Johnson & Johnson - Index

Johnson & Johnson - report - Index

year of 7.2%, with operational growth of 3.9% and 3.3% due to
a positive impact from currency fluctuations. U.S. sales were
$10.4 billion, an increase of 3.2%. International sales were
$11.3 billion, an increase of 11.1%, with 4.6% from operations
and a positive currency impact of 6.5%.
The DePuy franchise achieved $4.6 billion in sales in 2007,
which was an 11.7% increase over prior year. This growth was primarily
due to DePuy’s orthopaedic joint reconstruction products
including the hip and knee product lines. Strong performance
was also achieved in Mitek’s sports medicine products.
The Ethicon Endo-Surgery franchise achieved sales of
$3.8 billion in 2007, a 13.6% increase over 2006. A major contributor
of growth continues to be endocutter sales, which
include products used in performing bariatric procedures for the
treatment of obesity, an important focus area for the franchise.
Strong results were achieved with the continued success of the
HARMONIC SCALPEL®, an ultrasonic cutting and coagulating
surgical device. There was also strong growth in the Advanced
Sterilization Products line.
The Ethicon franchise sales grew 11.8% in 2007, achieving
$3.6 billion in sales. This was a result of solid growth in the
hemostasis, women’s health, biosurgicals, and the mesh product
lines. There was also continued growth in suture sales.
Sales in the Cordis franchise were $3.4 billion, a decline
of 16.2% over 2006. This decline reflects lower sales of the
CYPHER® Sirolimus-eluting Coronary Stent due to increased
competition outside the U.S., as well as the global contraction of
the drug-eluting stent market following reports of a potential risk
of late stent thrombosis associated with the use of drug-eluting
stents. These results were partially offset by strong performance
by the Biosense Webster and the neurovascular businesses. In
response to challenges facing the Cordis franchise the Company
announced a restructuring initiative in 2007. See Note 22 for
additional information regarding the restructuring.
On June 13, 2007, the FDA notified Cordis that all items outlined
in the Warning Letters received in April and July 2004
regarding Good Manufacturing Practice regulations and Good
Clinical Practice regulations have been resolved.
The LifeScan franchise achieved $2.4 billion in sales in
2007, an increase of 14.4% over 2006, reflecting the continued
success of the ULTRA® product lines. An additional contributor
was the growth of the Animas business due to the launch of the
2020 insulin pump during the year.
The Vision Care franchise achieved sales of $2.2 billion
in 2007, a growth rate of 17.6% over the prior year. This growth
was led by the continued success of such brands as ACUVUE®
OASYS™, ACUVUE® ADVANCE™ for ASTIGMATISM,
ACUVUE® ADVANCE™, 1-DAY ACUVUE® MOIST™, 1-DAY
ACUVUE® DEFINE™ and 1-DAY ACUVUE® for ASTIGMATISM.
The Ortho-Clinical Diagnostics franchise achieved $1.6 billion
in sales in 2007, a 10.3% increase over 2006. This is due to the
continued global growth in the Immunohematology product line,
as well as the growth in the Immunodiagnostic product line and
the 2007 launch of the Chagas screening assay in the U.S.
The Medical Devices and Diagnostics segment achieved
sales of $20.3 billion in 2006, representing an increase over the
prior year of 6.2%, with operational growth of 6.4% and a negative
impact from currency of 0.2%. U.S. sales were $10.1 billion,
an increase of 6.5%. International sales were $10.2 billion, an
increase of 5.9%, with 6.2% from operations and a negative
currency impact of 0.3%.
Analysis of Consolidated Earnings
Before Provision for Taxes on Income
Consolidated earnings before provision for taxes on income
decreased by $1.3 billion to $13.3 billion in 2007 as compared to
the $14.6 billion earned in 2006. Lower earnings in 2007 were
primarily due to restructuring charges and the write-down of the
NATRECOR® intangible asset. The increase in 2006 was 11.2%
over the $13.1 billion in 2005. As a percent to sales, consolidated
earnings before provision for taxes on income in 2007 was 21.7%
versus 27.4% in 2006. The sections that follow highlight the
significant components of the changes in consolidated earnings
before provision for taxes on income.
Cost of Products Sold and Selling, Marketing and
Administrative Expenses: Cost of products sold and selling,
marketing and administrative expenses as a percent to sales
were as follows:
% of Sales 2007 2006 2005
Cost of products sold
Percent point increase/(decrease) over the
29.1% 28.2 27.7
prior year
Selling, marketing and administrative
0.9 0.5 (0.8)
expenses
Percent point increase/(decrease) over the
33.5 32.7 34.1
prior year 0.8 (1.4) (0.1)
In 2007, there was an increase in the percent to sales of cost of
products sold primarily due to the impact of newly acquired consumer
brands. There was an increase in the percent to sales of
selling, marketing and administrative expenses in 2007 primarily
due to the impact of newly acquired consumer brands partially
offset by cost containment efforts.
In 2006, there was an increase in the percent to sales of
cost of products sold. This was due to unfavorable product mix
and higher manufacturing costs in the Pharmaceutical and Consumer
segments. There was a decrease in the percent to sales
of selling, marketing and administrative expenses in 2006. This
was a result of leveraging selling expenses and a reduction in
advertising and promotional spending.
In 2005, there was a decrease in the percent to sales of cost
of products sold. This was due to lower manufacturing costs primarily
related to the CYPHER® Sirolimus-eluting Coronary Stent,
as well as ongoing cost containment activity across the organization,
partially offset by the negative impact of pharmaceutical
product mix. There was also a decrease in the percent to sales of
selling, marketing and administrative expenses. This was due to
cost containment initiatives in the Pharmaceutical segment partially
offset by increases in investment spending in the Medical
Devices and Diagnostics segment.
Research and Development: Research and development activities
represent a significant part of the Company’s business.
These expenditures relate to the development of new products,
improvement of existing products, technical support of products
and compliance with governmental regulations for the protection
of consumers and patients. Worldwide costs of research
40 JOHNSON & JOHNSON 2007 ANNUAL REPORT