Warren Buffett Stock Topic for JNJ. Berkshire Hathaway owns 61,754,448 shares. As of Dec 31,2007, this represents 5.99 percent of portfolio.
Johnson & Johnson and its subsidiaries have approximately 119,200 employees worldwide engaged in the research and development, manufacture and sale of a broad range of products in the health care field. Johnson & Johnson is a holding company, which has more than 250 operating companies conducting business in virtually all countries of the world. Johnson & Johnsonâ€™s primary focus has been on products related to human health and well-being. Johnson & Johnson was incorporated in the State of New Jersey in 1887.
The Companyâ€™s structure is based on the principle of decentralized management. The Executive Committee of Johnson & Johnson is the principal management group responsible for the operations and allocation of the resources of the Company. This Committee oversees and coordinates the activities of the Consumer, Pharmaceutical and Medical Devices and Diagnostics business segments. Each subsidiary within the business segments is, with some exceptions, managed by citizens of the country where it is located.
Segments of Business
Johnson & Johnsonâ€™s operating companies are organized into three business segments: Consumer, Pharmaceutical and Medical Devices and Diagnostics. Additional information required by this item is incorporated herein by reference to the narrative and tabular (but not the graphic) descriptions of segments and operating results under the captions â€śManagementâ€™s Discussion and Analysis of Results of Operations and Financial Conditionâ€ť on pages 36 through 47 and Note 11 â€śSegments of Business and Geographic Areasâ€ť under â€śNotes to Consolidated Financial Statementsâ€ť on page 59 of the Annual Report, filed as Exhibit 13 to this Report on Form 10-K.
The Consumer segment includes a broad range of products used in the baby care, skin care, oral care, wound care and womenâ€™s health care fields, as well as nutritional and over-the-counter pharmaceutical products. Major brands include AVEENO Â® skin care products; BAND-AID Â® Brand Adhesive Bandages; CAREFREE Â® Pantiliners; CLEAN & CLEAR Â® teen skin care products; JOHNSONâ€™S Â® Baby and Adult lines of products; LISTERINE Â® oral care products; MOTRIN Â® IB ibuprofen products; NEUTROGENA Â® skin and hair care products; RoC Â® skin care products; PEPCID Â® AC Acid Controller from Johnson & Johnson â€˘ Merck Consumer Pharmaceuticals Co.; REMBRANDT Â® Brand of oral care products; SPLENDA Â® No Calorie Sweetener; STAYFREE Â® sanitary protection products; SUDAFED Â® cold, flu and allergy products; the broad family of TYLENOL Â® acetaminophen products and VendĂ´me skin care product lines. These products are marketed principally to the general public and sold both to wholesalers and directly to independent and chain retail outlets throughout the world.
The Pharmaceutical segment includes products in the following therapeutic areas: anti-infective, antipsychotic, cardiovascular, contraceptive, dermatology, gastrointestinal, hematology, immunology, neurology, oncology, pain management, urology and virology. These products are distributed directly to retailers, wholesalers and health care professionals for prescription use by the general public. Key products in the Pharmaceutical segment include: RISPERDAL Â® oral (risperidone), a medication that treats the symptoms of schizophrenia, bipolar mania and irritability associated with autistic behavior in indicated patients, RISPERDAL Â® CONSTA Â® (risperidone), a long-acting injectable, and INVEGA TM (paliperdone) Extended-Release tablets, for the treatment of schizophrenia; REMICADE Â® (infliximab), a biologic approved for the treatment of Crohnâ€™s disease, ankylosing spondylitis, psoriasis, psoriatic arthritis, ulcerative colitis, and use in the treatment of rheumatoid arthritis; PROCRIT Â® (Epoetin alfa, sold outside the U.S. as EPREX Â® ), a biotechnology-derived product that stimulates red blood cell production; TOPAMAX Â® (topiramate), approved for adjunctive and monotherapy use in epilepsy, as well as for the prophylactic treatment of migranes; LEVAQUIN Â® (levofloxacin) and FLOXIN Â® (ofloxacin), both in the anti-infective field; ACIPHEX Â® /PARIET Â® , a proton pump inhibitor co-marketed with Eisai Inc. DURAGESIC Â® /Fentanyl Transdermal (fentanyl transdermal system, sold outside the U.S. as DUROGESIC Â® ), a treatment for chronic pain that offers a novel delivery system; CONCERTA Â® (methylphenidate HCl), a product for the treatment of attention deficit hyperactivity disorder; and ORTHO EVRA Â® (norelgestromin/ethinyl estradiol transdermal system), the first contraceptive patch approved by the U.S. Food and Drug Administration (â€śFDAâ€ť).
