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The interesting thing about JJ is most people think as the dean said about baby shampoo and band aids.
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But if you really look at Johnson and Johnson, the biggest segment is our pharmaceutical business.
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Our second-biggest segment is our medical device business and third is our consumer business.
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If you went back 20 years ago, the consumer business would have been the largest segment of our business.
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But when you look at our consumer business over time it's grown faster than the markets it's competed in.
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But pharmaceuticals and medical devices and diagnostics have been in such explosive industries that we've been able to grow in a huge way in that regard.
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So we now have the biggest portion of our business in pharm.
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We don't use the Johnson and Johnson name for any of our pharmaceutical products.
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We have our second biggest, our medical device and diagnostics and then our consumer business.
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When you look at the three segments, our medical device and diagnostics by itself is the largest medical device and diagnostics business in the world.
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And, it really makes up LifeScan which is here in the Bay Area, which is a diabetes company.
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Vision Care, which are contact lenses VistaCon, which is down in Florida.
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Our Ortho clinical diagnostics business, which looks at diagnostics and is really very much involved now in genomics and gene and looking at personalized medicine and marrying that with our pharmaceutical business.
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Cordis, which is the cardiovascular company that invented the stents and now then the drug eluting stents, DePuy Orthopedics and Ethicon which is sutures and other businesses.
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Each one is playing number one or number two in all the markets they compete in.
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Our pharmaceutical business is probably about the fifth largest.
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Our biotech business is the second or third largest, which is a subset of this.
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And if you look at Remicade and the Procreate EPREX area, that's really the major components of our biotech business.
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Risperdal and CNS is one of the market leaders in those areas and a pretty large group of makeup of products on a global basis.
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The growth rate last year of 4% was slower than what would be anticipated.
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And the only segment of our businesses that grew slower than their competition and the reason for that is a product called Duragesic which went generic last year.
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And when you have a generic product, you lose about 80% of it overnight.
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Duragesic was actually a company that was a product that was developed with Alza which was here in the Bay Area which we acquired a few years ago and Janssen Pharmaceutical which was one of the J&J companies and that became close to a $3 billion business.
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And we lost a lot of that last year as the generics came.
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When you look at our consumer business, McNeil OTC and Nutritionals, a lot of people don't realize that Tylenol and Splenda are two products that JJ has.
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That area didn't grow as fast as many of the others in the consumer area last year because Walmart came out with a generic brand of Splenda.
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So we had a lot of competition in that area.
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Skin and hair care, which is our Neutrogena, Aveeno and some of those businesses.
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Johnson's Baby, which everyone knows, and then women's healthcare, which makes up our consumer segment, which again by itself would be about the sixth-largest consumer business in the world and the largest OTC pharmaceutical company in the world.
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Pfizer Consumer Healthcare we acquired last year for a little under 17 variance, 16 and change.
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And it was very interesting because we don't make large acquisitions.
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We've basically been acquired smaller companies and then looked at them with a long runway ahead of themselves.
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So we look at it as acquiring companies and then building off of the base that they have.
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But only a few times do you ever see a company or an organization like the consumer healthcare group of Pfizer that becomes available with truly the iconic brands it had.
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And it had products like Listerine and Visine and Nicorette and some areas that were very complementary Lubiderm with our products.
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And they were complementary not only in the product area, where with Listerine and our oral healthcare brands we became one of the largest players in that area.
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Lubiderm going into our skin and hair care, and then you have Visine going with our contact lenses in that area, so we saw great synergies between those businesses.
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Also, geographically, when you start to peel the onion back, you saw that Pfizer had almost no presence in China, for example, and we have a very substantial presence in China.
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So it was an ability to move products into areas where they really didn't have any presence through a strong organization.
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The same held true in Mexico, where Pfizer was much stronger than we were, so the ability to move those in.
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So we saw tremendous synergies amongst the businesses in moving them forward.
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We talk here about leadership positions, we said it gave us nine new leadership positions.
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I grew up in pharmaceuticals and medical devices, so I don't know the consumer business as well as many people.
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But that really is important when you start dealing with the Carrefours or the Walmarts, or the targets.
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And we went from about 14 leadership positions to over 20 leadership positions, which means that you have a lot of leverage in dealing with these large accounts where a lot of the business grows up.
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The OTC business I mentioned before, we were the largest in the world.
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By this acquisition, we've now become basically double our nearest competitor in size in the OTC arena.
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On a global basis, the oral healthcare, Listerine and our products, their between floss and dental really worked out well.
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And then the smoking cessation market, if you look on a global basis, the whole area of trying to deal with smoking and the problems associated with it and what the World Health Organization is moving towards offers us a huge opportunity.
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And the other one that doesn't come up here because right now it's not an OTC product.
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But at the end of the year, Zyrtec, which is the largest selling prescription antihistamine, non sedating or minimally sedating antihistamine in the world, will be going OTC.
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And we'll be launching that at the end of the year, which really brings us into another area to yet further grow our OTC business.
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The other thing that this did was it really balanced our portfolio the way the farm business was growing, the medical device business was growing, we kind of fell out of tune.
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Our balance of our portfolio got too much into the higher technology, the pharma and medical device businesses.
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And the thing that's great about consumer is the consumer business, we always describe it as an annuity.
