SSDEDD

Alexander, Apanyin

MBA 699: 5-1

5-1 Milestone Three: Alternative Buyer Research Report and Acquisition Road Map July 2022

Johnson & Johnson (J&J) is the potential buyer for the organization. As indicated earlier, J&J is an American international company that develops pharmaceuticals, medical devices, and consumer goods. The company is currently headquartered in New Jersey, United States. It comprises 250 subsidiaries with operations in around 60 nations and products traded in over 170 countries.

Current Market

Johnson & Johnson specializes in the research and development, manufacture, distribution, and sale of a variety of products in the market. It operates through three segments: pharmaceutical, medical devices, and consumer health. The pharmaceutical segment specializes in therapeutic areas, including infectious diseases therapies, immunology therapies, neuroscience therapies, oncology therapies, and cardiovascular and metabolism therapies, to mention a few (Forbes, 2022). Some of the products in the pharmaceutical segment include Remicade, Simponi, Edurant, Indolence, Invega, Concerta, Balversa, Carvykti, Xarelto, and Invokana, to mention a few. The medical devices segment, on the other hand, specializes in products utilized in the surgery, orthopedic, cardiovascular, eye health, and diabetes care fields. Some of these products include Actis Stem, Trumatch Graft Cage, Surgical absorbable hemostats, Catalys, TearScience, Carto 3 System, and more. The consumer health segment focuses on products utilized in oral care, baby care, beauty, women’s health, and wound care, among others. They include Neutrogena, BeBe Young Care, Tylenol, Benadryl, Johnson’s Baby, Stayfree, Carefree, etc.

Johnson & Johnson customers are individuals of different ages, races, and gender. The company targets families for healthcare products, home care products, and personal care products, particularly individuals who are hygiene conscious. Johnson & Johnson customers also include healthcare organizations and facilities that purchase pharmaceutical products and medical devices. Overall, Johnson & Johnson competes in three industries: consumer products industry, pharmaceutical industry, and medical device industry. The company’s competitors include Bristol Myers Squibb, Unilever, Procter & Gamble, and Merck.

Financial Situation

Johnson & Johnson has consistently recorded outstanding financial performance over the years despite macroeconomic uncertainties and market volatility. In 2018, J&J recorded a total of 81.58 million U.S. dollars as revenue. In 2019, the company recorded a total of 82.06 million U.S. dollars as revenue (Mikulic, 2022). In 2020, Johnson & Johnson generated approximately 82.58 million U.S. dollars as revenue. And in 2021, the company generated a total of 93.77 million U.S. dollars as revenue.

Despite an increase in revenue, Johnson & Johnson has faced rising expenses, particularly R&D (Research and Development) expenses and operating expenses. In 2018, Johnson & Johnson recorded a total of $10.78 million as R&D expenses. In 2019, the company recorded a total of 11.36 million U.S. dollars as R&D expenses. In 2020, Johnson & Johnson recorded a total of 12.16 million U.S dollars as R&D expenses (Mikulic, 2021). And in 2021, Johnson & Johnson recorded a total of $14.71 million as R&D expenses. Johnson & Johnson's operating expenses have also increased over the years. In 2019, Johnson & Johnson recorded a total of 64.73 billion U.S. dollars as operating expenses, a 1.8 percent increase from the 2018 estimate. In 2020, the company recorded a total of 66.08 billion U.S. dollars as operating expenses, a 2.1 percent increase from the 2019 estimate. And in 2021, the company recorded a total of 70.99 billion U.S. dollars as operating expenses, a 7.4 percent increase from the 2019 estimate.

Johnson & Johnson is profitable compared to its peers. In 2018, Johnson & Johnson's net profit was 15.30 million U.S. dollars. In 2019, Johnson & Johnson recorded a total of 15.12 million U.S. dollars as net profits. In 2020, the company recorded a total of 14.71 million U.S. dollars as net profits (Mikulic, 2020). And in 2021, the company’s net profit was 20.88 million U.S. dollars. This was a huge increase from the 2020 estimate.