Medical Devices and Diagnostics
The Medical Devices and Diagnostics segment includes a broad range of products distributed to wholesalers, hospitals and retailers, used principally in the professional fields by physicians, nurses, therapists, hospitals, diagnostic laboratories and clinics. These products include Cordisâ€™ circulatory disease management products; DePuyâ€™s orthopaedic joint reconstruction and spinal care products; Ethiconâ€™s wound care and womenâ€™s health products; Ethicon Endo-Surgeryâ€™s minimally invasive surgical products; LifeScanâ€™s blood glucose monitoring and insulin delivery products; Ortho-Clinical Diagnosticsâ€™ professional diagnostic products and Vision Careâ€™s disposable contact lenses. Distribution to these health care professional markets is done both directly and through surgical supply and other dealers.
The international business of Johnson & Johnson is conducted by subsidiaries located in 56 countries outside the United States, which are selling products in virtually all countries throughout the world. The products made and sold in the international business include many of those described above under â€śâ€” Segments of Business â€” Consumer,â€ť â€śâ€” Pharmaceuticalâ€ť and â€śâ€” Medical Devices and Diagnostics.â€ť However, the principal markets, products and methods of distribution in the international business vary with the country and the culture. The products sold in international business include not only those developed in the United States, but also those developed by subsidiaries abroad.
Investments and activities in some countries outside the United States are subject to higher risks than comparable U.S. activities because the investment and commercial climate is influenced by restrictive economic policies and political uncertainties.
Raw materials essential to Johnson & Johnsonâ€™s operating companiesâ€™ businesses are generally readily available from multiple sources.
Patents and Trademarks
Johnson & Johnson and its operating companies have made a practice of obtaining patent protection on their products and processes where possible. They own or are licensed under a number of patents relating to its products and manufacturing processes, which in the aggregate are believed to be of material importance to Johnson & Johnson in the operation of its businesses. Sales of the Companyâ€™s two largest products, RISPERDAL Â® and REMICADE Â® , accounted for approximately 6% and 5% of Johnson & Johnsonâ€™s total revenues, respectively, for fiscal 2007. Accordingly, the patents related to these products are believed to be material to Johnson & Johnson as a whole.
During 2004 through 2006, DURAGESIC Â® /Fentanyl Transdermal (fentanyl transdermal system) lost its basic patent protection and is subject to generic competition in the United States and certain international markets, and the basic patents covering EPREX Â® (Epoetin alfa) have expired and increased biosimilar competition in international markets is expected. DURAGESIC Â® /Fentanyl Transdermal sales declined by 10.1% to $1.2 billion in 2007 as compared to 2006, due to the impact of generic competition. Combined sales of DURAGESIC Â® /Fentanyl Transdermal and EPREX Â® accounted for approximately 4% of Johnson & Johnsonâ€™s worldwide sales in 2007. The material patents that expired in 2007 or will expire in 2008 are related to RISPERDAL Â® , which expired in the United States in December 2007, and TOPAMAX Â® , which is scheduled to expire in the United States in September 2008. The Company has received a pediatric extension for RISPERDAL Â® oral from the FDA, which grants market exclusivity in the United States through June 2008. The Company is on target to file for a pediatric extension for TOPAMAX Â® , which, if obtained from the FDA, would grant market exclusivity in the United States until March 2009.
Johnson & Johnsonâ€™s operating companies have made a practice of selling their products under trademarks and of obtaining protection for these trademarks by all available means. These trademarks are protected by registration in the United States and other countries where such products are marketed. Johnson & Johnson considers these trademarks in the aggregate to be of material importance in the operation of its businesses.
Worldwide sales do not reflect any significant degree of seasonality; however, spending has been heavier in the fourth quarter of each year than in other quarters. This reflects increased spending decisions, principally for advertising and research and development activity.
In all of their product lines, Johnson & Johnsonâ€™s operating companies compete with companies both large and small, located throughout the world. Competition is strong in all product lines without regard to the number and size of the competing companies involved. Competition in research, involving the development and the improvement of new and existing products and processes, is particularly significant. The development of new and improved products is important to Johnson & Johnsonâ€™s success in all areas of its businesses. This also includes protecting the Companyâ€™s portfolio of intellectual property. The competitive environment requires substantial investments in continuing research and multiple sales forces. In addition, the development and maintenance of customer acceptance of the products of Johnson & Johnsonâ€™s consumer businesses involves significant expenditures for advertising and promotion.
Research and Development
Research activities represent a significant part of Johnson & Johnsonâ€™s subsidiariesâ€™ businesses. Major research facilities are located not only in the United States but also in Australia, Belgium, Brazil, Canada, China, France, Germany, India, Japan, the Netherlands, Singapore and the United Kingdom. The costs of worldwide Company-sponsored research activities relating 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, excluding in-process research and development charges, amounted to $7,680 million, $7,125 million and $6,462 million for fiscal years 2007, 2006 and 2005, respectively. These costs are charged directly to income in the year in which incurred.