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If you treat it right and invest in it, it'll continue to grow, and it'll continue to throw off extraordinary amounts of cash to grow your business.
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So we looked at it as balancing our portfolio, allowing us to really invest in a lower risk, high return area in the consumer business that's not dependent upon third party pay, government pay or some of the issues that the other businesses are driving are running into.
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And it allows us to, as I say, really balance the portfolio to bring almost a quarter of our business back into the consumer area.
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Moving on to the management philosophies, we have a document that many of you may be aware of called Arcredo.
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It was written over 60 years ago when JJ went public.
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And it really lays out the philosophy that J and J has subscribed to over that period of time.
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It's a document that we describe as probably one of the most extraordinary management philosophies that is very simple and very easy, and it has only four pieces to it.
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The first thing is that you look at the patients or the people that use your products, your customers, and you take care of them first and foremost.
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And I'm sure everybody's aware of the Tylenol issue we had years ago, but there's many other stories that are like that, where the financials were put behind caring for patients, caring for the people that used our products.
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And that was first and foremost in our minds, second is the employees, to make sure that we treat our employees.
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What sticks out to me in that paragraph is with dignity and respect, make sure.
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They have good places to work, secure jobs, and to make sure that we treat them well.
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The third one is our philanthropy, and that we have a responsibility to give back to the communities in which we live and work.
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And the J&J, last year, we gave about $700 million in donations by the company.
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The thing that's really extraordinary is what the employees do with their time.
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Not just their finances, but their time.
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And no matter where you go in the world, I was in China, and we were setting up schools in China.
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Whether you look at tsunami, Katrina, any of the natural disasters, we're always one of the first ones to respond to those and to make sure that we are supporting it, and it's part of who we are.
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And then, the fourth one is the shareholder.
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And someone said earlier that, if you do the first three, the shareholder does well.
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Well, it's not really you do the first three well, and you manage your business well, and the shareholder gets a very good return.
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I think when we went public 60 years ago, a share of stock cost about $37.
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That share is now worth over half a million dollars.
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So there's been a pretty fair return that these people have realized by investing in the company.
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But I think the thing that has always been the most amazing to me about our credo is that the person that wrote it was Robert Wood Johnson.
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And at the time he wrote it, he was the only shareholder of Johnson & Johnson, and he said he became fourth.
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And it's a philosophy that we've stood by.
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And though, we change our credo in small ways, when he wrote it, it was the mothers that take care of their children.
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We changed it to, say, the mothers and fathers that take care of their children.
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We try and update it, but we have not changed the basic four tenets and the order that they come in.
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We get benchmarked an awful lot by companies that come out and talk to us about why is the shareholder fourth when the shareholder should be first.
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And many companies have similar philosophies, but they put the shareholder first.
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Well, that compromises everything else you do.
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It makes you look at things differently.
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You have to make sure you're taking care of your customer first and foremost, your employees, the communities you live, managing your business well, and the shareholder does get a very fair return.
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And it's something that is really discussed, but never debated at J&J.
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What we do debate are the strategic principles that we work by, and these we look at all the time.
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The first one are the shared values embodied in our credo.
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And that's the value system that we work under and the way we look at our business.
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And actually of the last eight years, J&J has been number one in respect on a worldwide basis.
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By the surveys that were done, we lost this year.
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And I always say this because it tears my heart out to say it.
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We became number two to Microsoft this year and just by a little bit, we became number two.
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And it really wasn't Microsoft, it was the Bill and Melinda Gates foundation and their philanthropy that put them into the number one spot.
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But it is really important that the company shares its values and that we continue to work in that way.
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And we look at leadership, we look at people, and we look at the people that work in our company and treat them properly.
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Broadly based in human health care, this is one that we debate all the time.
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If you went back probably five or six years ago, many companies that were health care companies were kind of splitting out and spinning out their device business, or spinning out their farm business, or spinning out a consumer business and became very focused on one of the businesses.
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Our philosophy has always been to be broadly based in human healthcare.
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And we're seeing a convergence of technologies.
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If you look at cipher stent for example, which is a drug eluting stent that's really revolutionized some of the medical device areas in cardiac disease.
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That came because we had pharmaceutical people working with device people, putting them together.
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The duragesic patch which went off patent was really when we worked with fentanyl which was a product and looked at passive patch where we were able to get engineers and pharmacologists and chemists to work together. We start to see this.
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You're going to see personalized medicine in the future, where you're going to see genomics and proteomics.
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And you're going to see the personalized medicine coming together with the farm groups are able to look at the genetic makeup of people and see who are responders or non responders.
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Who has side effects, who doesn't have side effects with drugs and be able to bring these together to patients so that you get a much more effective medication.
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So being broadly based is very important.
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It also allows us to have line of sight to almost any healthcare change or innovation that's going on any place in the world.
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Decentralized is another one the dean spoke about.
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We're in 57 countries, we have 200 operating companies.
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The people that run our companies, the men and women that run the 200 operating companies we have out there, are the people that really run our businesses. They take care of them. They understand them.
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They can be focused on them.
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It's also one of the greatest leadership development opportunities anyone can ever have.
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You can go into running a business, a small business, go to a larger business and a larger business, and it allows for extraordinary development of leadership.
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And it allows people to make mistakes and make mistakes in areas where it's not going to be as catastrophic as if you're running a multi-billion dollar business as some of our larger businesses are.
