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Gsb 621 Return Driven Execution Presentation On Johnson & Johnson And Abbott Laboratories
- 1. February 23, 2008 ReturnD i R t Driven E Execution: ti Strategy and Execution Research Project _______________ GSB 621 Matthew Jacobson Return Driven Strategy Aman Manna Parimal Mehta February 2008 y Jim Polson Ji P l Professor Mark L. Frigo Shannon Resler Professor Joel Litman Ripal Shah Kellstadt Graduate School of Business Kurt Wunderlich DePaul U e s ty e au University Do not copy or redistribute without express written consent of Dr. Mark L. Frigo Do not copy or redistribute without express written consent of Dr. Mark L. Frigo Page 1
- 2. In 2005, U.S.Healthcare Spending Was Two Trillion Dollars This is approximately 16% of GDP As A we grow i age…so d in does the th spending …So Why Are These Men So Happy? Do not copy or redistribute without express written consent of Dr. Mark L. Frigo Page 2
- 3. HOLT Slides forJohnson & Johnson and Abbott Laboratories Johnson & Johnson Abbott Laboratories Do not copy or redistribute without express written consent of Dr. Mark L. Frigo Page 3
- 4. Execution of Strategy • J&J’s commitment to its Credo Patients and customers, First p y Employees Communities Shareholders • J&J’s main priorities Winning in healthcare Capitalizing on convergence Accelerating growth in emerging markets Developing leadership and talent • Operational excellence Decentralization Manufacturing excellence Organizational redesign • Office of Strategy and Growth Do not copy or redistribute without express written consent of Dr. Mark L. Frigo Page 4
- 5. Johnson & Johnson’sGrowth Strategy J&J wants to grow its business with strategic acquisitions of other pharmaceutical and medical devices companies to expand their offerings and establish themselves in growing markets as well as maintaining/expanding their current products. BRIEF statement o t e initiative as it app es state e t of the t at e t applies Spec c easu e/ et cs Specific measure/metrics Actual ta get ctua target to that particular Tenet employed Commitment Ethically Maximize Continue track record of growth – 75 consecutive 2007 Operational sales growth 11.5-12.5% Tenant Wealth years of sales increases, 24 consecutive years of 2007 Adjusted EPS growth $3.88-$3.93 adjusted earnings increases Goal T G l Tenants Target Appropriate T A i Continue to b ild strong competitive positions C i build ii ii Capture #1 or #2 market C k 70% of pharma f h Customer Groups across seven therapeutic areas positions sales from #1/ #2 (Pharmaceuticals) Growth in Emerging Markets products; Low double digit growth Competency Innovate Offerings Develop wide variety of offerings; many new # of filings/approvals for new 1 approval, 4 filings Tenants offerings will be best in class or first in class products in 2007; 7-10 new filings by 2010 Supporting Balance Focus and Ensure future growth by investing in R&D and Investments in R&D 8% growth Tenants Options product extensions and advancing the pipeline Do not copy or redistribute without express written consent of Dr. Mark L. Frigo Page 5
- 6. Johnson & Johnson’sProductivity Strategy Ethicon Products, a Johnson & Johnson Medical Devices Company, strives to constantly improve its brand image by providing its customers a cheaper, more reliable delivery option. BRIEF statement of the initiative as it applies to Specific measure/metrics Actual target that particular Tenet employed Commitment Ethically Maximize Increase in customer profitability due to lowered Mark-up per product order 2-3% Tenant Wealth distribution costs Cost to ship $7 flat fee delivery Goal Tenants Fulfill Otherwise Unmet Increase in Customer Satisfaction amongst those Customer Satisfaction Ratings 100% Customer Needs who use Suture Express Competency Deliver Offerings Implemented the “Smart Program”, which improved Percentage of On-time deliveries 100% Tenants on-time deliveries Supporting Partner Deliberately Added Suture Express to their Distribution Team Improve on-time delivery from 2-3 Next-day Tenants days delivery Do not copy or redistribute without express written consent of Dr. Mark L. Frigo Page 6