Johnson & Johnsonâ€™s operating companies are subject to a variety of federal, state and local environmental protection measures. Johnson & Johnson believes that its operations comply in all material respects with applicable environmental laws and regulations. Johnson & Johnsonâ€™s compliance with these requirements did not during the past year, and is not expected to, have a material effect upon its capital expenditures, cash flows, earnings or competitive position.
Most of Johnson & Johnsonâ€™s businesses are subject to varying degrees of governmental regulation in the countries in which operations are conducted, and the general trend is toward increasingly stringent regulation. In the United States, the drug, device, diagnostics and cosmetic industries have long been subject to regulation by various federal and state agencies, primarily as to product safety, efficacy, manufacturing, advertising, labeling and safety reporting. The exercise of broad regulatory powers by the FDA continues to result in increases in the amounts of testing and documentation required for FDA clearance of new drugs and devices and a corresponding increase in the expense of product introduction. Similar trends are also evident in major markets outside of the United States.
The costs of human health care have been and continue to be a subject of study, investigation and regulation by governmental agencies and legislative bodies around the world. In the United States, attention has been focused on drug prices and profits and programs that encourage doctors to write prescriptions for particular drugs or recommend, use or purchase particular medical devices. Payers have become a more potent force in the market place and increased attention is being paid to drug and medical device pricing, appropriate drug and medical device utilization and the quality and costs of health care. In the United States, implementation of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 and the Deficit Reduction Act of 2005 may cause uncertainty in reimbursement levels in certain product segments.
The regulatory agencies under whose purview Johnson & Johnsonâ€™s operating companies operate have administrative powers that may subject those companies to such actions as product withdrawals, recalls, seizure of products and other civil and criminal sanctions. In some cases, Johnson & Johnsonâ€™s operating companies may deem it advisable to initiate product recalls.
In addition, business practices in the health care industry have come under increased scrutiny, particularly in the United States, by government agencies and state attorneys general, and resulting investigations and prosecutions carry the risk of significant civil and criminal penalties.
Dr. Coleman, 64, was elected to the Board of Directors in 2003 and is a member of the Audit Committee and the Science & Technology Advisory Committee. She has served as President of the University of Michigan since August 2002, after having served as President of the University of Iowa from 1995 to July 2002. In addition to her current position as President, Dr. Coleman is a professor of biological chemistry in the University of Michigan Medical School and a professor of chemistry in the University of Michigan College of Literature, Science and the Arts. Prior to 1995, Dr. Coleman served as Provost and Vice President for Academic Affairs at the University of New Mexico, Vice Chancellor for Graduate Studies & Research and Associate Provost and Dean of Research at the University of North Carolina at Chapel Hill, and a member of the biochemistry faculty and an administrator at the Cancer Center of the University of Kentucky in Lexington. Elected to the National Academy of Sciencesâ€™ Institute of Medicine in 1997, Dr. Coleman is a Fellow of the American Academy of Arts and Sciences and the American Association for the Advancement of Science. Dr. Coleman is a Director of Meredith Corporation and a Trustee of the John S. and James L. Knight Foundation and the Gerald R. Ford Foundation.
Mr. Cullen, 65, was elected to the Board of Directors in 1995 and is the Presiding Director of the Board, Chairman of the Audit Committee and a member of the Nominating & Corporate Governance Committee. Mr. Cullen retired as President and Chief Operating Officer of Bell Atlantic Corporation (communications) in 2000. He had assumed those positions in 1998, after having been Vice Chairman since 1995 and, prior to that, President since 1993. He was President and Chief Executive Officer of Bell Atlantic-New Jersey, Inc. from 1989 to 1993. He is a Director of Neustar, Inc., Prudential Financial, Inc. and Eisenhower Medical Center and a Director and non-executive Chairman of Agilent Technologies, Inc.
Dr. Johns, 66, was elected to the Board of Directors in 2005 and is a member of the Compensation & Benefits Committee and the Science & Technology Advisory Committee. He has served since October 2007 as Chancellor of Emory University. From 1996 to 2007, Dr. Johns served as Executive Vice President for Health Affairs and Chief Executive Officer of the Robert W. Woodruff Health Sciences Center of Emory University. As the Executive Vice President for Health Affairs, he oversaw Emory Universityâ€™s widespread academic and clinical programs in health sciences and led strategic planning initiatives for both patient care and research. In addition, from 1996 to 1997, he served as the Chairman of the Board of Emory Healthcare, the largest health care system in Georgia. From 1990 to 1996, Dr. Johns served as Dean of the Johns Hopkins School of Medicine and Vice President of the Medical Faculty at Johns Hopkins University. Dr. Johns is Past Chair of the Council of Teaching Hospitals, a fellow of the American Association for the Advancement of Science and a member of the Institute of Medicine. He is a member of the editorial board of the Journal of the American Medical Association (JAMA) and chairs the Publication Committee of the journal Academic Medicine . Dr. Johns is a Director of Genuine Parts Company.