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I think it's important that we recognize mistakes are important because that's how we learn.
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So it really is important that we remain decentralized, allow the people that understand the businesses, understand the markets that they're in and are able to take care of those much better than people who are not.
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And the last one is the management for long term and that's very important.
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People look at short term results, they look at the street, and the street wants a 30-day return.
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What have you done for me?
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Not yesterday, what are you going to do for me now?
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And not looking farther into the future.
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We run our business for sustainability over the long term.
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Last year we invested over $25 billion in the development and investments in our business.
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We spent about 7 billion in R&D.
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We spent 16 billion in the acquisition of Pfizer Consumer Healthcare, and then we had other acquisitions and licenses that were very important to our business.
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It's important that we continue to have a balance between our short term returns and the long term investments and that we balance those, because we want the sustainability.
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We want to be here for another hundred years.
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Our objective is to leave the business stronger than we found it when we picked it up.
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And that means we have to make sure that we are investing in all the different segments of our business.
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So our credo really is our kind of the beacon and the guiding light.
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It also is what allows me to sleep well at night, because it is translated into every language, every place in the world, and it helps us understand our priorities.
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And then, the strategic principles help us understand the way we work.
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We make sure we have a common set of values.
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We manage the business for the long term.
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We have decentralized management that allows for extraordinary leadership development.
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And we can look any place in the world to see about the broadly based human healthcare.
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What this all turns out to be is shareholder return.
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And if you look at this chart over again, the last 10 years, you can look at it over the last 20, 30, 40 or 50 or 100 years, well, 60 years, you see that the returns that J&J have given to shareholders have been very fair.
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We've had over 70 years of sales increases.
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We've had over 40 years of increased dividend returns to shareholders.
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We've had a great history here, and this looks at the health care, the drug index, the standard S&P index, as well as the health equipment index, and JJ continues to return.
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And I think that's what's important, is making sure your priorities are right, making sure you're giving a fair return, maybe not the best, but a fair return to your shareholders, and that you make sure you fulfill the responsibilities you have to your community.
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At the end of the day, it's all about the people.
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No matter what you do, it's all about people.
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It's being as we, as we were talking earlier, it's about being in great markets and having great people.
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And if you have both of those, and you put them together, and you allow people to really kind of spread their wings and do the things that are important and stay focused on their customer, great things happen.
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With that, that's all I had to say, and I went through it pretty quickly, hopefully so that we'd have time for Q and A, but that's really what J. J.
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is all about, it's about customers and it's about people, and that's really what's important.
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So with that, I'll throw it open to any questions you all may have, sure.
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>> Speaker 2: Thank you for taking your time to talk to us, you talked about Ziotex earlier, the antihistamine medicine.
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And that made me think of all the generic drugs that have come out on the market, and if I think of some countries, I'll mention France because that's the one I know best.
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If you go to a pharmacy and you ask for Ziotec, they'll tell you the generic version of Ziotec, so how do you face that?
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And that must definitely reduce your sales, and how do you face that?
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>> Speaker 1: Yeah, as I said, if you looked at last year, we only had a 4% growth in our farm business because we lost multibillion-dollar business with Duragesic.
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I think the key to the pharmaceutical business and medical devices and healthcare in general is innovation.
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It's making sure you're investing in the products that will come later on, what we have is we get a fair opportunity to regroup our investments, and actually very few products regroup the investment that's put into them, but you get a fair return for that.
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And then when the patent goes off, generics play an important role, and they help to elevate and to moderate pricing in the marketplace.
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So I think if a patient wants the branded product, they can request it, and in healthcare, in most areas, you just pay a higher price for it.
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But I think that the generic business is an important business, it's actually become a much better business over the years, it used to be a very not a well run business, whereas today it's very well run, but generics play an important role.
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I think if you make the investment and you get a fair return out of it, you have to continue to invest your money to innovate, and you have to come out with great new products, and if you can't do that, you probably shouldn't be around.
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So that's why the investment is so really important to all of us.
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>> Speaker 3: But do you sell generic drugs?
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>> Speaker 1: No, we don't, we talk about it a lot, it's one of those things that we do assess all the time, we don't sell generic products because we believe we're an innovative company If you look at pharmaceuticals.
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And innovation means we have to innovate, we have to come out with new products, we spend a tremendous amount of money in research and development.
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And we have to have a pipeline of products that are coming out that will offer real value.
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We look at it as how do we satisfy unmet medical needs in the marketplace, yeah.
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>> Speaker 4: Following up on the question about generics, we've seen Prilocyte, Claritin, Algo, OTC.
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And so you're seeing the lines between what's pharma and what's consumer and what's pharma and what's medical devices merge, which fits your strategy in terms of why you want to be more balanced, and my question is just how do you tactically do that?
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How are you organized in a way that you're bringing together the people who say, how can we best deliver this medicine via a device?
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How do you decide, okay, this is a medicine that we want to brand and take into OTC?
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Just how are you really set up to do that?
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>> Speaker 1: Well, I think part of that's driven by safety of the products, what happens in many instances is you look at products, we have a product called Pepcid and Pepcid is an H2 antagonist, so what happens over time is these products establish their safety and efficacy.