- 7. - Execution ofStrategy • Abbott’s Competitive Advantage: Broad Portfolio of Businesses • Abbott’s Strategic Focus • Innovation •Targeting High Growth Markets •Deep Late Stage Product Pipeline Deep •Strong Internal R&D • Profitable Growth •Strategic Acquisitions •Consistent, Strong Cash Flows •Accelerated Earnings Growth Accelerated •Sales Momentum in Key Products Do not copy or redistribute without express written consent of Dr. Mark L. Frigo Page 7
- 8. Abbott Laboratories’ GrowthStrategy ABT leverages its broad product offering to generate the financial strength to continue investing i new products and t h l i ti in d t d technology ffor customers and patients while deploying substantial amounts of cash back to its shareholders BRIEF statement of the initiative as it applies to Specific measure/metrics Actual that particular Tenet employed target Commitment Ethically Maximize Effectively return cash to shareholders •Increase Dividend •10% Tenant Wealth •Share repurchases •> $1 billion Goal T G l Tenants t Fulfill Oth F lfill Otherwise Unmet i U t Increased i I d investments in bi l i f iliti and R&D t t i biologics facilities d Invested and b ilt state of the art I t d d built t t f th t Capital C it l Customer Needs – total market opportunity in 2016 of $20B biologics facility in Puerto Rico investment- - $450M Competency Innovate Offerings Submitted 6 major products for regulatory approval Exceeded timeline for every late 100% Tenants stage product submission for approval Supporting Partner Strategically Completion of the integration of KOS Incurred integration expenses and Accretive to Tenants Pharmaceuticals – strengthened ABT’s position in increased R&D – total paid for deal EPS in 2009 Lipid management of $3.7 billion Do not copy or redistribute without express written consent of Dr. Mark L. Frigo Page 8
- 9. Abbott Laboratories’ ProductivityStrategy ABT desired to refine and refocus its product pipeline across all business segments Given the increasingly competitive environment, ABT had to increase R&D efficiency and quality while targeting the most attractive and highly profitable markets BRIEF statement of the initiative as it applies to Specific measure/metrics Actual that particular Tenet employed target Commitment Ethically Maximize Leverage financial strength to invest more in R&D Increase funds invested in >10% of Tenant Wealth and commercial operations – ensure steady pipeline combined R&D and product revenue and support of new product launches d t f d tl h launches l h Goal Tenants Fulfill Otherwise Expand application of Humira to treat Crohn’s Gain market share > 30% Unmet Customer disease Needs Competency Deliver Offerings Productivity improvements in the R&D program - New molecular compounds > 75% Tenants quicker move from discovery to development advanced to the next stage of discovery or development in 2007 Supporting Partner Strategically TAP joint venture: increase product offerings for Increase in operating income $350 - $400 Tenants gastrointestinal disorders million Do not copy or redistribute without express written consent of Dr. Mark L. Frigo Page 9
- 10. Comparison of AbbottLaboratories and Johnson & Johnson with respect to execution of Return Driven Strategy Tenet Strengths/Weaknesses: Strengths/Weaknesses: 1 Commitment S – CAGR of 10%, buyback shares $1.0 B S – Strong established brand name and relationships Tenet W – Relatively low operating margins W – Growth decrease in core pharmaceutical products/ Opportunities/Threats: Opportunities/Threats: O – Growing blood glucose testing market O – Growing population in developing nations T – Pending lawsuits (21) , fierce competition T – Fierce Competition / Lawsuits Tenet Strengths/Weaknesses: Strengths/Weaknesses: 2–3 S – Strong R&D capability – test for AIDS, Arthritis S – Aging demographic in developed markets Goal Tenets W – Approvals of key drugs from FDA W – Lack of unique products in the pipeline Opportunities/Threats: Opportunities/Threats: O – Increasing therapeutic coverage of Humira O –New offerings (Generic Drugs / Health Services) T – Third world countries overriding patents to import /create T – Patent Expiration on Key Products generics of AIDS drugs Tenet Strengths/Weaknesses: Strengths/Weaknesses: 4–6 S – Offering innovation, branding at product level for target S – Presence in Growing Oncology Market Competency customers and effective delivery W – R&D costs of products in pipeline Tenets W – Less exposure to internet advertising