I have the privilege of being the CEO of Johnson & Johnson during a remarkable time in history. Throughout my seven years in this role, there have been many dramatic changes in global politics, the world economy, science, technology and culture. At the same time, there has also been an accelerated pace of progress in human health: unlocking the possibilities of the human genome, evolving and expanding the use of robotics and micro surgery, extending the life expectancy for people with HIV, and continuing to wage and win the fight against cancer and other debilitating diseases that have resisted treatment for generations.
What’s most exciting about this progress is that Johnson & Johnson has been at the very forefront of many of these revolutionary changes and expanding horizons—time and time again, delivering life-saving medicines and life-changing solutions.
It is an honor to lead an innovation-driven culture that continues to demonstrate the energy, drive and passion of a “start-up.” However, we also have the distinct advantage of our timeless values, such as the strong influence of our long-term strategic view, the unwavering guidance of Our Credo and the profound way in which we measure progress and success. Our Credo challenges us to focus on improving outcomes for patients and consumers globally, while we also focus on improving revenue and market share numbers. This philosophy allows us to lead with certainty even in the most challenging times, to drive performance and purpose with equal commitment, and enables us to maintain a leading role in defining the future of healthcare worldwide.
It is an honor to lead an innovation-driven culture that continues to demonstrate the energy, drive and passion of a “start-up.”
In this letter, I share the highlights of our performance, our notable achievements and our aspirations for the years to come. My goal is to provide an aerial view of Johnson & Johnson today—a Company that spans six continents and 60 countries, develops numerous innovative products and services and touches the lives of people all around the world every day.
Most importantly, I want to emphasize my confidence in our expansive capabilities, express my realistic optimism about our opportunities and challenges, and offer my insights on how we will continue to shape the future of healthcare today.
Celebrating Our Credo
In 2018, we celebrated the 75th anniversary of Our Credo. Written and introduced in 1943 by General Robert Wood Johnson, Our Credo has been the blueprint for shaping the role that Johnson & Johnson plays in society.
Although Our Credo is literally etched in stone, it is a living document that, on a very few select occasions, we have evolved to keep pace with the world in which we live.
In fact, late last year we did exactly this by introducing some enhancements to Our Credo responsibilities that were inspired by feedback from more than 2,000 of our diverse Johnson & Johnson employees, representing all regions, segments and functions.
- Explicitly put the patient first and at the center of our focus;
- Reflect the needs of a changing world and a new generation of employees;
- Underscore our commitment to diversity and inclusion; and
- Solidify our commitment to improving the health of humanity.
Our Credo remains as relevant today as when it was first introduced 75 years ago, and I’m confident that it will propel Johnson & Johnson forward for the next 75 years and beyond.
Innovation is Our Calling Card
When we hear the term “start-up,” we think of an organization with high energy and creativity, one that values agility and has a bold vision to change the world. As I look at the technologies we are investing in, the companies we are partnering with and the people who come to work for us every day, I believe those start-up attributes define our Company too—driving a vision of change that will have long-lasting impact for people everywhere.
Sustaining our investment in innovation is central to our ability to create meaningful change and competitive differentiation.
However, the timeless values that support these strategies also make us different from the typical start-up. Our 133 years of success and achievement motivate us even more to bring new ideas and approaches to market today and well into the future.
The diversity of our organization, which comprises a wide array of backgrounds, capabilities, experiences, opinions and approaches, enriches our collaborative innovation process. And this collaboration reaches far beyond the walls of Johnson & Johnson. For instance, we are partnering with some of the world’s most respected universities, research institutions, technology giants and traditional start-ups as we support those who explore new fields of research in JLABS, our Johnson & Johnson Innovation incubators.
A key example is how we are harnessing the strength of all three of our business segments in collaboration with Boston University research scientists to identify ways to better detect and treat the entire cycle of lung cancer. This disease is the leading cause of cancer mortality around the globe—we recognize the need and urgency, and we are responding to this call to action with this exciting partnership.
Powerful innovation has also been made possible by the financial strength we’ve built over the decades. Sustaining our investment in innovation is central to our ability to create meaningful change and competitive differentiation. In 2018, we achieved a record-level of Research and Development (R&D) investment of approximately $10.8 billion. In fact, across all industries, we are one of the top 10 companies that invested at the highest levels in innovation and R&D.
