies 1. Increase marketing efforts through social networks and the Internet on consumer, OTC and pharmaceutical products, specific to young generation (W1, O4, O7) 2. Develop new health related products such as vitamins and dietary pills / drinks for health conscious consumers (W4, O3, O4)

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more stress and depression and as such, may have a need for prescription drugs 6. Despite years of research, companies still spend money for developing new drugs for health issues related to cancer, heart problems, HIV and Alzheimers 7. Through the Internet, drug companies have found a more effective and less expensive way in advertising, educating, and promoting their products Threats 1. The cost of R&D has been increasing at an astounding rate, rising currently at a rate of eightfold per year 2. Due to economic downturn, there has been severe changes in the behavior and spending patterns of purchasers of healthcare products and services 3. Generic drug firms have filed Abbreviated New Drug Applications (ANDAs) seeking to market generic forms of most of the key pharmaceutical products, prior to expiration of the applicable patents covering those products 4. By 2012, many major patents, often referred to as Patent Cliffs, will expire, clearing the way for companies S-T Strategies 1. Form a partnership/ joint venture (minority interest) with generic drug manufacturers on promoting and educating the health benefits of specific products (S1, S2, S8, T1, T3, T4) 2. Outsource some of R&D procedures and processes in order to reduce R&D cost but ensure the intellectual property remains secure and confidential (S2, S7, S8, S9, T1, T5) W-T Strategies 1. Increase advertising and promotion by educating the consumers on the benefits of using brand versus generic drugs (W1, W5, T3, T4) 2. Create a social network area for consumers to discuss their concerns and side effect of drugs so the company can have better track records of issues and be able to improve public image before the issues escalates legally (W1, T6)

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involved in the production of generics to begin manufacturing the most effective and high-grossing drugs on the market 5. Introducing a new drug into the market can take 10 to 15 years and require extensive amount of money to get it tested and receive FDA approval 6. Often, drugs could have side effects which create negative publicity and/or force the company to recall the drug or remove it from the shelves

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G.

SPACE Matrix

FS
Conservative
7 6 5 4 3 2 1

Aggressive

CS

IS
-7 -6 -5 -4 -3 -2 -1 -1 -2 -3 -4 -5 -6 1 2 3 4 5 6 7

Defensive

-7

Competitive

ES
Financial Stability (FS) Return on Investment Leverage Liquidity Working Capital Cash Flow Financial Stability (FS) Average Competitive Stability (CS) Market Share Product Quality Customer Loyalty Competitions Capacity Utilization Technological Know-How Competitive Stability (CS) Average 5 3 5 5 5 4.6 Environmental Stability (ES) Unemployment Technological Changes Price Elasticity of Demand Competitive Pressure Barriers to Entry Environmental Stability (ES) Average Industry Stability (IS) Growth Potential Financial Stability Ease of Market Entry Resource Utilization Profit Potential Industry Stability (IS) Average -4 -3 -2 -4 -4 -3.4

-1 -2 -2 -2 -2 -1.8

5 5 4 3 4 4.2

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Y-axis: FS + ES = 4.6 + (-3.4) = 1.2 X-axis: CS + IS = (-1.8) + (4.2) = 2.4

H.

Grand Strategy Matrix

Rapid Market Growth Quadrant II Quadrant I

Weak Competitive Position

Strong Competitive Position

Quadrant III

Slow Market Growth

Quadrant IV

1. 2. 3. 4. 5. 6. 7.

Market development Market penetration Product development Forward integration Backward integration Horizontal integration Related diversification

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I.

The Internal-External (IE) Matrix

The IFE Total Weighted Score Strong 3.0 to 4.0 I Average 2.0 to 2.99 II Weak 1.0 to 1.99 III

High 3.0 to 3.99

IV

IV

VI

The EFE Total Weighted Score

Medium 2.0 to 2.99 VII

Johnson & Johnson

VIII

IX

Low 1.0 to 1.99

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J.

QSPM Acquire additional companies that are innovative and have pending patents on popular health related products AS TAS 4 0.4

Key Factors Opportunities 1. Smaller companies are coming up with new and innovative drugs. This creates an opportunity for larger drug companies to acquire or form a joint venture with smaller companies 2. Larger organizations have better purchasing power in buying raw material 3. The baby boomers are aging, therefore they have more need for health and medical services 4. More consumers are becoming health conscious by taking more vitamins and use better brand health related products 5. Due to economic downturn, many individuals may have more stress and depression and as such, may have a need for prescription drugs 6. Despite years of research, companies still spend money for developing new drugs for health issues related to cancer, heart problems, HIV and Alzheimers 7. Through the Internet, drug companies have found a more effective and less expensive way in advertising, educating, and promoting their products Threats 1. The cost of R&D has been increasing at an astounding rate, rising currently at a rate of eightfold per year 2. Due to economic downturn, there has been severe changes in the behavior and spending patterns of purchasers of healthcare products and services 3. Generic drug firms have filed Abbreviated New Drug Applications (ANDAs) seeking to

Weight 0.1

Develop new health related products such as vitamins and dietary pills/drinks for health conscious consumers AS TAS 2 0.2