Opportunities/Threats: Opportunities/Threats: O – Increased Market Share in Oncology O – Targeting nutrition products in emerging markets as T – Growing generic pharmaceutical products personal income improves T – AIDS group lawsuit could attract negative publicity Tenet 7-11 Strengths/Weaknesses: Strengths/Weaknesses: Supporting S – Agreement with Takeda to leverage sales distribution S – Established Channels of Distribution Tenets network, providing drugs to consumers efficiently W – Overdependence/focus on key pharmaceuticals and W – Expiring patent & Lack of patent protection to save Opportunities/Threats: Genuine g genuine assets O – Strategic Acquisitions g Assets Opportunities/Threats: T – Industry Consolidation O – More M&A activity to gain market share and improve margins T – Need to be vigilant to environmental pollution problems threatening financial performance Do not copy or redistribute without express written consent of Dr. Mark L. Frigo Page 10
- 11. …Why Are TheseMen So Happy? 2005 – 2015 • Healthcare Spending: Projected to grow from $2 p g j g Trillion to $5 Trillion in the U.S. (16% to 20% of GDP) CEO Miles White CEO Bill Weldon • Wouldn’t you be smiling too? Do not copy or redistribute without express written consent of Dr. Mark L. Frigo Page 11
- 12. February 23, 2008 ReturnD i R t Driven E Execution: ti Strategy and Execution Research Project Appendix GSB 621 Matthew Jacobson Return Driven Strategy Aman Manna February 2008 Parimal Mehta Professor Mark L. Frigo Jim Polson Professor Joel Litman Shannon Resler Ripal Shah Kellstadt Graduate School of Business Kurt Wunderlich DePaul University Do not copy or redistribute without express written consent of Dr. Mark L. Frigo Do not copy or redistribute without express written consent of Dr. Mark L. Frigo Page 12
- 13. Appendix: ABT FinancialStrength Uses of Cash Initiatives Share repurchase program Approved a $2.5 Billion share repurchase program in xxx, 2006 2007 Goal – purchase over $1 billion in stock Dividend Policy Dividends have increased for each of the last 35 years 2007 Goal – dividend increase of 10% Source - Tom Freyman, CFO, 3rd Quarter Earnings Conference Call, October 17, 2007 “The second highlight from last year was the effective return of cash to shareholders. We paid approximately $2 billion in dividends the 35th consecutive year of increasing dividends and we repurchased dividends, dividends, more than $1 billion worth of Abbott stock.” – Miles White, CEO, 4th Quarter Earnings Conference Call, Jan 23, 2008 (see sources slide #19) Do not copy or redistribute without express written consent of Dr. Mark L. Frigo Page 13
- 14. Appendix: ABT Assets Unique, Well Balanced Product Portfolio Broad Based Healthcare Company Consistent and Balanced Performance Diversified Growth Opportunities Focused on Innovation Strong Momentum entering 2008 Accelerating EPS Growth g “Our confidence in the future is based on the strength and the balance of our broad mix of leading businesses from medical products to pharmaceuticals, to nutritionals and diagnostics. Together these businesses provide a diverse mix of cash flows and multiple sources of earnings growth that should help us achieve consistent leading performance in the coming years. Going forward, we're targeting higher growth markets, including emerging markets where we can distinguish Abbott from the competition with leading technology and innovative new products that meet the needs of patients and customers.” Source – Miles White, CEO, 4th Quarter Earnings Conference Call, Jan. 23, 2008 Do not copy or redistribute without express written consent of Dr. Mark L. Frigo Page 14
- 15. Appendix: ABT Assets Unique, Well Balanced Product Portfolio Our businesses are focused on two things: innovation and profitable growth. We are targeting markets where we can distinguish ourselves from the competition with leading technology and products. As we enter 2008, we are pleased with the momentum in our key products, our late stage pipeline and across our businesses in general. As a result, we continue to expect to deliver an accelerating rate of earnings general result growth in 2008 as compared to 2007 Through a series of strategic acquisitions, as well as internally developed R&D, we positioned Abbott with multiple sources of earnings power. Source – Miles White, CEO, 4th Quarter Earnings Conference Call, Jan. 23, 2008 Do not copy or redistribute without express written consent of Dr. Mark L. Frigo Page 15