Mr. Langbo, 70, was elected to the Board of Directors in 1991 and is a member of the Nominating & Corporate Governance Committee and Chairman of the Compensation & Benefits Committee. Mr. Langbo retired as Chairman of Kellogg Company (cereals and convenience foods) in 2000. He had held that position since 1992 after having been President and Chief Operating Officer of Kellogg since 1990. He also served as Chief Executive Officer from 1992 until 1999. Mr. Langbo joined Kellogg Canada Inc. in 1956 and served in a number of management positions in Canada and the United States before being named President of Kellogg International in 1986. Mr. Langbo is a Director of The Hershey Company, Weyerhaeuser Company and Whirlpool Corporation.
Dr. Lindquist, 58, was elected to the Board of Directors in 2004 and is a member of the Science & Technology Advisory Committee and the Public Policy Advisory Committee. Since 2001, Dr. Lindquist has been a member of the Whitehead Institute, a non-profit, independent research and educational institution, a Professor of Biology at the Massachusetts Institute of Technology and an Investigator of the Howard Hughes Medical Institute (HHMI). Dr. Lindquist served as Director of the Whitehead Institute from 2001 to 2004 and became an HHMI Investigator in 2006. Previously she had been affiliated with the University of Chicago for more than 20 years, and was the Albert D. Lasker Professor of Medical Sciences in the Department of Molecular Genetics and Cell Biology and an HHMI Investigator. She was elected to the American Academy of Arts and Sciences in 1996, the National Academy of Sciences in 1997, the American Philosophical Society in 2003 and the Institute of Medicine in 2006. Dr. Lindquist has received the 2008 Genetics Society of America Medal, the Sigma Xi William Proctor Prize for academic achievement (2006), the Dickson Prize in Medicine (2002) and the Novartis Drew Award in Biomedical Research (2000). In 2006, Scientific American named her one of the countryâ€™s top 50 leaders in business, policy and research. She is a member of the Science Advisory Council for the MacArthur Foundation and the Scientific Advisory Board for the Stowers Institute for Medical Research. Dr. Lindquist is a Co-Founder of FoldRx Pharmaceuticals, Inc., a private start-up company.
Mr. Mullin, 65, was elected to the Board of Directors in 1999 and is a member of the Audit Committee and the Chairman of the Public Policy Advisory Committee. Mr. Mullin retired as Chief Executive Officer of Delta Air Lines, Inc. (air transportation) in December 2003 and Chairman in April 2004, after having served as Chief Executive Officer of Delta since 1997 and Chairman since 1999. Mr. Mullin currently serves as a Senior Advisor, on a part-time basis, to Goldman Sachs Capital Partners, a private equity fund group. Mr. Mullin was Vice Chairman of Unicom Corporation and its principal subsidiary, Commonwealth Edison Company, from 1995 to 1997. He was an executive of First Chicago Corporation from 1981 to 1995, serving as that companyâ€™s President and Chief Operating Officer from 1993 to 1995, and as Chairman and Chief Executive Officer of American National Bank, a subsidiary of First Chicago Corporation, from 1991 to 1993. Mr. Mullin is a Director of ACE Limited and the Juvenile Diabetes Research Foundation, and is a member of both The Business Council and the Advisory Board of the Carter Center.
Mr. Perez, 60, was appointed to the Board of Directors in June 2007 and is a member of the Compensation & Benefits Committee and the Public Policy Advisory Committee. Mr. Perez has served as President and Chief Executive Officer for the Wm. Wrigley Jr. Company (confectionary and chewing gum) since 2006. Before joining Wrigley, Mr. Perez served as President and Chief Executive Officer of Nike, Inc. Previously, he spent 34 years with S.C. Johnson & Son, Inc., including eight years as its President and Chief Executive Officer. Mr. Perez is a Director of Wrigley, the Hispanic Scholarship Fund, the Boys & Girls Club of Chicago and the Grocery Manufacturers Association, and is a member of the Cornell University Council.
Ms. Poon, 55, was elected to the Board of Directors in 2005. Ms. Poon joined the Company in 2000 as a Company Group Chairman in the Pharmaceuticals Group. Ms. Poon became a Member of the Executive Committee and Worldwide Chairman, Pharmaceuticals Group in 2001, was named Worldwide Chairman, Medicines & Nutritionals in 2003 and was appointed Vice Chairman in January 2005. She was again named Worldwide Chairman, Pharmaceuticals Group in January 2008. Prior to joining the Company, she served in various management positions at Bristol-Myers Squibb Company for 15 years, most recently as President of International Medicines (1998-2000) and President of Medical Devices (1997-1998). Ms. Poon is a Director at Fox Chase Cancer Center and Prudential Financial, Inc.
