Johnson & Johnson's New Chief Financial Officer Answers 7 Popular Investor Questions
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or over a century, Johnson & Johnson has pioneered everything from baby shampoo to life-saving medications—so it's no surprise the company thinks of itself as a 132-year-old start-up.
Indeed, the company's legacy of innovation, stability and financial strength is its calling card. And there's an exciting road ahead.
To learn more, we spoke to Joe Wolk, the company's newly appointed Chief Financial Officer. Wolk shares his plans for 2018—and the reasons behind why Johnson & Johnson has such a strong reputation across the healthcare landscape.
You've had a long tenure at Johnson & Johnson. How does it feel to take over as CFO?
Yes, I have been a long-time employee with the company—20 years as of last month, and my most recent position was Vice President of Investor Relations—but my Johnson & Johnson history actually dates much further back.
My father worked in Johnson & Johnson factories and offices, and my mom was a nurse for 40 years in the maternity ward at a hospital right up the street from our New Brunswick headquarters.
So healthcare has been something that's always been profoundly personal to me, and it's truly a humbling honor to represent the company in this role.
What are your goals as CFO?
We certainly want to be #1 or #2 in the markets in which we play, and we want to grow our top line at a rate that's faster than that of our competitive peer set.
Johnson & Johnson is well diversified—about 45% of its revenue comes from the pharmaceutical division, 35% from medical devices and about 20% from consumer. Why does this formula work?
Our broad base translates into a true strategic business advantage. It enables us to see more, touch more and collaborate with more innovators and scientists across the entire landscape of healthcare.
From a finance perspective, it insulates us from the natural ebbs and flows of the market, and we can continue to invest in value-creating opportunities, even in cases where one of our businesses may be facing some short-term challenges.
For example, at the end of the last decade, our pharmaceutical business was hit with a significant patent cliff and lost almost $3 billion in revenue within about 15 months.
However, we were able to make investments in pharmaceutical R&D that are still paying off today because of the strength of the medical devices segment during that time. If we had been a stand-alone pharmaceutical company, we would have had very difficult choices to make—ones that potentially would have impacted the long-term prospects of that business.
What do you see as the biggest growth areas for Johnson & Johnson in the next five years?
If you look at our pharmaceutical segment, it has been an industry leader for close to a decade.
To add to our current portfolio of groundbreaking treatments, we have a medication on the horizon to target treatment-resistant depression. There hasn't been any innovation in this space in about 25 years. Also in the pipeline is a treatment for bladder cancer—there currently aren't a lot of options out there for these patients—and we are also studying a potential treatment for lung cancer.
I'm also excited about our offerings in the medical devices space, where we have many strong businesses and plans to course-correct some areas where we underperformed. We added surgical eye options to our world-leading contact lens portfolio when we acquired the medical optics business from Abbott in early 2017 to broaden our presence in eye health.
We also have big expectations in consumer, where a relaunch of our iconic Johnson’s® Baby franchise should drive that segment to grow above the market by the end of this year.
And then there's technology, which is part and parcel to the innovative solutions we're bringing to the market. The technology in devices is making us smarter in how we treat patients, and will potentially personalize medicine and healthcare in a way that has never been done before.
A good example of this is our development of digital surgery, which we believe can be advanced beyond current robotic platforms to potentially offer patients better outcomes.
The technology-driven medicines, products and solutions we're developing and bringing to market are very dramatic and impactful.
Johnson & Johnson's stock has lagged a bit in 2018. What do you attribute this to?
There are three factors. First, there's the shifting landscape of price-to-earnings ratio (the ratio of a company's stock price to the company's earnings per share), most notably the decline in pharmaceutical stocks—and half of our company is valued through our high-performing pharmaceutical business.
Second, we are a dividend-paying stock, and when the treasury decides to increase interest rates, dividend stocks have a little less investor enthusiasm behind them.
Six companies have grown $150 billion or more over the last six years. They were technology companies like Amazon, Google and Microsoft—but Johnson & Johnson was also on that list.Share
Lastly, we're a U.S. multinational stock, meaning we have a large portion of business and revenue overseas, and so reported results could be negatively impacted by a strengthening dollar.
Factors like this will come and go and that’s why we focus on creating value in long-term horizons.
What makes Johnson & Johnson a good stock to consider?
If you look back to the beginning of Chairman and CEO Alex Gorsky's tenure six years ago, the market capitalization of our company was about $175 billion. Now it's up around $335 billion.
So our total shareholder return for those five years has outpaced almost every one of the indices that we compare ourselves to, like the Dow Jones Industrial Average and the S&P 500, as well as our peer set.
Six companies have grown $150 billion or more over the last six years.* They were technology companies like Amazon, Google and Microsoft—but Johnson & Johnson was also on that list.
And the company has increased its dividend for 56 consecutive years, even through economic downturns. We realize investors value this; it's why they tend to keep their shares for 10 or 20 years and leave them to their grandchildren.
What do you want your legacy to be?
For an organization of our size, we should be finding efficiencies to enable better bottom-line performance, which is what investors value. But we also want to continue to increase funding for research and development.
I’m inheriting a very healthy business from my predecessor, Dominic Caruso. We're in a very strong position to act when opportunity presents itself, whether that be through acquisitions or internal investment to catalyze the next 132 years.
*Based on S&P 500 reporting in 2012 and 2017