October 16th, 2007

Broadly Speaking

Just a word or two on the third-quarter earnings which were announced this morning.

I’m not going to recap what’s in the press release or what you can hear for yourself on the webcast, but I thought I would capture my thoughts on a few points that came up today.

When I first wrote about Johnson & Johnson as a reporter, I heard all about how the company benefits from being broadly based. One analyst I spoke to used to say that Johnson & Johnson was like a 12 cylinder car – if one cylinder misfired, there were 11 others that could help keep the motor humming.

No other health care company has as many businesses that touch on as many aspects of human health. From eye care to skin care to diagnostic tests to prescription pharmaceuticals to implantable hips and knees to endoscopic surgical tools to wound care to non-prescription pain medicines to… well, you get the idea.

But being broadly based means more than just having a large portfolio of products. Real innovation can occur when the company manages to leverage the strengths of these different businesses to develop new treatments or novel approaches to managing disease.

The Cypher drug eluting stent is a great example. To develop this new product, researchers from Johnson & Johnson’s pharmaceutical business teamed up with their colleagues in the medical device sector to develop a stent that would release drug to help overcome a problem that some patients encountered with earlier generation bare-metal stents – the re-clotting of an artery. Today, the worldwide market for drug eluting stents is worth billions of dollars.

As you can imagine, looking for more of these kinds of opportunities – and ensuring they are brought to market – is an important task for management. Figuring out how to better leverage the strengths of each operating company – while adhering to the principles of decentralized management – is a matter of a great deal of focus and discussion.

During the earnings presentation today, Nick Valeriani, Worldwide Chairman of Johnson & Johnson’s medical devices and diagnostics business, touched on a couple of examples of how the company is drawing upon the breadth of its businesses to address some of today’s most challenging health issues.

Of note, he described the use of biomarkers to detect diseases and medical conditions earlier than before, including a new gene-based test that’s been approved to detect if breast cancer had spread to the lymph nodes. These novel new approaches were made possible through collaboration between the company’s pharmaceutical and medical diagnostics businesses.

He then went on to provide some insights into how the breadth of Johnson & Johnson’s businesses could help in the treatment of metabolic disease – a complex and still undertreated condition that impacts a growing number of people. Diabetes now affects more than 180 million people, and that is expected to double to 360 million by 2030.

As Nick explained during the call:

We believe we have an unparalleled capacity by virtue of our breadth and scope to address diseases like this one in a more comprehensive approach than any other company in the world.

Johnson & Johnson, through its many different business units, provides solutions to address the many facets of diabetes. For instance, the company’s consumer businesses make and sell products that help people manage their diets. The LifeScan business makes and sells diabetes glucose monitors, while Animas sells insulin pumps.

Nick went on to say:

We have a vision for a presence in metabolic disease that transcends any single business segment, and that addresses the enormous breadth of needs faced by people with these chronic conditions

As part of this vision, Johnson & Johnson today announced the formation of the Johnson & Johnson Diabetes Institute that will provide diabetes education, training on the latest practice standards and new diabetes tools to physicians, nurses and diabetes educators. The first four centers will open in Japan, the US, China and France by mid-2008.

It’s a start — and by connecting closely with members of these communities greater insights can be gained that could ultimately help to develop new treatments and innovations.

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