Mr. Prince, 58, was elected to the Board of Directors in 2006 and is a member of the Compensation & Benefits Committee and the Nominating & Corporate Governance Committee. Mr. Prince served as Chief Executive Officer of Citigroup Inc. (financial services) from 2003 to 2007 and as Chairman from 2006 to 2007. Previously he served as Chairman and Chief Executive Officer of Citigroupâ€™s Global Corporate and Investment Bank from 2002 to 2003, Chief Operating Officer from 2001 to 2002, and Chief Administrative Officer from 2000 to 2001. Mr. Prince began his career as an attorney at U.S. Steel Corporation in 1975, and in 1979 joined Commercial Credit Company (a predecessor company to Citigroup) where he held various management positions until 1995, when he was named Executive Vice President. Mr. Prince is a member of the Council on Foreign Relations and The Business Council. He is also on the Board of Trustees of The Julliard School and The Weill Cornell Medical College.
Mr. Reinemund, 59, was elected to the Board of Directors in 2003 and is the Chairman of the Nominating & Corporate Governance Committee and a member of the Audit Committee. In May 2007, Mr. Reinemund retired as Executive Chairman of PepsiCo, Inc. (snacks and beverages), a position which he held since October 2006. He served as Chairman and Chief Executive Officer of PepsiCo from 2001 to 2006. He was elected a Director of PepsiCo in 1996, and served as President and Chief Operating Officer from 1999 to 2001. Mr. Reinemund began his career with PepsiCo in 1984 at Pizza Hut, Inc., and held various management positions until 1992 when he became President and Chief Executive Officer of Frito-Lay, Inc., and Chairman and Chief Executive Officer of the Frito-Lay Company in 1996. Mr. Reinemund serves on the Board of Directors of American Express Company, Exxon Mobil Corporation and Marriott International, Inc., and is a Trustee of the United States Naval Academy Foundation.
Dr. Satcher, 67, was elected to the Board of Directors in 2002 and is Chairman of the Science & Technology Advisory Committee and a member of the Public Policy Advisory Committee. Dr. Satcher assumed his current post at Morehouse School of Medicine in 2004 and served as the Schoolâ€™s Interim President from 2004 until 2006 and Director of the Schoolâ€™s National Center for Primary Care from 2002 through 2004. In 2002, Dr. Satcher completed his four-year term as the 16th Surgeon General of the United States. He also served as the U.S. Assistant Secretary for Health from 1998 to 2001. From 1993 to 1998, Dr. Satcher served as Director of the Centers for Disease Control and Prevention and Administrator of the Agency for Toxic Substances and Disease Registry. Dr. Satcher served as President of Meharry Medical College in Nashville, Tennessee, from 1982 to 1993. Dr. Satcher is a fellow of the American Academy of Family Physicians, the American College of Preventive Medicine and the American College of Physicians. He has received numerous honorary degrees and awards, including the Jimmy and Rosalynn Carter Award for Humanitarian Contributions to the Health of Humankind, the New York Academy of Medicine Lifetime Achievement Award and the National Association of Mental Illness Distinguished Service Award. Dr. Satcher is a Director of MetLife, Inc., and serves on the Boards of Action for Healthy Kids, American Foundation for Suicide Prevention, Kaiser Family Foundation and Task Force for Child Survival and Development. He also serves as Co-Chair of the Advisory Committee on Public Issues of the Ad Council.
Mr. Weldon, 59, was elected to the Board of Directors and named Vice Chairman of the Board in 2001 and assumed his current responsibilities in 2002. Mr. Weldon joined the Company in 1971, and served in several sales, marketing and international management positions before becoming President of Ethicon Endo-Surgery in 1992 and Company Group Chairman of Ethicon Endo-Surgery in 1995. He was appointed to the Executive Committee and named Worldwide Chairman, Pharmaceuticals Group, in 1998. Mr. Weldon is also a Director of J.P. Morgan Chase & Co. Mr. Weldon is a member of The Business Council and the Sullivan Alliance to Transform Americaâ€™s Health Profession. He is a Trustee of Quinnipiac University and serves on the Liberty Science Center Chairmanâ€™s Advisory Council. Mr. Weldon also serves as Chairman of the CEO Roundtable on Cancer.
MANAGEMENT DISCUSSION FOR LATEST QUARTER
Results of Operations
Analysis of Consolidated Sales
For the fiscal first quarter of 2008, worldwide sales were $16.2 billion, with a total increase of 7.7% and an operational increase of 2.6% over 2007 fiscal first quarter sales of $15.0 billion. Currency had a positive impact of 5.1% on total reported fiscal first quarter 2008 sales.
Sales by U.S. companies were $8.5 billion in the fiscal first quarter of 2008, which represented a total increase of 2.8% over the same period last year. Sales by international companies were $7.7 billion, which represented a total increase of 13.7%, an operational increase of 2.4%, and a positive impact from currency of 11.3% over 2007 fiscal first quarter sales.