Last year, the Johnson & Johnson Family of Companies invested in a number of value-creating acquisitions and collaborations, which included Zarbee’s, Inc., a leader in naturally based over-the-counter (OTC) remedies, Orthotaxy, a developer of software-enabled orthopaedic surgery technologies and Arrowhead Pharmaceuticals, Inc., where we are working to bring a functional cure to patients with chronic hepatitis B. In total, we executed 12 acquisitions and licenses of various sizes, including our acquisition of the company that markets the DR CI LABO line of skincare products, which officially closed in 2019. Additionally, we signed 74 innovation deals as well as 29 new development deals, and we continue to make investments across all industries through Johnson & Johnson Innovation-JJDC, Inc. (JJDC).
As I just mentioned, we continue to innovate in surgery. Over 100 years ago, we were the pioneers of sterile surgery, establishing an incredible heritage that today includes our leadership in minimally invasive surgery and innovatively controlling surgical bleeding and infection globally. Our goal and commitment is to now create the next frontier of surgery. That’s why I’m excited that we entered into a definitive agreement to acquire Auris Health, Inc. Auris Health is a developer of robotic technologies that currently focuses on lung cancer. This acquisition will accelerate our entry into digitally enabled robotics procedures with the potential for growth and expansion into other interventional applications. In this new era of healthcare, we are aiming to simplify surgery, drive efficiency, reduce complications, improve outcomes for patients and make surgery even safer. This continues our surgical leadership that has been in motion since the beginning of our Company.
Looking ahead, I am also very excited about our collaboration with Apple, Inc. that we announced early in 2019. Together, we will be conducting a research study that analyzes whether a new heart health program using an app from the Johnson & Johnson Family of Companies, in combination with Apple Watch’s irregular rhythm notifications and Electro Cardiogram (ECG) app, can accelerate atrial fibrillation (AFib) diagnosis, and improve health outcomes including the prevention of stroke for the 33 million people worldwide living with AFib. This is a condition that can lead to stroke and other potentially devastating complications. In fact, in the U.S. alone, AFib is responsible for approximately 130,000 deaths and 750,000 hospitalizations every year.
We are very optimistic about the potential of this wearable technology. And, based on the insights generated through this research program, in the future we may also be able to develop new ways to detect other health conditions sooner. Early diagnosis not only has the potential to save lives, but it may also lower costs across the healthcare system.
Innovation is our calling card to the world of science and technology. We remain open to the best ideas, no matter where they come from, as we relentlessly pursue transformational innovation to benefit human health, internally and throughout our innovation ecosystem, across our Innovation Centers, JLABS, JJDC and many strategic partnerships.
Driving Long-term Shareholder Value
Our free cash flow* for 2018 improved to $18.5 billion, and employing our proven capital allocation strategy, we are able to effectively invest in our business and innovation to drive growth for long-term value, while also returning value to shareholders. Our capital allocation strategy includes four key priorities:
- Our first priority is to fund our internal growth opportunities via R&D and SM&A (selling, marketing and administrative) initiatives.
- The next priority is to deliver a competitive dividend to our shareholders, and in 2018 we paid $9.5 billion in dividends. We are very proud that our dividend has increased for the last 56 consecutive years.
- Once we’ve met our dividend goals, we target mergers, acquisitions and licensing agreements that we believe will add significant long-term value creation for our shareholders and all other stakeholders.
- And finally, we consider other prudent ways to return value to shareholders, such as share repurchase programs; and we are currently executing against a $5 billion share repurchase that we announced last December.
Given our financial strength, we can pursue all of these priorities simultaneously, as we did in 2018. Throughout Johnson & Johnson’s history, we have maintained a strong, consistent and sustainable business. This is illustrated by:
- 35 consecutive years of adjusted operational earnings growth*
- Being one of only two companies that hold a Triple A credit rating; and
- Our standing among Standard & Poor’s Top 10 Market Cap companies.
The Strategic Advantage of Our Broad Base
Positioned across three vital aspects of healthcare—Pharmaceutical, Consumer and Medical Devices—we have unique insight into challenges and opportunities whenever and wherever they emerge. We are structured to meet the current and future needs of patients and consumers globally, and to address the challenges and opportunities that the world of healthcare presents. We remain focused on leveraging our broad-based capabilities to continue to drive the next generation of growth across our entire portfolio, both in markets where we have greater opportunity to compete, as well as in the markets where we lead, which include our 26 platforms that each delivered a billion dollars or more in sales last year.