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Zyrtec will be another one that will go, and what happens is the FDA has to evaluate it, you have to do certain studies and show that there is safety for patients to be able to self-medicate.
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And those are the products that you go into the OTC arena and that becomes a completely different competitive business plan, if you will, or way of looking at it, as opposed to the pharmaceutical side.
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But many of them are built off of tremendous success in the marketplace as a pharmaceutical product, and then safety, there's a lot of them, there's a lot of products that will never go OTC.
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So those products will become generic after the patent life expires, and then a generic company will probably come out.
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And the big difference really is generic companies by and large don't do research and development.
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So what they do is they come out, they can make it cheaper, and they don't spend, we spent 7 billion last year in RD at J& J.
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They wouldn't have that expense, if you took that expense out, you could sell it a lot cheaper, and then they have a margin that's much lower.
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>> [INAUDIBLE] So say, look at the chart, the pie chart, devices, Pharma, Consumer, and in finance we always learn, well, don't worry about diversification, the shareholder can go out and buy those separate companies, but clearly you see an advantage in bringing those together.
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And so I wonder, just tactically, how do you realize the synergies that you see?
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Do you have cross functional groups in some places?
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>> Speaker 1: Yeah, we do a bit of both, we actually set up companies where we bring together people from the farm group with maybe the medical device group, and they actually look at things.
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We have a group which is called JJDC Development Corporation where we set up internal ventures, where people come together just like they would if they were setting up a venture outside.
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And they come to us with a plan, and then we set up a business where they have milestones that they have to meet for a plan that where they go forward with that, we also try to, and it's one of the areas where we need to improve a lot.
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We try and get the groups together, for example, if you look at oncology, there's an awful lot that goes on in the treatment, you take it all the way from sunblocks with Neutrogena all the way up through surgical intervention and removal at the other end.
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And we try and bring people together that work in common areas, even though they may be in different groups, and try and get them think together how they can deal with a problem.
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And that's where we have a diagnostics group now set up in our research facility in La Jolla that works actually with our pharmaceutical research and development group to look at the genomic makeup of patients.
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Again, Cypher Stent was actually a scientist from our farm group getting together with people from our medical device and looking at coding stents to eliminate restenosis, or the buildup of plaque in the vessels again.
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We're working here at ALZA on a product that's very important with us and that's a battery-driven patch where you can drive a narcotic through the skin instead of using a PCA pump, where you have to carry it around postoperatively.
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Put a patch on you with a battery, and you just hit the battery, and it drives a narcotic through for in-hospital use, and there you have to use the engineers and the biologists or chemists on farmside.
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So we try and create environments where people can get together, can exercise their independent thought or their collective thought to come up with ideas to be able to drive the business forward, okay, yeah?
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>> Speaker 1: Can you talk more about your personalized medicine efforts?
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>> Speaker 1: Yeah, I mean, basically it's looking at the whole breakthrough, mapping the human genome, everybody thought was going to be this big breakthrough, well it was, but it didn't actually do anything for creating opportunities in the marketplace.
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What the genome did do though, is it allowed people to be able to look at the genetic makeup of individuals and then to be able to say, that this patient, if you have a certain genetic makeup, you may respond or will or will not respond to a product, for example, there's a high percentage of patients that don't respond.
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So you give medication to people, and then you see if they do or they don't respond.
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If you could find the gene that says you will respond to this drug and you will also not have a side effect, you have kind of a perfect makeup for an individual, and I think that's where a lot of things will go over time, it's not going to be exclusively that way, but But I think if we can find the HER gene and Herceptin as an example of it and find other ones where you find good markers.
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Especially in the area of oncology, we're finding that you may be able to make breakthroughs in those areas.
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But we have our Ortho Clinical Diagnostics company, we have a company called Virtech that sits in La Jolla with our biotechnology company in La Jolla.
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And they actually look at all the genetic makeup of patients that we're treating in our clinical trials to see if we can find ways to determine whether they're responders or non responders.
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We have an oncology product where we can actually predict by looking at genes, a much higher response rate by patients that have a certain gene than don't.
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So that's really what we're looking at in that area.
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>> Speaker 1: So, is Jay going to be producing the hardware [INAUDIBLE]?
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>> Speaker 1: Yeah, yeah, we have a diagnostics company that does all that works with our farm company, sure.
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>> Speaker 2: So, Johnson Johnson has been a very successful company and has had six, as you said, six leaders running it over a course of time.
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So I have a question about leadership development, succession planning, and skills.
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So when you look for the next leader of Johnson and Johnson in an increasingly globalized economy, what skills do you look for?
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And then, obviously, before that person is selected, what do you do to help them and develop your people to get [INAUDIBLE]?
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>> Speaker 1: We spend a lot of time developing what we call leadership profile at J&J.
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And it really develops it's people who can inspire and motivate, can set a vision, can get people to rally behind it, that have enough insight and knowledge in the markets they compete in.
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And what we do is we try and give people a lot of exposure to different markets.
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So people may work in the pharmaceutical group, they may work in the device group, they may work in consumer, they may work in different parts of the world.
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So they get exposure to it and we like to bring them through.
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We have a very, you might say, intense succession planning program, where we look at people and we bring large groups of people to assess them and evaluate them.
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We have coaches, we have 360 degree feedback.
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And then we try and put together development plans and we could map it out where someone may start in pharmaceuticals, may go to medical devices, may spend some time in Europe.
