strategic-management

Even the largest pharmaceutical companies are being forced to cut thousands of jobs.
For example, Pfizer and AstraZeneca cut 19,500 and 15,000 jobs, respectively, over the first
three months of 2009. The economic crisis also is directly affecting the R&D budgets of many
drug companies, instilling fear into both prospective and established investors of pharmaceutical
companies. The cost of R&D has been increasing at an astounding rate, rising currently at
a rate of eightfold per year. With R&D the lifeblood of major drug companies, further reductions
could severely affect the advancement and development of new drugs. However, the economic
threat to drug production is only one of many threats looming on the horizon.
Additionally, changes in the behavior and spending patterns of purchasers of healthcare
products and services, including delaying medical procedures, rationing prescription
medications, reducing the frequency of physician visits, and forgoing health-care insurance
coverage, as a result of the current global economic downturn, will continue to impact
the major drug industry. 12
Patent Expiration
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. In the event companies are not successful in
defending the patent claims challenged in ANDA filings, the generic firms will then introduce
generic versions of the product at issue, resulting in the potential for substantial
market share and revenue losses. 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. For
example, Pfizer’s Lipitor, which accounts for roughly 25 percent of the company’s revenue
(over $12 billion), will lose patent protection in late 2011. This poses both a threat for the
major drug companies that rely on these drugs as their cash cows and an opportunity for
generic drug companies to increase profits significantly.
The Future
J&J had sales of $15.2 billion for the second quarter of 2009, a decrease of 7.4 percent
as compared to the second quarter of 2008. Domestic sales declined 6.7 percent, while
international sales declined 8.0 percent, reflecting operational growth of 3.9 percent and a
negative currency impact of 11.9 percent. Net earnings and diluted earnings per share for
the second quarter of 2009 were $3.2 billion and $1.15, respectively.
Regarding J&J’s divisions, Worldwide Consumer sales of $3.9 billion for the second
quarter represented a decrease of 4.5 percent versus the prior year. Domestic sales in this
division increased 0.8 percent; while international sales decreased 8.4 percent, which
reflected an operational increase of 4.7 percent and a negative currency impact of 13.1 percent.
Listerine, Neutrogena, and Aveeno did exceptionally well during the quarter. Other
growth drivers were sales from the recently completed acquisition of a French company,
Vania Expansion SNC.
J&J’s Worldwide Pharmaceutical division’s sales of $5.5 billion for the second
quarter represented a decrease versus the prior year of 13.3 percent with an operational
decline of 8.5 percent and a negative impact from currency of 4.8 percent. Domestic sales
decreased 16.4 percent; while international sales decreased 8.7 percent, Remicade,
Prezista, Velcade, and Concerta did especially well. Related to this division in this quarter,
J&J’s new acquisitions were Cougar Biotechnology and Elan Corporation.
J&J’s Worldwide Medical Devices and Diagnostics sales of $5.9 billion for the
second quarter represented a decrease of 3.1 percent versus the prior year with an
operational increase of 2.9 percent and a negative currency impact of 6.0 percent.
Domestic sales increased 1.9 percent; while international sales decreased 7.2 percent,
which reflected an operational increase of 3.7 percent and a negative currency impact
of 10.9 percent.
As indicated in Exhibit 5, J&J has many competitors. Develop a three year strategic
plan for J&J that will allow the company to continue progress—as showcased in Exhibit 7
and Exhibit 8.
CASE 21 • JOHNSON & JOHNSON — 2009 209