- 16. Appendix: ABT GrowthDrivers Pharmaceutical Products Humira Best in class anti TNF therapy Sales goals for 2007 of ~ $3 billion Crohn’s disease use gaining market share: >30% since launch Significant Psoriasis opportunity: Potential for market leadership g pp y p In 2007, we expect Humira to become our first $3 billion global product. In fact, Humira achieved $1 billion sales in Europe alone last year, the first time we have had a product reach that level in a single region outside the U.S. That growth has been fueled largely by the continued momentum in rheumatoid arthritis as well as the addition of new indications” Source - TF, JP Morgan conference, 3-07 earnings call Do not copy or redistribute without express written consent of Dr. Mark L. Frigo Page 16
- 17. Appendix: ABT GrowthDrivers Pharmaceutical Products Expanding opportunity for biologics $30 Billion market opportunity by 2012 pp y y “We completed construction of our new state-of-the-art biologics manufacturing facility in Puerto Rico to support our long-term growth outlook for HUMIRA and other innovative biologics that are in development.” g p “With our strong R&D capabilities, state-of-the-art biologics manufacturing and biologics pipeline, we are extremely well-positioned to benefit from this significant market opportunity over the longer term.” Source - Miles White, CEO, 4th Quarter Earnings call, January 23, 2008 “Abbott's new biotech plant on the 'Bio Island' good to go”, inpharma technologist.com, April 11, 2007, Anna Lewcock Do not copy or redistribute without express written consent of Dr. Mark L. Frigo Page 17
- 18. Appendix: ABT GrowthDrivers Pharmaceutical Products Lipid Franchise Building a broad lipid franchise Niaspan 2007 sales expectations of $650 million TriCor – best at lowering Triglycerides Strong growth continues “The fifth major achievement I'd mentioned from last year was the completion of the integration of our Kos Pharmaceuticals acquisition which strengthened g g our position in lipid management.” Sources – MW, 4th quarter earnings call; TF, JP Morgan conference Do not copy or redistribute without express written consent of Dr. Mark L. Frigo Page 18
- 19. Appendix: ABT GrowthDrivers Pharmaceutical Products Strong pipeline – many key drugs in development to drive future growth Late stage lipid pipeline Neuroscience & Pain Oncology Respiratory disease Immunology Source – TF, JP Morgan conference Do not copy or redistribute without express written consent of Dr. Mark L. Frigo Page 19
- 20. Appendix: ABT GrowthDrivers Pharmaceutical Products Strong pipeline – many key drugs in development to drive future growth First, we met or exceeded every time line for regulatory submission or approval across our broad-based late stage development pipeline. In pharmaceuticals, we received global regulatory approval and launched the Crohn's indication for HUMIRA. We also filed for approval of psoriasis, which we received in both the U.S. and Europe within the last few weeks. In addition, we submitted for the approval of two new products that hold promise for expanding our lipid franchise, Simcor, our combination therapy of Niaspan and generic Simvastatin, and ABT-335, our next generation Fenofibrate. Our fourth product submission was Vicodin CR, our extended release version of the well-known branded pain medication “And finally, our TAP joint venture filed TAK-390MR, it's next-generation proton pump inhibitor for treatment of gastrointestinal disorders. The execution of these filings means that over disorders the next 12 months our commercial teams are poised to launch four new Abbott pharmaceutical brands in the U.S.” Source – MW, 4Q earnings call Do not copy or redistribute without express written consent of Dr. Mark L. Frigo Page 20