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And they move around in different areas with basically a plan of saying how we're going to develop their career, and then they have to mature into it.
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We also try and give them opportunities to work in businesses or areas or manage brands where they're going to learn, they're going to make mistakes and they're going to learn.
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So we try and give them as much varied exposure to those things.
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But we have, once a year the executive committee spends a week and basically talks about all of the top potential people.
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I probably spend probably 40% of my time working with people, knowing people, and really getting to mentor, I wouldn't call it a formal mentoring program, but spending time with them.
27:02
And the executive committee, all of us do exactly the same thing.
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So we try and get a broad view of people.
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We do use 360, we do use coaches, but we give them practical experience more than anything to develop them. Yeah.
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>> Speaker 3: To build on Diana's question actually, we've seen this generation of senior executives who are now more management experts than company experts.
27:26
As somebody who grew up in Johnson & Johnson, I'm interested to know how you see both the wisdom and the future of this trend.
27:35
>> Speaker 1: Well, the thing that's unique about J&J, at least I think it is, is you can go anyplace in the world, you can work in all different businesses.
27:45
I've worked in, I actually started in what would be considered our consumer business.
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I worked in Asia, I worked in Europe, I worked most of my career in pharmaceuticals, then I spent about five years, six years in our device business.
27:57
The thing that has always impressed me with a company like J&J that's a larger organization, has many different businesses, is you can move around.
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If you become somewhat bored or disenchanted, there's another challenge that can be thrown out for you.
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If you go into a company that is, say, specifically a farm company or a biotech company and you want to get another experience, it's very hard to do that.
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You're going to be doing exactly the same.
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So I think that the management development and the opportunities in a company that's as broadly based as a J&J or a GE or some of these give you these extraordinary opportunities to move around.
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And to basically hone your skills.
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And it may not be, I mean, our device business is very, very different.
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Pharm, you're investing, it takes a long time to bring a drug to market.
28:44
In devices It's like, I used to talk about an oil tanker or a PT boat, you can turn a device on a dime, whereas it takes pharm a long time to bring a product out.
28:54
Great experiences in all of them, and consumer's even different, and I've spent very little time in consumer.
28:58
But I think that's one of the things that a corporation like J&J or some of the others has to offer, where you don't have to move.
29:05
If you want to gain varied experiences and you want to develop different skills, in most businesses today, you have to continue to change and move around.
29:14
But I think at J&J, you can build a career like that, yeah.
29:17
>> Speaker 2: [INAUDIBLE], are there downsides [INAUDIBLE]?
29:32
>> Speaker 1: The biggest downside I see in a corporation like ours is if you don't have good people and you try and manage it as a centralized organization.
29:42
I think the strength of J&J is being decentralized and allowing the people that really understand the business or the geography to manage the business in that way.
29:51
I've often said, I don't see how any one individual or any one group of individuals can manage a company like J&J.
30:00
I talk about our executive committee, of which is about eight people. We need 100, 200, 300.
30:06
We go through each year, we have a leadership program in the beginning of the year where we bring in our top 125 executives to make sure we're all aligned in the direction we're moving.
30:19
And then myself and our vice chairman go out and basically talk to another 2 or 300 other people.
30:24
So we have 400 people that are basically aligned as to where we're moving.
30:28
But if you tried to manage it centrally, I mean, I've described it often as trying to push this huge boulder up a mountain, it's going to backslide and you're going to be in trouble.
30:40
As opposed to pushing 200 grains up, you're going to get a lot of success and you're going to develop great leaders.
30:45
So I think there is a difference there.
30:48
I think the other piece that is sometimes criticized of J&J is kind of what we were talking about here, is we do live somewhat in our silos.
31:00
And it's the ability to get people across those silos to work together so that we can come up with the great ideas.
31:07
Whereas if you were in a more centralized company or a more focused company, you wouldn't have those issues.
31:12
But it's a management philosophy that seems to work pretty well.
31:16
And I think it does develop, really, I think we can develop some great leaders from that, yeah.
31:24
>> Can you share some of your lessons learned on how you developed yourself as a leader and how you got to where you are? >> Speaker 1: Yeah.
31:31
>> [LAUGH] >> The failures you've had, I mean, I think that the big piece to me has always been, boy, you make some dumb decisions and you do some dumb things in your life.
31:48
But it's a matter of just picking yourself up and moving forward.
31:53
I can think of acquisitions I made that were just absolute disasters, and we talk about them sometimes at J&J and I still say, we're just a Ahead of our time, but whether we were or we won't, we probably will never know.
32:05
But I think the key always is being persistent and not accepting failure, not accepting, I even hate the word failure.
32:17
And not being willing to accept that you can't do something, that you're going to strive to do it.
32:23
I think one of the really great things is having great people around you.
32:30
No matter where you go, you're going to, in the beginning of your career, you do you kind of are on your own.
32:35
But then when you start managing through others, it becomes a bigger challenge and you'll make mistakes and you learn.
32:43
But what you want to do is surround yourself with people that are much better than you are.
32:47
I mean, there's no doubt in my mind that the people that sit on the executive committee are much better at what they do than I could ever be.
32:53
And many of them are probably much better at doing my job than I'd ever be.