Sales by companies in the Western Hemisphere, excluding the U.S., achieved growth of 19.0% with operational growth of 6.2% and a positive impact from currency of 12.8%. Sales by companies in Europe experienced an increase of 13.0%, with operational growth of 0.8% and a positive impact from currency of 12.2%. Sales by companies in the Asia-Pacific, Africa region posted sales growth of 12.0%, with operational growth of 3.2% and a positive impact from currency of 8.8%.
Analysis of Sales by Business Segments
Consumer segment sales in the fiscal first quarter of 2008 were $4.1 billion, an increase of 16.2% over the same period a year ago, with 9.9% of operational growth and a positive impact from currency of 6.3%. U.S. consumer segment sales increased 11.7%, while international sales increased 20.2%, including operational growth of 8.3% and a positive currency impact of 11.9%.
The OTC Pharmaceuticals and Nutritionals franchise achieved operational growth of 20.5%. A major contributor was the successful launch of the over-the-counter ZYRTEC Ă˘ in the U.S. Additionally, adult and pediatric analgesics achieved strong growth.
The Skin Care franchise achieved operational growth of 4.0%. This was attributable to strong performances from the AVEENOÂ®, CLEAN & CLEARÂ®, and NEUTROGENA Ă˘ product lines due to new product launches and strength in the core business. This growth was partially offset by the discontinuation of Evian Ă˘ , a line of facial refreshers marketed in Europe.
The Baby Care franchise operational growth of 11.1% was the result of strong performance by wipes, haircare, powder and oil product lines outside the U.S. and Babycenter.com.
The Womenâ€™s Health franchise achieved operational growth of 1.8%. Growth in the sanitary protection lines outside the U.S. was partially offset by lower sales of napkins, K-Y Ă˘ and MONISTAT Ă˘ in the U.S. due to increased competition.
The Oral Care franchise operational growth of 2.9% was achieved by strong performance of LISTERINE Ă˘ mouthwash and dissolvable whitening strips, launched in the third quarter of 2007, partially offset by sales declines of REACH Ă˘ and REMBRANDT Ă˘ products.
Pharmaceutical segment sales in the fiscal first quarter of 2008 were $6.4 billion, an increase of 3.3% over the same period a year ago with an operational decline of 0.6% and a positive impact from currency of 3.9%. U.S. Pharmaceutical sales increased by 0.9%, while international Pharmaceutical sales increased by 7.9%, with an operational decline of 3.1% and a positive impact from currency of 11.0%.
Sales growth within the segment was led by strong performances from REMICADE Ă˘ (infliximab), RISPERDAL CONSTA Ă˘ (risperidone) and CONCERTA Ă˘ . Generic competition related to DURAGESIC Ă˘ (fentanyl transdermal system) and RISPERDAL Ă˘ oral outside the U.S., continued to negatively impact sales during the fiscal first quarter of 2008.
REMICADEÂ® (infliximab), a biologic approved for the treatment of Crohnâ€™s disease, ankylosing spondylitis, psoriasis, psoriatic arthritis, ulcerative colitis and use in the treatment of rheumatoid arthritis, achieved operational growth of 36.5% over prior year fiscal first quarter. This growth was driven by market growth and unusually high export sales due to customer production planning needs. REMICADEÂ® is competing in a market which is experiencing increased competition due to new entrants and the expansion of indications for existing competitors.
RISPERDALÂ® (risperidone), a medication that treats the symptoms of schizophrenia, bipolar mania and irritability associated with autistic behavior in indicated patients, experienced an operational decline of 9.3% versus the prior year. Sales outside the U.S. declined due to generic competition in many markets. The patent for the RISPERDALÂ® compound in the U.S. and most major markets outside the U.S. expired in December 2007. The U.S. Food and Drug Administration (FDA) granted pediatric exclusivity for RISPERDALÂ®, which extends the marketing exclusivity in the U.S. for RISPERDALÂ® oral to the end of June 2008. Loss of market exclusivity for RISPERDALÂ® oral patent is likely to result in a significant reduction in sales in the U.S. In the fiscal year 2007, U.S. sales of RISPERDALÂ® oral were $2.2 billion.
TOPAMAXÂ® (topiramate), which has been approved for adjunctive and monotherapy use in epilepsy, as well as for the prophylactic treatment of migraines, achieved operational growth of 3.9% primarily due to increases in the migraine category partially offset by generic competition in certain markets outside the U.S. The patent for TOPAMAXÂ® (topiramate) in the U.S. will expire in September 2008. The Company filed for the pediatric extension with the FDA, which if obtained, would grant market exclusivity in the U.S. until March 2009. The expiration of a product patent or loss of market exclusivity is likely to result in a significant reduction in sales. In the fiscal year 2007, U.S. sales of TOPAMAXÂ® were $2.0 billion.