Our broad base is not just our heritage, it is a strategic choice, grounded and proven in long-term performance and our broad and deep understanding of the industry’s present and future. We clearly recognize the important role we play in leading responsibly and representing our industry with integrity.
Our “Health for Humanity Report” underscores our commitment to help ensure that each new generation is healthier than the last. We believe our broad base helps us better understand and positively impact human health at every age and at every stage. In 2018 we were recognized as one of the top ten corporations for our environmental, social and governance performance by Corporate Responsibility Magazine.
Our broad base is not just our heritage, it is a strategic choice, grounded and proven in long-term performance and our broad and deep understanding of the industry’s present and future.
Collaboration is fundamental to the work we do every day and our presence in just about every area of healthcare. This level of engagement allows us to maintain a continuous dialogue with healthcare professionals, business leaders, academics, government officials, scientists, provider systems, customers, patients and consumers. We remain committed to being a leader in the global healthcare space, to help drive the change that people around the world want and need to see.
We see a vital and vibrant future for healthcare around the world that is being driven by the continuing expansion of the global middle class. It is the middle class that drives global economic growth and with it, the demand for greater access to quality healthcare. I believe that no company on Earth is better positioned than Johnson & Johnson to capture this opportunity and lead the healthcare industry.
Business Performance and 2019 Outlook
With an industry-leading pipeline and established commercial excellence, our Pharmaceutical business has delivered outstanding performance for the past several years. Successful launches and strong growth in several of our blockbuster medicines created 11.8% operational growth*, and our Pharmaceutical business continues to be an industry leader in all performance measures, including R&D.
As we look toward 2019 and beyond, we remain focused on bringing innovative solutions to patients and healthcare providers globally, while driving strong growth and continuing to advance our pipeline. Patent pressure is a feature of today’s pharmaceutical industry, and we have deliberately and actively managed our portfolio over the last few years to enable us to make the investments necessary to not only withstand this impact, but to grow at competitive rates in 2019. We remain focused on developing medicines and solutions that deliver great value to the patients and consumers who depend on our products to make their lives better. Our goal and expectation for 2020 and beyond is sustained, long-term, above-market growth.
We know that innovation drives our Pharmaceutical business’s success, and we are very excited about the U.S. Food and Drug Administration (FDA) approval of SPRAVATO™ (esketamine) CIII Nasal Spray for adults with Treatment Resistant Depression (TRD), who have cycled through multiple treatments without relief. TRD is a debilitating disease that is associated with chronic health problems, and quite tragically, can lead to suicide if not treated properly. SPRAVATO™ represents not only a new breakthrough medicine in our product portfolio, but also a new hope for adults who suffer from TRD. It also offers the first new mechanism of action to address TRD. And importantly, in accordance with risk mitigation guidance from the FDA, SPRAVATO™ can only be administered by certified treatment centers and will not be dispensed directly to patients to take at home.
We have listened with great intent to the concerns voiced by many stakeholders over the pricing and transparency of products and our healthcare systems in the United States and around the world. We are committed to taking the lead, being responsible partners and doing our part to not only treat patients, but also ensure they can get access in an open and affordable manner.
As a result of direct interaction with patients, their families and healthcare professionals across the United States, and building upon the original proposal from the U.S. Department of Health and Human Services, we voluntarily took an important measure to help consumers gain a better picture of what they should expect to pay for their medicines. We have proposed including list-price information in direct-to-consumer TV ads, starting with our most-prescribed medicine, XARELTO (rivaroxaban), an oral anti-coagulant. To ensure patients have clarity, we plan to include both the list price and potential patient out-of-pocket costs. We believe transparency is a fundamental responsibility of this Company. It’s also another strong demonstration that our purpose, focused on helping patients, is driving our business—just as it should be.
Our Pharmaceutical business has taken a strong leadership stance on increasing transparency in the industry. I am pleased to share we will release our third annual Janssen U.S. Transparency Report in late March. This report, reflective of our actions in 2018, shows that our net prices have decreased again, by 6.8%.
In 2018, fueled by our iconic brands and deep consumer insights, our Consumer business achieved above-market growth. As we look ahead, we will work to enhance our leadership in priority categories by focusing on critical geographies and our mega-brands, while also continuing to expand into the fast-growing naturals category. Our acquisition of Zarbee’s, Inc. in OTC is a key example of this expanding focus.
We have the strategies in place to move with the agility required to address evolving market needs. We have adopted a multichannel approach, from the big-box retailers to e-commerce channels, to better serve our consumers.