32:56
But you need that type of challenge, you also need people who have really, I mean, at J and J, diversity is a huge issue for us.
33:04
We want to have, and I'm not just talking race and gender, I'm also talking functional differences, geographical differences.
33:11
You want to have great people because it's not an individual, it's a group of individuals.
33:17
It's a group of individuals that can challenge each other, that think differently, that look at things differently, that approach problems differently.
33:23
So I think with myself, it was just a matter of each time I got knocked down, I kind of got up and kept going.
33:31
I think learning, going to Asia was a real experience for me because we do hear about the ugly American who goes over there and thinks they know everything.
33:40
I would hope to think I wasn't that way, but I did think I knew a lot more than I probably did, and I learned an awful lot, and it helped me be better.
33:48
One of the things that somebody told me early in my career is you need to shut your mouth and listen a lot more.
33:55
I think it's probably a problem we all have communication skills, is listening as well as speaking.
33:59
And even if you've got the answer, people appreciate letting others get the answer.
34:05
So I think it's truly a maturation process, it's learning from others.
34:11
There's nothing wrong with admitting you're wrong also, nothing wrong at all with that.
34:17
I say it all the time that my ideas aren't necessarily the best, but I think if you get six people, you can get too many.
34:23
But if you get a group of people in the room, you're going to come out with a better idea and don't take it personally.
34:28
You want to throw a strawman on the table and tear it apart and chew it up and spit it out.
34:32
And if you become defensive, that's wrong, you need to just be looking for the best solutions.
34:37
So I don't know what else to say, I think that you just have to make sure you got great people and working towards a common objective and get alignment within a group, yeah.
34:48
>> Speaker 2: Could you talk a little bit about goal setting in a growing organization, a decentralized organization like yours.
34:55
And how you re motivate the group that have achieved the impossible goal and say you should go forward.
35:02
>> Speaker 1: Yeah, I get criticized all the time for that because I said I think you should, if you set a goal of 10 and you reach 11, that's not half as good as setting a goal of 14 and reaching 13.
35:18
And you look at things differently if you set really aggressive goals, you challenge yourself to look at things in a different way.
35:25
You have to also make sure that your people don't get penalized if they don't reach the goal, if it's a real aggressive goal but I think we always have to.
35:33
And I get criticized, I mean, for all you finance majors, the finance people always want to hit me over the head all the time because I want to come out there and challenge people and they say, that's too aggressive.
35:42
Well, it may be or it may not be, but you'll never know if you don't strive for it.
35:46
But you want to, and that's why I get to the point of saying we want to grow faster than everybody we compete with.
35:52
We want to grow faster than the markets we compete in, we don't want to be second, we want to be first.
35:57
Now, there's reasons why and everything else, but you have to do contingency planning, you've got to think about those things.
36:03
But I think you should set aggressive goals, now realistic goals and attainable goals, but really aggressive goals.
36:10
And somebody who beats their objectives or their goals every year is somebody who's probably not challenging themselves or their people enough.
36:19
How do you keep people motivated?
36:21
Boy, when you work in our business, where you look at healthcare and you look at the needs around the world for unmet medical needs.
36:27
And you look at the future and where it's going, we got challenged once years ago at an annual meeting.
36:32
Somebody said that you guys really aren't interested in curing diseases, all you want to do is treat them, so you have a good business.
36:40
And my son, who knows me really well, saw my jaw get real tight and I said, no, I said, we'd like to cure them because there will always be enough diseases around the world to have to deal with.
36:49
There will always be enough health care needs, I mean, goodness gracious, every place you look, there's people that need health care.
36:56
I think we have internal challenges, I mean, the cost of health care is getting very substantial.
37:02
But I think we just have to look to try and change the world really.
37:07
I mean, nothing would make our scientists happier than finding a cure for cancer, I mean, nothing in the world.
37:12
I mean, it's not a matter of just making people comfortable, it's curing it would be wonderful.
37:17
So I think you have to really set your sight on that and not be afraid of doing things differently.
37:23
I mean, if you set a huge objective, you look at it a whole differently, different way than if you said there's little incremental change.
37:30
You've got to look for something really big and then you challenge yourself to be different, yeah.
37:37
>> Speaker 3: I have a question about the political situation right now in the US and the importance of healthcare as a political issue.
37:44
And how does J&J manage that inherent risk, given that your exposure in the pharmaceutical market is quite high and your margins do tend to come from.
37:56
>> Speaker 1: I think each company has to do it their own way, I guess a year ago I was chairman of PhRMA and we really supported the Medicare bill, for example, which has had a huge impact.
38:07
You can argue pros and cons about it, but people are now getting prescription filled, the long term benefit is going to be very substantial.
38:16
We in healthcare have a responsibility to make sure that we are part of the solution as well as part of the problem.
38:24
I mean, technology is really great, you can do wonderful things.
38:28
But you also have to say, okay, when do you get to a point where the cost is prohibitive for people to be able to use the drug?
38:35
We talk about it as access and affordability.
38:37
About a year ago or in the middle of last year, we had a product approved for HIV aids.
38:42
And we went public and said, we're going to make that drug available, but for any patient anywhere in the world who needs it at a cost that they can afford.
38:50
And we actually came out at a lower price than we had initially anticipated.
38:54
We're setting up distributors and manufacturers we're giving rights to in some of the different parts of the world.