PROCRIT Ă˘ (Epoetin alfa) and EPREX Ă˘ (Epoetin alfa) combined had an operational sales decline of 27.2%. The decline in PROCRIT Ă˘ sales was due to the declining markets for Erythropoiesis Stimulating Agents (ESAs) in the U.S. Outside the U.S., new competition and label reviews have contributed to the lower sales results for EPREX Ă˘ . Discussions with the FDA regarding potential changes to the label for PROCRIT Ă˘ are underway.
LEVAQUINÂ® (levofloxacin)/FLOXIN Ă˘ achieved operational growth of 3.3% over prior year. This growth was primarily due to market growth partially offset by increased competitive pressure.
RISPERDALÂ® CONSTAÂ® (risperidone) a long acting injectable for the treatment of schizophrenia, achieved operational growth of 9.7% in the fiscal first quarter of 2008. Strong growth was due to a positive shift from oral to injectable therapies.
CONCERTA Ă˘ (methylphenidate HCl), a product for the treatment of attention deficit hyperactivity disorder, achieved operational sales growth of 12.6% over the fiscal first quarter of 2007. The sales increase was due to strong market growth in the U.S. as well as in most regions outside the U.S. Although the original CONCERTA Ă˘ patent expired in 2004, the FDA has not approved any generic version that is substitutable for CONCERTA Ă˘ . Two parties have filed Abbreviated New Drug Applications (ANDAs) for generic versions of CONCERTA Ă˘ , which are pending and may be approved at any time.
ACIPHEXÂ®/PARIET Ă˘ (rabeprazole sodium) a proton pump inhibitor, experienced an operational decline of 23.1% primarily due to the impact of increased competitive activity.
DURAGESICÂ®/Fentanyl Transdermal (fentanyl transdermal system) experienced an operational sales decline of 28.5% due to the continued impact of generic competition.
In the fiscal first quarter of 2008, Other Pharmaceutical sales achieved operational growth of 5.1% versus the prior year. The biggest contributor to the increase was VELCADE Ă˘ , a treatment for relapse multiple myeloma, which is being co-developed with Millenium Pharmaceuticals.
Medical Devices and Diagnostics
Medical Devices and Diagnostics segment sales in the fiscal first quarter of 2008 were $5.7 billion, an increase of 7.2% over the same period a year ago with 1.4% of this change due to operational growth and a positive impact from currency of 5.8%. The U.S. Medical Devices and Diagnostics sales increase was 0.2%, while the growth in international Medical Devices and Diagnostics sales was 13.8%, including operational growth of 2.6% and an increase of 11.2% related to the positive impact of currency.
The DePuy franchiseâ€™s operational growth of 3.7% was primarily due to DePuy's orthopaedic joint reconstruction products including the knee and hip product lines and strong performance in the Mitek sports medicine products due to new product launches.
The Ethicon Endo-Surgery franchise achieved operational growth of 6.1% over prior year. This growth was mainly driven by the continued success of the HARMONIC SCALPEL Ă˘ Ă¤ , an ultrasonic cutting and coagulating surgical device and endocutter sales, which include products used in performing bariatric procedures for the treatment of obesity, an important focus area for the franchise. The REALIZE Ă˘ Gastric Band, launched in the U.S., in the fiscal fourth quarter of 2007 also contributed to sales growth.
The Ethicon franchise worldwide sales grew operationally by 1.3% from the same period in the prior year. Solid growth in Hemostasis, Meshes and biosurgical product lines contributed to the growth in the first quarter of 2008.
The Cordis franchise experienced an operational sales decline of 15.2% as compared to the prior year. This decline was caused by loss of market share of the CYPHERÂ® Sirolimus-eluting Coronary Stent due to market entry of a new competitor in the U.S., loss of market share outside the U.S. due to increased competition, 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 Neurovascular businesses.
The Diabetes Care franchise achieved operational growth of 5.7% with the ONETOUCH Ă˘ ULTRA Ă˘ product line being the major contributor as well as strong growth of the Animas pump in the U.S.
The Vision Care franchise operational sales growth of 11.7% was led by the global success of ACUVUE Ă˘ OASYS Ă¤ , 1-DAY ACUVUEÂ®MOIST TM , and ACUVUEÂ® ADVANCE TM for Astigmatism.
The Ortho-Clinical Diagnostics franchise achieved operational growth of 3.5% with the Immunohematology and Donor screening product line being a major contributor.
Cost of Products Sold and Selling, Marketing and Administrative Expenses
Consolidated costs of goods sold decreased to 28.5% from 29.1% of sales over the same period a year ago. The decrease was primarily due to the impact of restructuring initiatives.
Consolidated selling, marketing and administrative expenses decreased 0.3% of sales over the same period a year ago. Selling, marketing and administrative expenses as a percent to sales were 31.6% versus 31.9% in the fiscal first quarter of 2007. The decrease in the percent to sales was attributable to the impact of restructuring initiatives and cost containment efforts primarily in the pharmaceutical business.
