In 2013, we celebrated the 70th anniversary of Our Credo. The words written by General Robert Wood Johnson are just as relevant today as they were in 1943 and remind us of the deep responsibility we have to the doctors, nurses, patients, mothers and fathers — and all those we are privileged to serve. It’s Our Credo that ignites our passion to strike out in new directions with boldness, with purpose, and with a sense of unlimited potential about what the future of health care might bring. Our Credo also unites the employees of Johnson & Johnson in a common mission to make positive, measurable differences and help people everywhere live longer, healthier and happier lives.
For 70 years, Our Credo has also guided our decision-making through the challenges and complexities that have confronted our world. No matter what unique challenges have come to each generation—whether it was global pandemics, economic uncertainty, world wars, population growth or technological advances— Johnson & Johnson has stayed focused on our mission. Over the years, we’ve improved patient care and the quality of life for millions of people worldwide by delivering surgical innovations, breakthroughs in medicine and legendary products that have stood the test of time. For many of us, the simple scent of JOHNSON’S® Baby Powder or JOHNSON’S® Baby Shampoo brings happy memories, even while they create new memories today for millions of parents, children and grandparents in nearly 200 countries around the world.
Inspired by this legacy, all of us at Johnson & Johnson are also fully committed to addressing the challenges and opportunities that surely lie ahead in health care. As I travel around the world and speak with leaders in health care, government, and business, I hear a consistent theme of concern and uncertainty. In a world challenged by a growing number of diseases, aging populations, insufficient health care delivery and rising costs, stakeholders everywhere see the need to provide better outcomes and solutions for individuals, families, communities, countries and all stakeholders. This is a call to action for all of us at Johnson & Johnson to take a leadership role in addressing these issues in an increasingly complex, connected, and demanding world.
I’m very proud to say that against this backdrop, our businesses delivered strong results in 2013, led by the outstanding performance in our Pharmaceutical segment; the strength of key brands in our U.S. over-the-counter (OTC) medicines business; and continued progress in integrating Synthes, Inc. into our Medical Devices and Diagnostics business. We also advanced our longer-term growth drivers of bringing innovative solutions to the global health care market and executing with excellence.
A key goal for us has been to prioritize our product portfolios, be decisive, and focus our energies in areas where we have the greatest opportunities to lead and meet the evolving needs of customers in markets around the world. We’ve made strong progress on this front in each of our segments last year and made significant contributions to advancing patient and consumer care.
With this focus and our industry leadership, we delivered strong sales results:
- Pharmaceuticals accounted for 39 percent of our total sales on an outstanding operational growth of 12 percent compared to 2012.
- Medical Devices and Diagnostics represented 40 percent of our sales with operational growth of 6.1 percent.
- Our Consumer segment generated the remaining 21 percent, up 2.8 percent on an operational basis versus 2012.
Our depth of leadership is reflected in the fact that approximately 70 percent of our sales come from products with the number one or number two global market share position. With these strong sales results, we delivered adjusted earnings per share* growth of 8.2 percent and strong free cash flow** of nearly $14 billion.
I am pleased with the progress we have made in the two years I have been honored to serve as the Chief Executive Officer of Johnson & Johnson, and there remains so much more to do in the global health care space. Too many regions across the world—from developed to emerging markets—are still far from providing high-quality health care to the people who need it. As the world’s largest health care company, serving more than one billion patients and consumers around the world every day, we do not just consider it our responsibility to do all we can to reach the next billion, and the billion after that—we consider it a responsibility and privilege.
By bringing the values embodied in Our Credo to life while focusing on four long-term drivers of growth—creating value through innovation; expanding global reach with local focus; maintaining a laser focus on excellence in execution; and leading with purpose to make a difference in the world—we have set our sights on achieving even greater progress in the years to come.
2013 BUSINESS HIGHLIGHTS
Johnson & Johnson exceeded our financial commitments for 2013.
- Innovating in Pharmaceuticals. The performance of our Pharmaceutical business segment was exceptional. We are the fastest growing top 10 pharmaceutical company in the U.S., Europe and Japan. Our success is driven by great science which has consistently delivered meaningful advancements for patients over existing therapies. The 13 new products we have launched since 2009, coupled with other core brands like PREZISTA® (darunavir) for HIV treatment and REMICADE® (infliximab), a treatment for a number of immune-mediated inflammatory diseases, greatly contributed to our growth. We expect our pharmaceutical pipeline to continue growing in 2014.
- Successfully Integrating Synthes. Integrating Synthes continues to be a priority and we have made good progress. DePuy Synthes Companies is the world’s largest and most comprehensive orthopaedics company and it is primed to offer new, value-added solutions that will help transform health care delivery from the operating room to a patient’s mobility. While we still have work to do, I am encouraged to see cross-selling initiatives we envisioned from the onset taking hold as well as revenue and cost-saving synergies that will make the business even more competitive going forward.