39:01
Where you have extraordinary challenges because it's part of what we have to do to make sure we're part of the solution.
39:09
And I think each company has to look at it in their own way, how do we make sure that we are giving this great health care at rates that people can afford?
39:22
Now, how do we work in Washington?
39:24
We have a Washington group we work very actively looking at tort reform.
39:29
We look we're very active in intellectual property, we're very active in trying to make sure that we have the right pricing of our products as we go to market with them in ways that people can afford.
39:40
We have a patient assistance program where the industry gives billions and billions of dollars away that people don't realize of free products for indigent patients.
39:48
All of these things are important, the children's a healthy children's program that governor here is looking at and elsewhere in the world.
39:56
We have to get behind these programs and help support them, there's enough.
40:00
To go around to do things a proper way.
40:03
And then the political issue is political, politics is politics.
40:06
I mean, it could be a good program but somebody's going to disagree with it because they're in another party or something.
40:10
I think we have to elevate health care above the political issues and make sure that we're trying to treat patients.
40:17
But whether it's in Tokyo or Shanghai or Beijing or Belgium, wherever it may be, we have groups of people that are working with the government to try and ensure that people get the health care they need. Okay. Yeah.
40:35
>> Speaker 2: [INAUDIBLE] Business struggles [INAUDIBLE] Do you see that as a advantage that you have, [INAUDIBLE]?
40:48
>> Speaker 1: Yeah, I think it's convergence of technologies and development of skills and people.
40:52
People skills are transferable, you can move them around.
40:55
The consumer skills of the people that we move out of our consumer business into our pharmaceutical or medical device business have really brought extraordinary advertising promotion knowledge of things that we would never be aware of.
41:09
You look at our LifeScan business here, which is meters for diabetics, the ability to bring that type of knowledge into that area.
41:19
Same thing with Vistacon, our contact lenses, to bring consumer people into those areas to help learn in those areas, to move people around.
41:26
The convergence of technologies.
41:32
People look at us and say, weren't we brilliant to be where we are?
41:34
I guarantee in five years they're going to tell us how stupid we were again.
41:37
But it's something that we believe in and we're committed to.
41:40
And we do think that the technologies and the skills will converge and the people and we will be a better organization for it and bring better health care to people.
41:49
For that we had a Derm group in our farm research organization that probably four or five years ago we moved into the consumer business.
41:58
And you look at Aveeno today, Aveeno has been an extraordinarily successful company.
42:02
It's because we've actually taken science and taken naturals like soy and oatmeal and things like that and moved it into this Derm group, moving over there and doing the research to be able to do it.
42:12
So we've got a lot of experience and a lot of examples where we've been able to take those and move people with skills as well as the technologies together. Yeah.
42:25
>> Speaker 3: J&J is famous for the emphasis on decentralization and autonomy in the business units.
42:30
I was wondering if there's ever been a time when you've intervened to try and resolve a conflict between business units or members of your executive committee have had to intervene.
42:39
>> Speaker 1: I'm sure there's times we've probably.
42:44
Well, yeah, I guess you'd say intervention where we've actually encouraged people to get together, to work together.
42:50
I talked about the silos before.
42:52
Consumer people like to work with consumer.
42:56
The example I gave a minute ago about the Derm business is something where the consumer people loved using the farm people because they did all the research.
43:04
They invested all the money in it, and then the Derm people picked it up and went to the market and said, aren't we profitable?
43:10
And we said, sure, you are, but let's now move all that expense over here and let's see how profitable you are. So you intervene.
43:17
Setting up the diagnostic group in La Jolla was an intervention where a couple of us got involved and said, we need to do this.
43:24
The farm people had been actually developing this bundle of genomic information.
43:30
So we actually got the diagnostics people over there.
43:35
I think we've probably gotten away from it.
43:37
Years ago, we had an awful lot of infighting that said, I'm going to invest in this product.
43:43
It's going to go against my contribution to the corporation and somebody else is going to get the benefit on the other side of it of going to the market with it.
43:51
And I think hopefully our senior leadership has gotten beyond that.
43:55
And we always say, your stock is called Johnson and Johnson, not Cordes or not Janssen or not this or not that.
44:02
So I think we've gotten beyond it but yeah, sometimes you do.
44:05
And more importantly, you want to set up an environment and a reward and recognition program that allows people to be encouraged to share. Yeah.
44:17
>> You stressed the importance of innovation to your organization.
44:19
I was wondering if you could think about how a company of your size actually continues to foster innovation, particularly in the face of competitors that are considered much smaller and more nimble, particularly the biotechs out there.
44:30
>> Speaker 1: Yeah, I think innovation in general is a challenge.
44:35
The thing that most biotechs have as an advantage over a large company is they don't have a profit.
44:41
The day you turn profit is the day you got a problem because the street wants you to continue to turn profit and then you can't invest in your business.
44:47
So as long as you're losing money, you're in great shape.
44:50
>> [LAUGH] >> And I mean, that's really true.
44:52
We bought a company called Senecor in November of 99.
44:57
And it's a company that really was one of the first ones to really drive the monoclonals and the treatment for immune-mediated diseases.
45:06
You look at rheumatoid arthritis or psoriasis or any of this and they told us that their biggest problem was they turned a profit, and then everybody wanted them to keep turning a profit.