- 21. Appendix: ABT GrowthDrivers Nutritional Products Strong operating margins Strong returns on invested capital Generates tremendous cash flows International presence I t ti l Rapid growth in emerging markets Strong double digit growth expected in the longer-term “ In addition, we continued construction at our new manufacturing facility in Singapore to support our long- term growth projections for global nutritionals, where consumer demand is driving rapid growth in the fastest growing emerging economies of Asia and Latin America.” “Another of our diversified growth drivers is our leading nutritionals business, which generates strong operating margins and return on capital as well as tremendous cash flow. With population growth and flow improving economies around the world, there is a growing demand for high quality nutritional products in the emerging markets. We've seen particularly strong growth in Asia and Latin America. We expect double-digit growth for our international nutritionals business to continue into 2008.” Sources – TF JP Morgan 3Q earnings call Citigroup Sellside report TF, Morgan, call, Do not copy or redistribute without express written consent of Dr. Mark L. Frigo Page 21
- 22. Appendix: ABT GrowthDrivers Medical Products Abbott Diabetes Care Emerging markets opportunities Abbott Molecular Sales growing double digits Global diagnostics “In “I our medical products businesses, diabetes care returned to double-digit growth in the second half of last di l d t b i di b t t d t d bl di it th i th d h lf f l t year, and we expect this momentum to continue into 2008.” “In molecular diagnostics, our competitive technologies have helped us grow sales three times as fast as the total molecular market. In May, we received U.S. regulatory approval of our M-2000 system, which was launched in Europe in 2006. In our core laboratory diagnostics business, Abbott remains the global leader. W h l d We have nearly 70,000 institutional customers i more th 100 countries. Our international l 70 000 i tit ti l t in than ti O i t ti l business comprises 80% of our total sales, and drove much of the strong growth we saw last year. Emerging markets continue to represent a compelling opportunity for future growth in this business.” Sources – MW 4Q earnings call, Lehman Bros Sellside report MW, call report. Do not copy or redistribute without express written consent of Dr. Mark L. Frigo Page 22
- 23. Appendix: ABT GrowthDrivers Medical Products Vascular Strong pipeline Xience progress Significant market opportunities “In our vascular business, we filed for U.S. regulatory approval of XIENCE V last June, then received a positive recommendation for approval from an FDA advisory panel in late November. In our diabetes care business we launched FreeStyle Lite, our new no calibration blood glucose monitoring device, FreeStyle Freedom Lite, our second new no-cal meter was launched in Europe and submitted for U.S. approval. In our global nutritions business we launched new formulations of our leading infant formula brand, Similac, and continues to expand the market for adult nutritionals through the introduction of new Ensure formulations in ti t d th k tf d lt t iti l th h th i t d ti f E f l ti i select markets.” Sources – MW 4Q earnings call, Morgan Stanley report S i ll M St l t Do not copy or redistribute without express written consent of Dr. Mark L. Frigo Page 23
- 24. Appendix: ABT NearTerm Growth Drivers Generating momentum in the business Major pharma launches Xience U.S. launch Accelerating EPS growth A l ti th “As we look ahead to 2008, our strategic position is strong. Our focus now is on operational is execution as we prepared for four major Abbott drug launches, including Humira for p p p j g , g psoriasis, , Simcor, ABT-335 and controlled release Vicodin. Each of these represents an extraordinary opportunity for commercial success. In addition, we have tremendous opportunities in our medical products and nutritionals businesses, in particular, our Xience drug-eluting stent. In summary, we are very pleased with the state of our company. We are well-positioned with an unprecedented number of major new products across all of our broad-based businesses, driving broad based businesses accelerating and double-digit earnings growth as we move into 2008.” MW, 4Q earnings call Do not copy or redistribute without express written consent of Dr. Mark L. Frigo Page 24