Recent Developments

In 2021, the United States government announced a partnership between Merck and Johnson & Johnson in the production of the COVID-19 vaccine. Getting COVID-19 vaccines to individuals all over the world is something that has been top of mind at Johnson & Johnson since the beginning of 2020 when coronavirus was starting to spread. Through the contract, Merck will utilize its facilities to manufacture drugs, as well as make and fill vials of J&J’s vaccine (Levine, 2021). This remarkable partnership reflects J&J's mission statement, which indicates that the company’s first responsibility is to the doctors, nurses, patients, fathers, mothers, and all other people using J&J’s products. For several years, Johnson & Johnson has played a huge role in fighting pandemics and epidemics through innovation. This dates back to 1918 during the outbreak of the Spanish flu. This is when Johnson & Johnson started mass production for the epidemic. This notable event makes the company more attractive to the organization as a buyer.

Buyer Rationale

Johnson & Johnson is the best option for the life sciences organization. As indicated earlier, the company has consistently recorded outstanding financial performance over the years. According to reports, J&J was ranked NO.37 on the 2021 Fortune 500 list of the biggest United States companies by revenue (Fortune 2022). Additionally, Johnson & Johnson is among the most valuable companies in the globe and one of two United-States companies with a credit rating of AAA. J&J’s AAA rating reflects the organization’s excellent geographic and product diversity, high profit margin, significant market presence, and global scale

There are multiple pharmaceutical companies globally, but Johnson & Johnson stands out from the crowd with research and development being its main priority (Mikulic, 2021). No wonder J&J is among the leading pharmaceutical companies in terms of Research and Development expenses. Despite huge R&D costs, investment in Research and Development is vital for the company to remain competitive.

Acquisition Road Map

Several tasks and steps have already been taken toward the acquisition. These include 1) planning the acquisition, 2) establishing the search criteria (i.e., geography, business areas, elimination of competition, etc.), 3) identifying top competitors, 4) conducting competitor analysis, and 5) selecting the potential buyer (See figure 1.0).

There are also a number of tasks and steps that would need to take place over the next one to two years to evaluate and complete the acquisition. These include 1) planning the transaction, 2) conducting company analysis to obtain additional information, 3) signing the letter of intent (LOI), 4) conducting due diligence, 5) drafting contracts and other related documents, 6) financing the acquisition, and 7) integrating the two organizations. The CFO (Chief Financial Officer) will be responsible for the first task, which is planning the transaction. The task will take 2 months to complete. A business analyst will be responsible for the second task, which is conducting a company analysis. This task will take at least one month. The CEO will sign the LOI in 2 months. A third-party advisor will carry out due diligence. The process will take 3 months. The legal department will be in charge of drafting contracts. This will take at least 30 days. The CFO will facilitate the financing of the acquisition. This will take one month. The top management will be responsible for integrating the two organizations. This will take 3 months.

Figure 1.0: Gantt chart

References

Forbes. (2022). Johnson & Johnson (JNJ). Retrieved from: https://www.forbes.com/companies/johnson-johnson/?sh=6d113b54f91d

Fortune. (2022). Johnson & Johnson. Retrieved from: https://fortune.com/company/johnson-johnson/fortune500/

Levine, H. (2021). From Lab to Vaccine Vial: The Historic Manufacturing Journey of Johnson & Johnson's Janssen COVID-19 Vaccine. Johnson & Johnson. Retrieved from: https://www.jnj.com/innovation/making-johnson-johnson-janssen-covid-19-vaccine

Mikulic, M. (2022). Johnson & Johnson's total sales 2005-2021. Statista. Retrieved from: https://www.statista.com/statistics/266403/total-revenue-of-johnson-und-johnson-since-2004/

Mikulic, M. (2021). Johnson & Johnson's expenditure on research and development 2005-2021. Statista. Retrieved from: https://www.statista.com/statistics/266407/research-and-development-expenditure-of-johnson-und-johnson-since-2006/

Mikulic, M. (2022). Johnson & Johnson's net earnings 2005-2021. Statista. Retrieved from: https://www.statista.com/statistics/281389/johnson-und-johnsons-net-income/