45:15
So they didn't have the resources to invest in the business.
45:18
So they needed a large company to take them out to be able to do it but it's hard.
45:22
It's very hard and that's why decentralization becomes so important to us.
45:27
We have our pharmaceutical GOC, we call them Group Operating Committee and that's run just like a pharmaceutical business.
45:34
And we try and move it down to our biotech business and to our small molecule business and let them run it and set it up.
45:40
We have what we call red units, which are research groups that allow them to be able to focus on developing, being nimble and being fast and being able to execute without having to run everything up the flagpole.
45:51
One of the criticisms of J&J and I think other large companies is how slow we are to act sometimes because decisions have to get all the way up to the executive committee.
46:01
We've tried to push things down and change some of that.
46:04
We went through a big change last year.
46:06
We tried to push it down so people could make faster decisions, have more financial freedom, if you will, at lower levels. But it's a challenge.
46:16
It's a different world being in a large company as opposed to being in a small biotech and both serve great purposes.
46:25
But I think if you can be decentralized, you can push decisions down to lower levels, allow people to be empowered to make decisions and do things. That's good.
46:34
And then sometimes I say it's better to beg forgiveness and ask permission. Just do it.
46:39
I hate to say that around the company because some people do it, but it is, you asked a question about my career.
46:44
I'll tell you, there were times when I just went out and did it and God bless it, fortunately many of them worked out.
46:53
Some didn't and so I suffered the consequences of that.
46:56
I guess we've got time for maybe one or two more questions, yeah.
47:02
>> In terms of R&D, as I mentioned before, I'd say, it's known that J&J usually buys startups and then invest in developing the startups that they bought.
47:14
Is it also a possibility?
47:16
Does J&J also looks at starting an idea like investing R&D and starting something from scratch.
47:23
Or is it just about buying some small startups and then developing their company?
47:29
>> Speaker 1: Now we actually look at all three and I could track out for you the history of J&J.
47:37
The best way is to start from scratch and to take your own discovery units and move businesses forward, because then you don't pay any royalties or you don't have to buy companies which are very expensive.
47:47
But actually R&D Licensing, LNA and M& A are all very important to us.
47:51
And the one thing that I think any company, including J&J knows is all the great ideas aren't in our company.
47:58
So we look out and we, You look at, I mentioned Senacor a minute ago, we bought a company called Senacor.
48:05
They were great in monoclonals and allowed us to move forward in that area we acquired that company.
48:11
We can look at another product called Levaquin which is a cephalosporin, an antibiotic type product that we bought from or we licensed in from Daiichi in Japan.
48:22
So we really do all of these, we licensed in a product for hepatitis C last year which possibly could eliminate hepatitis C.
48:31
I mean it's an extraordinary molecule, and then we do co-promotions.
48:35
We have a co-promotion with Millennium which had a product called Velcade for a form of cancer and we co-promote that.
48:43
So it's really, it's all of the above and we'll go after anything that we think has great opportunities.
48:50
Many of them will license in or acquire and then have to put a lotta investment into it.
48:54
80% of your investment is after the discovery phase so that's how we do it, we look at all of them one more.
49:03
>> Speaker 2: Do you yourself or Johnson Johnson have an opinion on universal health care coverage in the US in terms of single payer or universal vouchers or employer mandates?
49:13
And if any of these are actually implemented in the US how would it affect the company?
49:21
>> Speaker 1: It's funny, I work with the RAND group on looking at health care and what is going to be the whole issue going forward?
49:31
Having lived in countries like the UK where you have a government one party pay program, I don't think many of us would like to live in that program.
49:41
I don't think I had a knee replaced last year and I don't think you'd want to not be able to have your knee replaced because you're over a certain age.
49:51
The government has already spent all their money, you don't want to, you know, they eliminate.
49:54
They have a group called NICE and I know the people very well that run it that determine whether they should pay for a product.
50:01
Determining whether your life expectancy should go on because of the cost benefit of living another month or two months or three months or six months.
50:12
I don't think we, we want to get into that I also believe that we need to make sure that patients have access to the products that are out there.
50:23
And I think there's a need for industry, government, providers, payers to all sit down and look at how is the best way to deliver healthcare.
50:33
What's the best way to ensure that patients get their medication.
50:37
I'm working on a group at the Institute of Medicine in Washington.
50:41
Now where we're looking at evidence based medicine where we're trying to determine how do you look at medicine and figure out what's the best medicines to use.
50:49
And I think there's a way that that needs to be done.
50:52
I think if you start to really limit the ability for people to have access to medications or you start looking at limited formularies you're going to start taking innovation out of the system.
51:05
You're going to end up where the UK basically ended up years ago when they started going into these PPRS system and other things that did not reward innovation.
51:13
So I think we have a very good system we have to manage it and we all have to get on board and recognize that it's.
51:20
No one group is going to solve it.
51:22
I often say, if we've got $5 to spend today and there's five groups and everyone gets a buck and we got 450 to spend next year, we all can't take a buck.
51:32
We all gotta figure out how do we share in this, how do we all take 90 cents or how do we make it better?
51:38
So I'm not sure what the right answer is for healthcare, but I think it will come out of a collective group of people sitting together rather than any one group trying to figure it out by themselves.
51:49
Well, thank you all very much, it's been great.