- 25. Appendix: ABT Outlook “For the full year 2008, we expect high single to low double-digit sales growth, and we're providing earnings per share guidance of $3.20 to $3 25 excluding specified items, forecasting steady improvement in the gross margin ratio $3 20 $3.25, items over 2007, with a ratio between 58% and 59% for the full year 2008, reflecting improved product mix and efficiency initiative, forecasting continuing investment in programs to drive future growth with R&D as a percentage of sales between 9% and 10%. SG&A as a percentage of sales for the full-year 2007 was close to 27%. And we're forecasting a similar level for 2008. SG&A in 2008 reflects both the synergies of the Kos acquisition and an appropriate level of investment to properly execute the five major product launches that are planned for the year. Regarding other aspects of our 2008 outlook, we're forecasting income from the TAP joint venture of $350 million to $400 million, a net interest expense of roughly $400 million. We're projecting a modest reduction in the tax rate for 2008, based on continued changes in the mix of income across the various tax jurisdictions. The tax rate for 2008 is expected to be somewhat above 19%. As a result, when you look at the overall P&L for the year, we're forecasting an improvement in our , y y , g p operating margin and net margin ratio in 2008.” Source - TF, 4Q earnings call Do not copy or redistribute without express written consent of Dr. Mark L. Frigo Page 25
- 26. Appendix: ABT SalesGrowth Sales Growth (dollars in billions) $19.70 $19 70 $17.50 $15.60 $13.70 $12.10 $10.90 $8.80 $8 80 2000 2001 2002 2003 2004 2005 2006 Sales Growth Year Over Year 1.60% 24.30% 11.00% 13.60% 13.70% 11.80% 12.60% Do not copy or redistribute without express written consent of Dr. Mark L. Frigo Page 26
- 27. Appendix: ABT OperatingCash Flow Operating Cash Flow (dollars i billi (d ll in billions) ) $5.30 $5.00 $4.30 2004 2005 2006 Do not copy or redistribute without express written consent of Dr. Mark L. Frigo Page 27
- 28. Appendix: ABT Research& Development Research & Development (dollars in billions) $2.30 $1.80 $1.70 2004 2005 2006 Do not copy or redistribute without express written consent of Dr. Mark L. Frigo Page 28
- 29. Appendix: ABT CashDividend Cash Dividend Per Share (in dollars per share) $1.18 $1.10 $1 10 $1.04 2004 2005 2006 Do not copy or redistribute without express written consent of Dr. Mark L. Frigo Page 29
- 30. Appendix: ABT IncomeStatements Income Statement Period Ending Dec. 31, 2004 Dec. 31, 2005 Dec. 31, 2006 Total Revenue 19,680,016.00 22,337,808.00 22,476,322.00 Cost or Revenue 8,884,157.00 10,641,111.00 9,815,147.00 Gross Profit 10,795,859.00 11,696,697.00 12,661,175.00 Operating Expense Research & Developmen 1,696,753.00 1,821,175.00 2,255,271.00 Selling: General & Admin 4,921,780.00 5,496,123.00 6,349,685.00 Non Recurring 279,006.00 17,131.00 2,014,000.00 Others - - - Operating Income or Loss 3,898,320.00 3 898 320 00 4,362,268.00 4 362 268 00 2,042,219.00 2 042 219 00 Income from Continued Ops Total Other Income Expe 376,367.00 499,007.00 174,512.00 Earning Before Interest a 4,274,687.00 4,861,275.00 2,692,542.00 Interest Expense 149,087.00 241,355.00 416,172.00 Net Income from Continu 3,175,836.00 3,372,065.00 1,716,755.00 Non-recurring Events Discontinued Operations 60,015.00 - - Net Income 3,235,851.00 3,372,065.00 1,716,755.00 Preferred Stock and Other Adjustments P f d St k d Oth Adj t t Net Income Applicable to Common 3,235,851.00 3,372,065.00 1,716,755.00 Do not copy or redistribute without express written consent of Dr. Mark L. Frigo Page 30
- 31. Appendix: ABT Acquisitions Acquisitions and Spin-off Year Company Activity Goal 1999 Perclose acquisition entering vascular care 2001 Knoll Pharmaceuticals acquisition adding biologics expertise and Humira 2004 TheraSense acquisition diabetic care leadership 2004 Hospira spin-off new hospital leader 2006 Abbot Nutrition International targeting emerging markets 2006 Guidant Vascular acquisition forefront of vascular care 2006 Kos Pharmaceuticals acquisition pipeline in lipid management 2007 Core Lab Diagnostics divestiture innovation-driven business Do not copy or redistribute without express written consent of Dr. Mark L. Frigo Page 31
- 32. Appendix: Current StockPrices Feb. 15, F b 15 2008 Abbott's Stock Price per Share $55.55 Johnson and Johnson Price Per Share $62.90 Stock Price in Similar Industries AstraZeneca $38.76 Novartis AG $50.23 Bristol Myers $23.30 Do not copy or redistribute without express written consent of Dr. Mark L. Frigo Page 32