- Driving Growth by Restoring Consumer Reliability. In our Consumer business segment, we made significant progress in restoring a reliable supply of over-the-counter (OTC) products to the U.S. marketplace and we are starting to see them gain traction, particularly TYLENOL® and MOTRIN®, which helped drive U.S. OTC growth of 19.7 percent. U.S. OTC brands ended 2013 with the number one and number two product SKUs in both the adult and pediatric pain product categories. We have also identified specific consumer need states and 12 major brands that will drive growth, including NEUTROGENA®, LISTERINE® and JOHNSON’S® Baby.
- Rewarding our shareholders. Our shareholders were rewarded with a total return of almost 35 percent***, which outpaced nearly every major index we benchmark ourselves against. Johnson & Johnson has delivered 30 consecutive years of adjusted earnings* increases and we are one of only six companies in the S&P 100 to have delivered 51 consecutive years of dividend increases.
More details are available about each of our three business segments in the 2013 Business Highlights section of this Annual Report and in our 2013 Digital Annual Report, available at http://www.2013annualreport.jnj.com. You can also watch highlights from my January 2014 speech at our Annual Business Review at: https://www.youtube.com/watch?v=hdvHMmSot14
OUR FOUR DRIVERS OF LONG-TERM GROWTH
First, We are Creating Value Through Innovation
At Johnson & Johnson, everything we do begins with innovation. For the past five years, we’ve consistently invested about 11 percent of sales to support our R&D efforts. That equated to over $8 billion enterprise-wide in 2013, and by leveraging the power of our enterprise, we are increasing our overall effectiveness and efficiency in the global marketplace.
- Our research and development continues to deliver results. Our investments in R&D are helping us continually deliver meaningful innovations for our customers. About 25 percent of our sales have come from products we have introduced in just the past five years.
- We gained or held market share. In 2013, in 14—out of 18—key in-line product platforms, we gained or held market share.
- Our pharmaceutical pipeline was productive. Our Pharmaceutical business saw great productivity from our pipeline, including the launch of three new major medicines: INVOKANA® (canagliflozin) for the treatment of Type 2 diabetes, IMBRUVICA™ (ibrutinib) for mantle cell lymphoma, and OLYSIO™ (simeprevir) for the treatment of chronic hepatitis C.
- Important new medical devices were approved. Our Medical Devices and Diagnostics business saw the U. S. Food & Drug Administration approve EVARREST™ Fibrin Sealant Patch, a novel product that rapidly and reliably aids in stopping bleeding during surgery. The ENSEAL® G2 Articulating Tissue Sealer makes it easier for surgeons to access difficult-to-reach parts of the anatomy, and our THERMOCOOL® SMARTTOUCH® Catheter enhances the safety and efficacy of ablation procedures. These innovations have strengthened our worldwide leadership position in medical devices and diagnostics, where 85 percent of our key platforms hold the number one or number two position in the market.
- We launched new consumer products globally. In our Consumer segment, we continue to expand globally with the acquisition of Shanghai Elsker Mother & Baby Co., Ltd, a leading baby care products company for the Chinese market and by launching LISTERINE® ADVANCED DEFENCE® Gum Treatment in the United Kingdom and Ireland.
- We created new Johnson & Johnson Innovation Centers. We announced the creation of the Johnson & Johnson Innovation Centers with locations in London, Shanghai, Boston, San Francisco and San Diego. These customized collaborations are part of our enterprise-wide strategy to support an international network of scientific entrepreneurs through access to best-in-class laboratory facilities and scientific expertise.
Second, We are Bringing To Life Our Global Reach with Local Focus
Johnson & Johnson is truly a global company, with more than 275 operating companies in 60 countries. While we are headquartered in the United States, our mindset is global—we are focused on new products, new technologies and new business models that truly connect with the way our customers live. Today, 55 percent of Johnson & Johnson’s business comes from outside the United States, and that number is growing—as 22 percent of our sales come from fast growing emerging markets such as Brazil, Russia, India and China.
- We created a unified business model in China. Johnson & Johnson was one of the first western companies to expand into China 28 years ago. Our locally based, broad range of businesses gives us unique insight into China’s health care challenges, including an aging population. That’s why we have created Johnson & Johnson China, a new model that unifies our core business segments and allows us to identify and facilitate the creation of new opportunities in China’s rapidly growing health care system.
- We have taken a unified “go-to-market” approach in Southeast Asia. In Southeast Asia, we have aligned our operations and management under a single business model called “One Johnson & Johnson” for nine countries, including Thailand, Indonesia and the Philippines. We believe this streamlined approach gives us a market advantage to operate more efficiently and effectively in smaller and mid-sized markets.
Third, We are Maintaining a Laser Focus on Excellent Execution
Nowhere is the need for excellence in execution more critical than in health care. Strategy is only as good as the ability to execute flawlessly—focusing and setting priorities; doing the right thing and not just getting it done; meeting milestones and delivering on our commitments. Excellence in execution starts with quality, a top priority at Johnson & Johnson, and one embodied in Our Credo by a commitment that “everything we do must be of high quality.” In 2013:
- We restored more of our products to shelves. We met our objective of restoring approximately 75 percent of our planned U.S. OTC products to store shelves.
