In this Johnson and Johnson SWOT analysis, you will learn – what makes this company great and what are its holdups. Johnson & Johnson, a 130-year-old company, is a global leader in the pharmaceutical and consumer healthcare market.
The SWOT analysis for Johnson & Johnson has four segments:
- Strengths: Strengths are internal factors that enable the company’s growth.
- Weaknesses: Weaknesses are internal factors that slow the company’s progress.
- Opportunities: Opportunities are external factors that promote success.
- Threats: Threats are external factors that slow development.
As you can see, in this SWOT analysis for Johnson & Johnson, the words strength, weakness, opportunity, and threat have a specific meaning. Internal factors, aspects over which Johnson & Johnson has control, govern strengths and weaknesses. External factors, influences over which Johnson & Johnson has little to no control, govern opportunities and threats.
Now that you are clear on what each component of the Johnson & Johnson SWOT analysis is, let’s look at the first part – strength.
What are Johnson and Johnson’s major strengths?
- Research & Development: According to Johnson & Johnson’s statement of earnings for the 3rd quarter of 2020, the company spent 20.13% of its gross profit on research and development. 2019’s quarterly reports state Johnson & Johnson spent $11.35 billion in research and development. Since R&D is a critical component of drug development in the pharma and healthcare industry, a high R&D budget is at the top of Johnson & Johnson’s strengths.
- Revenue: In the last 12 months Johnson & Johnson has earned $80.86 billion. During the same period, Pfizer, Johnson & Johnson’s closest rival, has earned $48.65 billion. With a clear lead of 66.20% over its nearest competitor, Johnson & Johnson’s revenue stream puts the company at a dominant position in the industry.
- Products: Johnson & Johnson makes consumer health products, medical devices, and pharmaceutical products. It owns household brands such as Listerine, Band-aid, Tylenol, and Pepcid. Janssen, the pharmaceutical companies of Johnson & Johnson, produces 380+ products. This large array of well-known and obscure products is one of Johnson & Johnson’s core strengths.
- Global Reach: Johnson & Johnson has a presence in 60 countries and its products are sold in over 140 countries. Since the company is spread over most of the planet, its products reach and serve millions of people. We are immersed in Johnson & Johnson’s products even though we may not realize it. This deep connection with the daily lives of people is one of the reasons Johnson & Johnson is such a strong company.
- Stable Market Performance: From its investor fact sheet, you can see that Johnson & Johnson has recorded 58 consecutive years of a dividend increase. Around 70% of its sales come from the #1 or #2 global market share position. And 25% of the sales are from products Johnson & Johnson launched in the last 5 years. Providing 11.8% 10-year total returns to investors, Johnson & Johnson is one of the most stable and reliable businesses in the world.
What are some of Johnson and Johnson’s weaknesses?
- Uneven Revenue Distribution: 50.7% of Johnson & Johnson’s revenue comes from its pharmaceutical segment. And 32% of pharmaceutical sales come from immunology-related products. More specifically, three drugs drive immunology sales. So, much of Johnson & Johnson’s revenue depends on a few key products. These key products are vulnerable to patent expiry and competition. This lack of diversity tops the list of Johnson & Johnson’s weaknesses.
- Unethical Practices: A judge in Oklahoma found Johnson & Johnson culpable in distributing “false, misleading, and dangerous marketing campaigns” for opioids. The judge also said the campaigns led to an exponential rise in rates of addiction and overdose deaths. A few months earlier, Johnson & Johnson set aside an additional $1 billion to the $4 billion initially allocated to settle 2000 opioid-crisis-related cases.
- Fall in Consumer Health Sales: Among its core sectors – pharma, medical devices, and consumer health care – consumer health care pulls in the least amount of revenue. Boosting sales in this area would lead to greater profits and a more evenly distributed portfolio.
- Gender Discrimination Allegation: The opening line of Johnson & Johnson’s Diversity and Inclusion Policy affirms a commitment to workplace diversity and to cultivating, fostering, and preserving a culture of inclusion. However, news of a former senior executive suing Johnson & Johnson for gender discrimination and harassment sheds doubt on Johnson & Johnson’s resolve to live up to its commitment. If the allegations are proven true, they would reveal a major weakness.
- Kickback Allegations: A kickback is a form of bribery. Pharma companies offer kickbacks to doctors to boost prescriptions of their products. A whistleblower accused Johnson & Johnson of offering free services to doctors to increase the prescription of Remicade and Simponi. Gaining an unfair advantage through kickbacks negatively impacts Johnson & Johnson’s reputation.