- 33. Appendix: JNJ GeneralFacts • Founded in 1886 • William Weldon, Chairman of the Board and Chief Executive Officer • More than 250 operating companies in 57 countries • More than 120,500 employees worldwide, 50,000 in the U.S. • 47% of 2007 revenues from outside the U.S. • 75 consecutive years of sales increases, 24 consecutive years of adjusted earnings increases, 45 consecutive years of dividends increases • In December 2006, J&J completed its acquisition of Pfizer Consumer Healthcare for $16.6B increasing its consumer segment from 18% to 25% of total sales Do not copy or redistribute without express written consent of Dr. Mark L. Frigo Page 33
- 34. Do not copyor redistribute without express written consent of Dr. Mark L. Frigo Page 34
- 35. Appendix: JNJ FinancialStrength Uses of Cash Initiatives Share repurchase program In 2007, launched a $10B share buyback program; Completed $3,6B in 2007 and continuing through 2008 Dividend Policy Dividends have increased for each of the last 45 years Generated Free Cash Flow of $12.2B in 2007, a 5.2% increase Launched a $1.3-$1.6B cost savings initiative in Pharmaceutical and Cordis business in 7/07 Do not copy or redistribute without express written consent of Dr. Mark L. Frigo Page 35
- 36. Appendix: JNJ IncomeStatement Source: Bear Stearns, “JNJ 4Q07: A Strong Finish as Search for Next Growth Platform Intensifies”, January 23, 2008 Do not copy or redistribute without express written consent of Dr. Mark L. Frigo Page 36
- 37. Appendix: JNJ BalanceSheet Source: Stanford Group Company, “JNJ: Upgrade to Buy – We Believe JNJ Can Navigate the Turbulence Ahead”, January 23, 2008 Do not copy or redistribute without express written consent of Dr. Mark L. Frigo Page 37
- 38. Appendix: JNJ 2007Sales by Segment Consumer 24% Pharmaceutical 40% MD&D 36% Do not copy or redistribute without express written consent of Dr. Mark L. Frigo Page 38
- 39. Appendix: JNJ 2007Operating Profit by Segment Consumer 14% Pharmaceutical 48% MD&D 38% Do not copy or redistribute without express written consent of Dr. Mark L. Frigo Page 39
- 40. Appendix: JNJ R&D 8 7 6 5 $6.5 $7.1 $7.7 $5.3 4 3 2 1 0 2004 2005 2006 2007 Do not copy or redistribute without express written consent of Dr. Mark L. Frigo Page 40
- 41. Appendix: JNJ Productsby Segment Pharmaceutical (2007 Sales of $24.9B) MD&D (2007 Sales of $21.7B) Consumer (2007 Sales of $14.5B) •Remicade ($3.3B) •Cordis circulatory disease • Tylenol •Procrit/Eprex ($2.9B) management products • Motrin •Topamax ($2 5B) ($2.5B) •Depuy orthopaedic joint • Imodium •Aciphex/Pariet ($1.4B) reconstruction and spinal care • Benadryl •Duragesic ($1.2B) products • Rolaids •Concerta ($1.0B) •Ethicon wound care and • Pepcid AC •Velcade ($0.5B) women’s health products • Listerine •Anti-psychotics, •Anti psychotics including Risperdal •Ethicon Endo-Surgery Ethicon Endo S rger • Nicorette ($4.7B) minimally invasive surgical • Aveeno •Levaquin products • Neutrogena •Ortho Evra/Tricyclen Lo •Lifescan blood glucose • Clean & Clear •Elmiron monitoring and insulin delivery • Rogaine •Doxil products d t • Vi i Visine •Leustatin •Ortho-Clinical Diagnostics • Splenda •Orthoclone OKT3 •Vision Care disposable contact • Band-Aids •Razadyne ER lenses (including Acuvue) • Johnson’s Baby Powder, Lotions, •Retin A Bath Products •Prezista Prezista •B G BenGay •Virco Type HIV-1 70% of sales from #1 or #2 market 80% of sales from #1 or #2 market positions iti positions Do not copy or redistribute without express written consent of Dr. Mark L. Frigo Page 41
- 42. Sources Johnson & JohnsonWeb Site. April 17, 2007. Johnson & Johnson, Inc. February 10, 2008. <http://www.jnj.com> Mehrotra, Louise. Keynote Address. Q4 2007 Johnson & Johnson Earnings Conference Call. January 22, 2008 8:30AM EST. White, Miles. White Miles Keynote Address CEO ABT – Q4 2007 Abbott Earnings Conference Call January 23 2008 9:00AM EST Address, CEO. Call. 23, EST. Morales, Soniya. Personal Interview. February 10, 2008. Willick, Mike. Personal Interview. February 6, 2008 Peete, Adam. Personal Interview. February 9, 2008. Johnson, Brandon. Personal Interview. February 12, 2008. Yahoo Finance. February 12, 2008. Yahoo. February 12, 2008. <http://finance.yahoo.com/q?s=JNJ> Hernia Solutions. February 14, 2008. Ethicon a Johnson & Johnson Company. February 14, 2008. <www.herniasolutions.com> MyPreceptor. 2002. MrPreceptor.com Sponsored by Ethicon. February 17, 2008. <www.dermabondtraining.com> “JNJ 4Q2007: A Strong Finish as Search for Next Growth Platform Intensifies.” Bear Stearns. January 23, 2008. February 15, 2008. <http://www.bearstearns.com> “ABT 4Q07: A solid 2007 Sets the Stage for EPS Growth.” Bear Stearns. January 24, 2008. February 5, 2008. p <http://www.bearstearns.com> “JNJ: Upgrade to Buy – We Believe JNJ Can Navigate the Turbulence Ahead.” Stanford Group Company. January 23, 2008. February 13, 2008. Do not copy or redistribute without express written consent of Dr. Mark L. Frigo Page 42