Research & Development
Research activities represent a significant part of the Companyâ€™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 activities for the fiscal first quarter of 2008 were $1.7 billion, an increase of 3.6% over the same period a year ago. As a percent to sales, the level of research and development spending decreased to 10.6% in the fiscal first quarter of 2008, from 11.0% during the same period a year ago.
In-Process Research & Development
In the fiscal first quarter of 2008 the Company had no in-process research & development (IPR&D) charges. In the fiscal first quarter of 2007 the Company recorded an IPR&D charge of $807 million before and after tax related to the acquisition of Conor Medsystems Inc.
Other (Income) Expense, Net
Other (income) expense included gains and losses related to the sale and write-down of certain equity securities of the Johnson & Johnson Development Corporation, losses on the disposal of fixed assets, currency gains & losses, minority interests, litigation settlement expense, as well as, royalty income. The decrease in other (income) expense was primarily the result of the net gain of $175 million before tax related to the divestiture of certain brands partially offset by the integration costs of newly acquired businesses recorded in the fiscal first quarter of 2007.
OPERATING PROFIT BY SEGMENT
Operating profit for the Consumer segment as a percent to sales in the fiscal first quarter of 2008 was 17.9% versus 21.7% over the same period a year ago. This decrease was primarily due to the net gain of $175 million before tax related to the divestitures of certain brands partially offset by integration costs and other operating expenses related to newly acquired products recorded in the fiscal first quarter of 2007.
Operating profit for the Pharmaceutical segment as a percent to sales in the fiscal first quarter of 2008 was 36.8% versus 36.7% remaining relatively flat over the same period a year ago. The savings generated by the restructuring initiatives offset the negative impact of product mix.
Medical Devices and Diagnostics Segment
Operating profit for the Medical Devices and Diagnostics segment as a percent of sales in the fiscal first quarter of 2008 was 31.6% versus 13.4% over the same period a year ago. The increase was due to the impact of the restructuring initiatives and the impact of the acquisition related IPR&D charges of $807 million, incurred in the fiscal first quarter of 2007.
Interest (Income) Expense
Interest income in the fiscal first quarter of 2008 decreased by $13 million over the fiscal first quarter of 2007, due to lower rates of interest, despite a higher cash balance. The cash balance, which included marketable securities, was $11.1 billion at the end of the fiscal first quarter of 2008. This is an increase of $5.9 billion from the same period a year ago. The increase was primarily due to cash generated from operating activities.
Interest expense in the fiscal first quarter of 2008 increased by $36 million over the fiscal first quarter of 2007 due to a higher debt position of $11.4 billion as compared to $6.7 billion in the fiscal first quarter of 2007. The higher debt balance was due to the ongoing Common Stock repurchase program.
Provision For Taxes on Income
The worldwide effective income tax rates for the fiscal first quarters of 2008 and 2007 were 24.2% and 29.5%, respectively. The decrease in the effective tax rate of 5.3% was due to the IPR&D charge of $807 million recorded in the fiscal first quarter of 2007, which was non-deductible for tax purposes.
At March 30, 2008 the Company had approximately $1.7 billion of liabilities from unrecognized tax benefits. The Company does not expect that the total amount of unrecognized tax benefits will significantly change during the next twelve months.
See Note 8 to the Consolidated Financial Statements in the Annual Report on Form 10-K for the fiscal year ended December 30, 2007 for more detailed information regarding unrecognized tax benefits.
LIQUIDITY AND CAPITAL RESOURCES
Cash generated from business operations provided the major sources of funds for the growth of the business, including working capital, capital expenditures and acquisitions. Other uses of cash included share repurchases, dividend payments and debt repayments. In the fiscal first quarter of 2008, cash flow from operations was $3.2 billion, a decrease of $0.6 billion over the same period a year ago. This decrease was primarily due to a $0.7 billion increase in other current and non current assets. Net cash used by investing activities increased by $2.1 billion due to a decrease of $1.4 billion in acquisition activity and an increase of $1.0 in the net sale/purchase of investments partially offset by $0.2 billion decrease in proceeds from the disposal of assets. Net cash used by financing activities remained flat to prior year. An increase of $1.5 billion due to the repurchase of Common Stock was offset by net retirement/proceeds of short-term debt. Cash and current marketable securities were $11.1 billion at the end of the fiscal first quarter of 2008 as compared with $5.2 billion at the end of fiscal first quarter 2007, an increase of $5.9 billion. The increase was primarily due to cash generated from operating activities.
On January 2, 2008, the Board of Directors declared a regular cash dividend of $0.415 per share, paid on March 11, 2008 to shareholders of record as of February 26, 2008.
On April 24, 2008, the Board of Directors declared a regular cash dividend of $0.460 per share, payable on June 10, 2008 to shareholders of record as of May 27, 2008. This represented an increase of 10.8% in the quarterly dividend rate and was the 46th consecutive year of cash dividend increases. The Company expects to continue the practice of paying regular cash dividends.