0.09 0.1 0.1 0.06

------2

------0.12

------3

------0.18

0.06

0.24

0.18

0.07

---

---

---

---

0.09 0.08

2 2

0.18 0.16

4 1

0.36 0.08

0.07

0.21

0.28

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market generic forms of most of the key pharmaceutical products, prior to expiration of the applicable patents covering those products 4. By 2012, many major patents, often referred to as Patent Cliffs, will expire, clearing the way for companies involved in the production of generics to begin manufacturing the most effective and high-grossing drugs on the market 5. Introducing a new drug into the market can take 10 to 15 years and require extensive amount of money to get it tested and receive FDA approval 6. Often, drugs could have side effects which create negative publicity and/or force the company to recall the drug or remove it from the shelves TOTAL Strengths 1. J&J offers a wide variety of products and services to hospitals, retailers, and families 2. The company does business in three segments: pharmaceutical, medical devices and consumer products 3. In July 2009, J&J purchased an 18.4 percent stake in Irish biotech company Elan Corp. in order to gain access to the US$3 billion market for Alzheimer's disease treatments. The effectiveness of the drug could help the company's sales by US$25 billion 4. In 2009, J&J acquired the small cancer drug-developer Cougar Biotechnology for about US$894 million in cash. Cougar has an excellent drug for late stage prostate cancer 5. At the end of 2008, J&J reported US$7.6 billion in research and developments expenditures, which was a slight decrease from 2007 6. Sales for both consumer health products and medical devices and diagnostics were up from 2007 to 2008 by 10.8 percent and 6.4 percent, respectively 7. The consumer products segment's operating profit increased 17.4 percent from 2007 to US$2,674 million in 2008 8. The pharmaceutical segment operating profit increased 16.3 percent from 2007, and operating profit increased to 31.0 percent to a total of $7,605 million in 2008

0.06

0.18

0.24

0.05

0.20

0.1

0.07

---

---

---

---

1.00 0.08 0.08 0.07 --4 ---

1.69 --0.32 ----3 ---

1.62 --0.24 ---

0.07

---

---

---

---

0.08

---

---

---

---

0.06

0.18

0.24

0.06 0.06

--4

--0.24

--2

--0.12

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9. Operating profit in medical devices segment increased 49.1 percent from 2007 to a total of US$7,223 million in 2008 Weaknesses 1. Sales for pharmaceutical segment was down from 2007 to 2008 by 1.2 percent 2. Patent on many of their popular and high volume drugs is about to expire 3. Increase in total liabilities by approximately US$4.8 billion from 2007 to 2008 4. In recent years, have not introduced any new innovative product unless by acquiring other companies 5. Per 2009 data, the company's quarterly sales dropped by 5.3 percent from the same period in prior year 6. The selling, general and administrating expenses to sales increased by 0.30 percent from 2007 to 2008 SUBTOTAL SUM TOTAL ATTRACTIVENESS SCORE

0.06

---

---

---

---

0.06 0.09 0.05 0.07 0.04 0.07 1.00

4 4 ---------

0.24 0.36 --------1.34 3.03

2 2 ---------

0.12 0.18 --------0.9 2.52

Recommendations Acquire companies that manufacture products not available currently through Johnson and Johnson product line and could fall under one of the companys primary segment / product line.

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L.

EPS/EBIT Analysis

US$ Amount Needed: $1 billion Stock Price: US$64.74 Tax Rate: 23.5% Interest Rate: 5.46% # Shares Outstanding: 2.8 billion

Common Stock Financing Recession $28,000,000,00 0 0 28,000,000,000 6,580,000,000 21,420,000,000 2,815,446,401 7.61 Normal $30,000,000,00 0 0 30,000,000,000 7,050,000,000 22,950,000,000 2,815,446,401 8.15 Boom $45,000,000,00 0 0 45,000,000,000 10,575,000,000 34,425,000,000 2,815,446,401 12.23 Recession $28,000,000,000 54,600,000 27,945,400,000 6,567,169,000 21,378,231,000 2,800,000,000 7.64

Debt Financing Normal $30,000,000,00 0 54,600,000 29,945,400,000 7,037,169,000 22,908,231,000 2,800,000,000 8.18 Boom $45,000,000,000 54,600,000 44,945,400,000 10,562,169,000 34,383,231,000 2,800,000,000 12.28

EBIT Interest EBT Taxes EAT # Shares EPS

EBIT Interest EBT Taxes EAT # Shares EPS

70 Percent Stock - 30 Percent Debt Recession Normal Boom $28,000,000,00 $30,000,000,00 $45,000,000,00 0 0 0 43,680,000 43,680,000 43,680,000 27,956,320,000 29,956,320,000 44,956,320,000 6,569,735,200 7,039,735,200 10,564,735,200 21,386,584,800 22,916,584,800 34,391,584,800 2,810,812,481 2,810,812,481 2,810,812,481 7.61 8.15 12.24

70 Percent Debt - 30 Percent Stock Recession Normal Boom $30,000,000,00 $28,000,000,000 0 $45,000,000,000 10,920,000 10,920,000 10,920,000 27,989,080,000 29,989,080,000 44,989,080,000 6,577,433,800 7,047,433,800 10,572,433,800 21,411,646,200 22,941,646,200 34,416,646,200 2,804,633,920 2,804,633,920 2,804,633,920 7.63 8.18 12.27

M.

Epilogue

The U.S. Congress has been discussing plans to pass a national healthcare program which could impact the drug companies and how they do business in the United States. If the healthcare reform is passed, more individuals could afford to have health insurance and accordingly use products or services prescribed by their physician. On the other hand, there may be some requirements in regards to lowering prices on products or services by the drug manufacturers. In recent months, Johnson & Johnson has announced several victories such as unveiling Cytomimic Technology which is related to how the bodys electrical field affects skin regression; reaching an agreement between Cordis Corporation (owned by Johnson & Johnson) with Boston Scientific resolving two litigations; receiving an approval from the U.S. Food and Drug Administration for labeling update for Prezista tablets; and an increase in sales of 9.0 percent in the fourth quarter of 2009 compared to the same period in 2008.

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