- 43. Sources (continued) “Abbott LaboratoriesCompany Profile.” Datamonitor. March 28, 2007. February 6, 2008. “Johnson & Johnson Company Profile.” Datamonitor. August 10, 2007. February 6, 2008. “Abbott Laboratories Stock Report.” St d d & P ’ F b “Abb tt L b t i St k R t ” Standard Poor’s. February 2 2008 F b 2, 2008. February 5 2008 5, 2008. <http://www2.standardandpoors.com/portal/site/sp/en/us/page.home> “Johnson & Johnson Stock Report.” Standard & Poor’s. February 2, 2008. February 5, 2008. <http://www2.standardandpoors.com/portal/site/sp/en/us/page.home> “Johnson & Johnson”. ValueLine. February 5, 2008. <http://www.valueline.com/vlquotes/quote.aspx?symbol=JNJ> “Abbott Laboratories.” ValueLine. February 5, 2008. <http://www.valueline.com/vlquotes/quote.aspx?symbol=ABT> Freyman, Tom. Keynote Address, CFO. ABT 3rd Quarter 2007 Earnings Conference Call. October 17, 2008. White, Miles. Keynote Address, CEO. ABT 4th Quarter 2007 Earnings Conference Call. January 23, 2008. Freyman, Tom. Keynote Address, CFO. ABT Presentation, JP Morgan Healthcare Conference. January 7, 2008. Lewock, Anna. Abbott's Lewock Anna “Abbott's new biotech plant on the 'Bio Island' good to go ” Inpharmatechnologis com April 11 2007 go. Inpharmatechnologis.com. 11, 2007. <http://www.in-pharmatechnologist.com/news/ng.asp?id=75648> Wise, Rick. “A Solid 2007 Sets the Stage for EPS Growth Acceleration.” Bear Stearns. January 24, 2008. Reicin, Glenn. “4Q 2007: Good Quarter; We Remain Buyers.” Morgan Stanley. January 23, 2008. 4Q Buyers. Do not copy or redistribute without express written consent of Dr. Mark L. Frigo Page 43
- 44. Sources (continued) Butler, Anthony.“Abbott Laboratories: Change of Earnings Forecast.” Lehman Brothers Equity Research. January 24, 2008. “Abbott Laboratories: Q4 More Of The Same.” Citigroup Global Markets Equity Research. January 23, 2008. g p q y y Butler, Anthony. “Abbott Shows Strong Mix.” Lehman Brothers. January 24, 2008. Dodds, Matthew. “More of the Same.” Citigroup. January 23, 2008. Scodari, Joseph C K S d i J h C. Keynote Add t Address, W ld id Ch i Worldwide Chairman Ph Pharmaceuticals. J h ti l Johnson and J h d Johnson Ph Pharmaceutical S ti l Summary Presentation. Accessed February 17, 2008. Baigorri, Manuel. ‘Abbott stock beats the industry and indicates a bright year ahead.” Medill Reports. February 7, 2008. February 8, 2008. <http://news.medill.northwestern.edu/chicago/news.aspx?id=77617> “Abbott’s Earning-Per-Share.” PR Newswire-First Call. January 23, 2008. February 8, 2008. Weldon, William. Keynote Speaker, Chairman of the Board and CEO. 4A 2007 Webcast Slides. January 22, 2008. “ABT: Solid Quarter, Growth Platform in Place.” Wachovia Capital Markets. January 24, 2008. February 5, 2008. Do not copy or redistribute without express written consent of Dr. Mark L. Frigo Page 44
- 45. Strategy, Execution, Performance,Valuation Valuation Σ = FCF 1 + Discount Rate Forecasted Free Cash Flows Cash Flow ROI Capital investment growth Margins X Turns Turns X Sales Δ Performance Sales Less Costs Sales Sales Δ Sales Capital Investment EBITDA% CAPX, NWC, R&D COGS% SGA% Other LT Assets O Sales Δ # new stores, same new store development # customers, PoPs store sales, process, Market dominance % sold new products R&D/ sales, sales Execution E ti Price Δ X Volume Δ Capacity: people/AUM employee turnover, % repeat purchases Six sigma flaws target training hours per yr Are management s wealth-creation goals aligned with investors? management’s wealth creation Can the firm fulfill customers’ unmet needs - and continue to? Strategy Do targeted market size and growth rates support valuations? Does the firm create and deploy Genuine Assets to resist fade? Do not copy or redistribute without express written consent of Dr. Mark L. Frigo Page 45