The results of our continual connection with consumers can be seen in the global relaunch of our JOHNSON’s Baby line of products in 2018. We are committed to disclosing 100% of our fragrance ingredients above 100 parts per million (ppm) in our shampoos, washes and lotions. And we’ve been recognized for this greater transparency by The Environmental Working Group. Our relaunch also includes new packaging and informational social media communications tailored to the needs and wants of millennial moms and dads. Our global JOHNSON’s Baby relaunch is off to a solid start and we will continue to launch across global markets throughout 2019.
Additionally, in response to our consumers asking for personalized skincare solutions that address their skin’s unique needs, we are developing our most personalized skincare product to date, called the NEUTROGENA MaskiD. This 3D-printed sheet mask is inspired by user data and will deliver the clinical efficacy expected from the #1 dermatologist-recommended brand in the U.S. Our NEUTROGENA brand is already globally recognized for delivering topical skincare solutions at the intersection of science and technology. This new product will represent one further step toward a new model of product development where we find creative uses for the latest technology, such as digital imaging, skin analysis and 3D printing, to give consumers new ways to achieve their best skincare possible. It is also a great example of how we are leveraging innovation across our business segments, as our 3D printing capability originated within Medical Devices.
Our Medical Devices businesses are among the most diverse and successful in the healthcare industry. At the same time, we fully recognize that our progress has not been uniform across the Medical Devices portfolio. We have many areas of particularly strong performance such as Electrophysiology, Vision Care, Wound Closure, and Bio-Surgery. However, there are also areas where we must improve, specifically within Orthopaedics. We demonstrated progress throughout 2018 with the performance of our knee and spine businesses and we believe this positions us well for 2019 and beyond.
In 2018 we improved operational growth excluding acquisitions and divestitures by 1.1%*, as compared to 2017. Additionally, we improved our cadence of innovation by delivering 21 major product launches in 2018.
One example is the launch of the EMBOTRAP II Revascularization Device, a next-generation stent retriever used to capture and remove life-threatening blood clots from the brain following an ischemic stroke. We received FDA clearance to market the mechanical clot removal, or thrombectomy device, last May.
In 2019, we plan to launch 20 to 25 major products, including ACUVUE OASYS with Transitions™ Light Intelligent Technology™, a first-of-its-kind contact lens that was named one of TIME Magazine’s Best Inventions of 2018. Another example is the ECHELON CIRCULAR Powered Stapler, a next generation technology to reduce complications in colorectal, gastric and thoracic cancer surgeries. Clearly, advancing our strategy in digital surgery is a major investment for our future. Our digital surgery platform is being designed to combine robotics, advanced instrumentation and data analytics to enable better patient outcomes by improving access to minimally invasive surgery and helping to reduce the cost of care.
As we capitalize on our comprehensive portfolio and an accelerated growth strategy, we are committed to improving performance across our Medical Devices business.
While we are pleased with our 2018 performance, we are never satisfied. Looking ahead, we are committed to advancing the innovation pipeline in our Pharmaceutical business, broadening the reach of our Consumer business and meeting the full potential of our Medical Devices business.
I want to emphasize that product quality and safety are not only top business priorities for Johnson & Johnson, they are also core obligations embodied in Our Credo.
Leading With Certainty
The volume and speed of change around the world and across all business industries is the new normal. The velocity of this change is apparent with circumstances like the evolving geopolitical landscape, ongoing market volatility, rising pressure to reduce pricing, rapid entry of disruptive technologies, a crowded competitive marketplace, and an expanding range of customer preferences, to name just a few. And litigation, unfortunately, is prevalent throughout the healthcare industry.
These kinds of external factors can impact any business’s brand, reputation, and business model, so in partnership with our Board of Directors, executive committee, and leadership teams across the Company, we look to mitigate these kinds of external risk factors wherever possible.
Additionally, I want to emphasize that product quality and safety are not only top business priorities for Johnson & Johnson, they are also core obligations embodied in Our Credo. Across every Johnson & Johnson business, we apply a scientific, evidence-based approach in decisions about the research, marketing and use of our products. Many of our brands and products have been trusted by consumers for decades, and when the safety of our products is challenged, we will continue to defend them. We have a legacy of working hard to earn our customers’ trust and working equally hard to keep it—this commitment will always remain intact.
