Johnson & Johnson (JNJ) at Morgan Stanley Notes

JNJ’s 24 billion dollar brands–and its diverse portfolio in general–gives it insight and connections with large customers that are increasingly consolidating.

“You take we’ve got 24 brands that are billion dollar platforms at Johnson & Johnson, the first and best in many different areas. And we think that that provides a certain financial stability as we think about the long-term future and really investing for the long-term. We think that that diversified portfolio, however, provides us a number of other benefits. It provides us certain insights… We think it gives us breadth and depth with large customers that are increasingly consolidating, whether it’s large independent healthcare systems, whether it’s governments outside of the United States, particularly in emerging markets where the diversified and even consumer branded Johnson & Johnson is very important. It’s a philosophy and it’s a strategy that’s also grounded in competitiveness.” Alex Gorsky – Chief Executive Officer


Growth is split about 50-50 between organic and inorganic.

“In about slightly over 50% of the time, depending on the timeframe, it can range from 55% to 60% of the time, we tend to benefit from organic growth opportunities, things that we develop within our labs. About 40% to 45% of the time it’s been through inorganic growth.” Alex Gorsky – Chief Executive Officer


Over the next 30 years, 350 million people worldwide are aging past 65. This will create opportunity for the healthcare industry, but will also create pricing pressure.

“I think absolutely we should be expecting ongoing pricing pressures in the industry. It’s just the fact that if you look at the macroeconomic issues around the world, given aging populations, the fact that each of us are getting there faster by the minute. But about 12% of the population is over the age of 65, that number is probably going to go to 25% certainly here in the United States. If you’re in Japan, you’re already at 25%, but if you’re in Germany and places like that, you’re rapidly approaching that same number. When you consider the fact that once you turn 65 you tend to consume about 5 to 7 times the amount of healthcare you consumed before you were 65. And then if we go to emerging markets, China, Brazil, India, Russia, other areas, you’ve got two dynamics. One, you have an aging population in many of those places. I think there’s about 150 million people over the age of 65 in China. That number will go to 350 million over the next 30 years.

So imagine a population the size of the United States. And then you combine that with an increasing middle class and once people get shelter, food, what’s the third thing they want to consumer more of as they move up the economic ladder? Healthcare. So we think all of those are going to being a lot of pressure on payers and healthcare systems and therein lies the opportunity I think for us. But I think clearly that will result in pricing pressure” Alex Gorsky – Chief Executive Officer


Large acquisitions focus on synergy, smaller acquisitions focus on innovation

“Large acquisitions by definition are more complex, they’re messier. Rather than focusing on innovation, they frequently focus on synergies. And so that’s what we would prefer.” Alex Gorsky – Chief Executive Officer


As the hospital and pharmaceutical ecosystems evolve, they prefer to deal on a broader basis.

“We see that as systems get larger in the United States that there’s a preference to talk across category. Now it’s fair to say that hospital systems are still evolving in this area. There’s some of them that still need to mature, that need to build their systems to deal on that kind of basis. But we’re seeing a greater and greater appetite for that as we speak. We certainly see it outside the United States in dealing with places like the UK, Germany and in emerging markets where they want to deal on a broader basis.” Alex Gorsky – Chief Executive Officer


The JNJ brand is associated with the smell of baby shampoo.

“We believe the consumer business at J&J is an absolute integral part of our company. And it starts with what you just said. I mean wherever I go around the world, if you say what do you think of with Johnson & Johnson, I mean people smell baby shampoo. And it brings an affinity to the brand of Johnson & Johnson, it makes us different.” Alex Gorsky – Chief Executive Officer