- We have implemented a new quality and compliance operating model. We’ve taken important steps to ensure the quality and safety of our products by adopting a single, global set of quality standards. We’ve also established a single Medical Safety organization focused on ensuring that our in-market products perform as intended.
- We’ve strengthened and streamlined our supply chain to ensure that we reliably meet demand for our products. We’ve raised the bar and created a single global enterprise Supply Chain organization in order to ensure the development and production of high-quality products. This has helped us improve our customer service and reliability performance and will better position us for future growth.
Fourth, We are Leading with Purpose to Make a Difference
Guided by Our Credo, our citizenship and sustainability priorities focus on advancing human health and well-being, safeguarding the planet, and leading a strong and responsible business:
- We are helping to advance the United Nations Millennium Development Goals. One example of this legacy is our commitment to the United Nations Millennium Development Goals focused on the well-being of mothers and children around the world, including geographic locations where the needs are the greatest and the resources are most scarce. Our commitment focuses on five key areas where we have developed strong, innovative partnerships. First, making childbirth safer. Second, treating and preventing intestinal worms in children. Third, using mobile phones to share vital health information with new and expectant mothers. Fourth, eliminating mother-to-child transmission of HIV. Fifth, piloting and scaling therapeutic innovation through research and development to treat HIV, tuberculosis and neglected tropical diseases.
- We are supporting over 500 communities globally. We contributed about $1 billion in products and cash and supported over 500 community programs in more than 60 countries.
- We are helping to fight tuberculosis by making medicine more available. We are committed to advancing global health to fight multi-drug resistant tuberculosis by working with health authorities to make SIRTURO® (bedaquiline) more available in countries like Russia where outbreaks have become more prevalent.
- We created a novel donation program to increase access to our HIV medicines in Africa. The Janssen pharmaceutical companies of Johnson & Johnson announced a first-of-its-kind pediatric HIV treatment donation program to improve access to the company’s approved HIV medicines PREZISTA® (darunavir) and INTELENCE® (etravirine) for children and adolescents failing HIV treatment in sub-Saharan Africa. Tragically, only a third of the three million children living with HIV today are receiving medicines. The donation program is part of our longstanding commitment to help people living with HIV and enhance access to our medicines for those in need.
- We made progress reformulating our iconic baby products in response to the changing expectations of our customers. Following conversations with parents, advocacy groups and retailers, the Johnson & Johnson Family of Consumer Companies made a public pledge in 2011 to reduce or eliminate certain ingredients in our baby and beauty products worldwide. We want our beauty and baby care products to reflect our customers’ current expectations, shifting behaviors and concerns when it comes to certain ingredients, and we are proud to be the first major company to set and meet this type of a public commitment. We will also continue to lead by working with our suppliers and partners to produce the very best products for families as we work to meet our commitment to make further enhancements to our products by the end of 2015. You can learn more about our safety and care commitment at http://www.safetyandcarecommitment.com/.
- We set a new standard for data transparency. In early 2014, Johnson & Johnson announced, through its subsidiary Janssen Research & Development LLC, a clinical trial data sharing agreement with Yale School of Medicine’s Open Data Access (YODA) Project to extend its commitment to sharing clinical trials data to enhance public health and advance science and medicine. This is the first time any company has collaborated with a completely independent third party to review and make decisions regarding every request for pharmaceutical clinical data. This agreement will further our understanding of diseases, new treatment opportunities and underscores Our Credo responsibilities.
OUR COMMITMENT TO YOU
Today—and every day—our people and products will touch more than one out of every seven people globally. Our Credo compels us to act on the potential we have for reaching more people, in more places, and in more ways, as the largest, most broadly-based health care company in the world.
I have been privileged to work at Johnson & Johnson for more than two decades, and have seen up close the passion, persistence, creativity, and innovation of our people. I have seen that a commitment to doing the right thing and a commitment to leading by example are qualities found in abundance at Johnson & Johnson.
In a world challenged by a growing number of diseases, aging populations, insufficient health care delivery and rising costs, our role to lead—to provide solutions and continue our quest to better serve the individuals, families, communities, countries and shareholders that depend on us—is as important and urgent today as ever.
Around the world we are doing extraordinary work to meet unmet needs by delivering life-saving medicine and devices, and forging new frontiers in the call for more personalized engagement in the world of consumer products.
By bringing the values embodied in Our Credo to our work, focusing on near-term priorities and long-term drivers of growth, we continue to set our sights on even greater health care progress in the years to come.
At Johnson & Johnson, we will continue to approach the future boldly and actively seek out new solutions that advance health, wellness and improve the quality of people’s lives. I’m so proud to be part of this organization and so excited about our potential in the years to come.
Chairman, Board of Directors, and Chief Executive Officer
March 12, 2014
* Excludes special items. See “Reconciliation of Non-GAAP Financial Measures” on page 72 of this Annual Report.
** Free cash flow is defined as operating cash flow less capital spending.
*** Including dividends.