We are confident in our ability to lead with certainty and to responsibly navigate our way through these potential challenges. And because we are committed to thriving in this change environment, our goal is not merely to adapt to change, but to be the catalyst for needed change. We also lead with certainty because we are in the business of caring for the world all day, every day. Guided by Our Credo, we have a solid financial foundation, a strong strategic framework, an innovation mindset, a performance driven culture and a very bright future focused on advancing the health and well-being of all our stakeholders—today and for generations to come.
Our People, Passion and Purpose
I’ve often noted healthcare is an industry that attracts very special people. While they want the opportunity to build a meaningful career, they also want to be a part of something truly significant that makes an important difference in people’s lives. Fortunately, we have the very best of these special people at the Johnson & Johnson Family of Companies. And I believe our culture of diversity and inclusion brings out the best that our Johnson & Johnson colleagues have to offer.
Today, we have approximately 135,000 global employees, united by a shared commitment and a common purpose that aspires to create a world without disease and with greater access to quality healthcare—life-saving medicines, life-changing medical solutions and life-enhancing consumer products. All of us maintain a persistent focus on developing and delivering quality and safe products and services. Delivering on the promises of our brands is both a personal and professional commitment.
This is demonstrated in the tireless efforts and relentless passion that drive our ambition to reach the next frontier of cancer care, continue to combat Ebola and HIV, bring healthy vision to people everywhere, create a world free from tuberculosis, reduce our carbon footprint, improve our product sustainability and reimagine the way that care is delivered, while also expanding access for the world’s most vulnerable populations. Johnson & Johnson made Fortune’s “Change the World List” again in 2018, in recognition of our efforts to help train surgeons, paramedics and other healthcare providers globally through our Johnson & Johnson Institute and other care programs.
Our goal is to lead by example, by cultivating the world’s healthiest, most productive and most engaged workforce. I believe this is critical for operating a healthy and successful business. And this is how we will deliver and ensure that another 133 years of quality healthcare is within reach of everyone, everywhere.
An Education in Human Health
I am as excited and encouraged today, as I was on the day I started as CEO of this Company and accepted the responsibilities that come with it.
Throughout my career at Johnson & Johnson, I have been very fortunate to learn this business from the perspective of a company that is built on the belief in the transformative possibilities of human ingenuity and personal caring. The world has been the campus for my education in human health, as it has been for my Johnson & Johnson colleagues. I deeply appreciate the guiding support of our highly accomplished Board of Directors and continue to be proud and humbled as I work side by side with this team of impressive executive leaders, whose partnership and expertise motivate me and all our Johnson & Johnson colleagues every day in our shared commitment to advance health for humanity.
We have approximately 135,000 global employees, united by a shared commitment and a common purpose that aspires to create a world without disease and with greater access to quality healthcare.
My optimism for the future is inspired by the rapid and continuous improvements in the condition of human health and the increasing possibilities for healthcare in the world. Most importantly, we have the amazing privilege of touching lives around the world every day—from babies taking their first breath to baby boomers taking a breath after doing the Johnson & Johnson Official 7 Minute Workout.
We also have the pleasure of serving patients and consumers everywhere on Earth—people who put their trust in our Johnson & Johnson brands. We never forget the responsibility that comes with this trust. And we never forget our essential partnership with our shareholders who support our mission and help us pursue a noble purpose. While the challenges are great, the rewards are even greater. I can’t imagine a better or more fulfilling calling!
I offer my sincere thanks to all of you for this great privilege, opportunity and experience.
Chairman and Chief Executive Officer
Johnson & Johnson
*Non-GAAP measures: Free cash flow is defined as operating cash flow less capital spending. Adjusted operational earnings growth excludes special items, intangible asset amortization expense and the effect of translational currency. Operational sales growth excludes the effect of translational currency. See Non-GAAP Reconciliations of Free cash flow and Operational sales growth excluding acquisitions and divestitures for the Medical Devices segment in this Annual Report.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This letter contains forward-looking statements relating to, among other things, future operating and financial performance, product development, market position and business strategy. The reader is cautioned not to rely on these statements, which are based on current expectations of future events. For important information about these statements, including the risks, uncertainties and other factors that could cause actual results to vary materially from the assumptions, expectations and projections expressed in any forward-looking statements, the readers should review the enclosed Annual Report on Form 10-K for the fiscal year ended December 30, 2018, including in the sections captioned “Cautionary Note Regarding Forward-Looking Statements” and “Item 1A. Risk Factors.” Johnson & Johnson does not undertake to update any forward-looking statement as a result of new information or future events or developments.
For more information, visit investor.jnj.com.