What are some opportunities for Johnson and Johnson?
- One-Dose Vaccine: Pfizer and Moderna are already out with vaccines and are now seeking emergency use authorization in the US. But vaccines from Pfizer and Moderna require two doses. Johnson & Johnson’s vaccine requires only a single dose. Thus, with every vaccine, Johnson & Johnson earns twice as much as Pfizer and Moderna do. So, this is the most lucrative of Johnson & Johnson’s opportunities.
- Robotic Surgical System: At present Intuitive Surgical has 92.3% of the market share in the robotic surgical systems industry. However, Johnson & Johnson recently released information about its own robotic surgical system, Ottava. Johnson & Johnson plans to begin clinical trials in 2022. Although it’s a fledgling industry limited to the US, it is an industry with a high potential for growth. So, Ottava is an opportunity for Johnson & Johnson to gain an early advantage over its rivals.
- Bio-Implants: Bio-implants are artificial body parts made from biosynthetic materials such as collagen and artificially engineered tissue and skin. By 2030, 20% of the population in the US would be over 65. The population increase will create a corresponding increase in the demand for bio-implants. So, this is a great opportunity for Johnson & Johnson to explore.
- Mergers and Acquisitions: Mergers and acquisitions allow companies to broaden their portfolio without investing in developing the capabilities in-house. Johnson & Johnson recently acquired Momenta for $65 billion. The acquisition strengthened Johnson & Johnson’s position in auto-immune-disease drug manufacturing and development.
- Tele-Health: The telehealth sector covers the distribution of health and health-related services over electronic media. It allows for long-distance care and consultation. Seeing the potential in this sector, Johnson & Johnson has invested in the telehealth startup, Thirty Madison. Over the next few years, the telehealth market will grow by 14.9% CAGR.
What are the biggest threats to Johnson and Johnson?
- Lawsuits: Recently, Johnson & Johnson said it’s paying $100 million to settle over 1000 cases related to Johnson & Johnson’s talcum powder. The plaintiffs claim the prolonged use of Johnson & Johnson’s talcum powder caused the plaintiffs to develop ovarian cancer. Such lawsuits destroy the company’s reputation and trust and are one of the biggest of Johnson & Johnson’s threats.
- Competition: Johnson & Johnson’s biggest competitors is Pfizer. Pfizer is out with a high-efficacy vaccine for the COVID-19 virus. Johnson & Johnson is yet to complete the trials for its vaccine. We expect Johnson & Johnson to report its efficacy in early 2021. So, Johnson & Johnson’s rivals have the early-arrival advantage.
- Government Regulations: Governments rigorously regulate the pharmaceutical industry. These regulations put a ceiling on how much companies can charge for their products. Key election-time promises of Joe Biden include standing up to the abuse of power by prescription drug companies. Also, drug pricing policy varies from country to country. Since Johnson & Johnson is spread across so many countries, staying compliant across the board is an ongoing challenge.
- Surgery Deferrals: Supplying medical devices is one of Johnson & Johnson’s three main business verticals. This is also the only vertical that has shown a decrease in sales over the last two quarters. Johnson & Johnson attributes the drop in sales to a deferral of surgeries because of COVID-19.
- Corporate Espionage: Johnson & Johnson invests heavily in research and development. Naturally, Johnson & Johnson’s intellectual property is vulnerable to corporate espionage. For example, recently North-Korea-linked hackers tried to steal information on Johnson & Johnson’s research on the COVID-19 vaccine.
From this SWOT analysis for Johnson & Johnson, we’re clear that Johnson & Johnson’s revenue stream and global reach are its biggest strengths. And when you reflect on Johnson & Johnson’s weakness, you’ll see that Johnson & Johnson lacks diversification – it makes most of its revenue from a few key products.
Also, settlements to end legal disputes are taking a heavy toll on Johnson & Johnson’s finances. Resolving these issues and preventing them from happening again is another weakness for Johnson & Johnson to overcome. On the bright side, Johnson & Johnson’s one-dose vaccine will be a gamechanger if it clears clinical trials.
In conclusion, Johnson & Johnson is a giant in the pharma sector and has been called to serve the world in a time of desperate need. In heeding the call to service, Johnson & Johnson stands to add to its proud legacy and to its profits.
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