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Mitali Shah, Murlee Dhar Shyam, Okia Dixon, Allison Feliciano, Xiyuan He, Fanli Su HR Strat II Final Project April 25, 2023 The pharmaceutical industry includes corporations that produce medicinal, pharmaceutical, and biological products in different forms, such as tablets, capsules, ampoules, vials, solutions, ointments, powders, and suspensions. The pharmaceutical market can be classified into prescription-based medicines and over-the-counter medications. The industry products are primarily disseminated via wholesalers, and later sold through pharmacies or supplied to hospitals. The major players are Pfizer, Johnson and Johnson, Novartis etc. The primary operations in this industry involve the manufacturing of patented prescription products, generic prescription products and over-the-counter products. From 2017 to 2022, pharmaceutical manufacturers profited from a rise in the elderly population in developed economies and the growth of the middle class in emerging economies, resulting in an expanded customer base for this industry. The pharmaceutical industry has been facing revenue declines due to patent cliffs, which happen when blockbuster drugs lose patent exclusivity and are replaced by cheaper generic drugs. This has resulted in increased price-based competition from generics, leading to reduced research and development (R&D) expenditures and limited drug pipelines for manufacturers. Furthermore, governments and healthcare organizations have reduced drug reimbursements to control healthcare costs, promoting the use of generic drugs instead of brand-name ones. Despite these challenges, the industry is expected to experience an annualized revenue growth of 1.0% to $1.0 trillion over the five years to 2022, with an increase of 0.6% in 2022.In the next five years, industry revenue is projected to grow at an annualized

rate of 1.3% to $1.1 trillion, as global demand for industry products persists. The COVID-19 pandemic has opened up new prospects for industry operators; however, only a limited number of players could contribute to the development of coronavirus vaccines worldwide. Johnson and Johnson Services Inc. is a US-based multinational healthcare company that was established in 1886 and operates in the medical device, pharmaceutical and consumer packaged goods manufacturing sectors. Nearly half of the company's sales come from its pharmaceuticals segment, which focuses on treating ailments in six major therapeutic areas. J&J operates under more than 260 companies in what is referred to as the Johnson & Johnson Family of Companies, with products sold in almost every country in the world. The company's annual revenue was $ 94.9 billion in 2022, with pharmaceutical sales playing a significant role in this growth. J&J's revenue growth over the past five years has been driven by the development of COVID-19 vaccines and biologics for the treatment of various diseases. Despite facing intense biosimilar competition due to the loss of patent protection for Remicade, J&J's pharmaceutical segment continues to be a significant revenue driver for the company. The 3 key factors that are crucial for this industry include the establishment of brand names, which helps to reduce the perceived risk associated with taking pharmaceuticals, Collaborative arrangements, particularly in research and development are important as they help to spread risk and increase the likelihood of new product innovation and superior financial management and debt management which are also crucial, given the high costs associated with research and development, manufacturing, and marketing activities. The macro-environmental factors affecting Johnson & Johnson using the PESTEL framework are:

Political: Political stability and consistent government policies are critical for the smooth functioning of any business, and therefore Johnson and Johnson pays close attention to potential political instability, which could have negative consequences on its operations. For e.g. the recent conflict between Russia and Ukraine resulted in Johnson and Johnson suspending its operations in Russia, a substantial market for the company. In addition to regulatory approval, several governments are taking steps to control pharmaceutical prices to reduce healthcare costs. For instance, in the US, the Patient Protection and Affordable Care Act has implemented a pricing formula for both patented and generic drugs provided through the Medicare prescription drug benefit program. Similarly, in the European Union, payers are limiting patient access to innovative medications by conducting a cost-benefit analysis. In Japan, the government mandates price reductions for certain pharmaceuticals to maintain universal coverage under its National Health Insurance program. To promote the efficient use of drugs, many countries are imposing price controls through measures like reference pricing, prescribing restrictions, and reimbursement policies. Economical: Given that companies need to function within markets and cater to their customers' demands, economic factors carry significant weight as they influence the functioning of any company. According to IBISWorld, global per capita income is expected to rise by 1.3% annually over the five years leading to 2022, which is likely to increase the demand for medically necessary pharmaceutical products. The aging baby boomer population is also expected to boost demand for medications to treat chronic illnesses, as the number of adults aged 65 and above is expected to increase by 3.5% annually over the same period. Longer life expectancies have also led to an increase in demand for drugs that enhance quality of life and

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wellness. Furthermore, the emergence of new viruses and drug-resistant infections has increased research and development activity, providing pharmaceutical manufacturers with revenue streams from their drug pipelines. Social: Culture and norms vary across countries, and multinational companies need to understand them to avoid potential consequences. Johnson and Johnson's operations are highly influenced by social factors. The brand offers various products and needs to consider the demographics of each market to decide which products to market for maximum revenue. For example, In countries like Luxembourg, where there is a saving culture, the company may not generate high revenue. In countries with strict religious beliefs, such as those where women are not allowed to leave their homes without a veil, the demand for women's beauty-related products from Johnson and Johnson would be low. The level of demand for medicines is predominantly influenced by the overall health of the world's population. This, in turn, is impacted by various factors such as exposure to diseases, access to healthcare, and sanitation levels. Additionally, the age of the population plays a significant role, as a higher age demographic typically corresponds with a greater demand for medicinal and pharmaceutical products. Technological: The technological factors can have a significant impact on the business performance of Johnson and Johnson. Innovations and new technologies can increase the efficiency of healthcare products and reduce their prices. Social media can be utilized for marketing purposes, and online stores can help increase market share and generate more revenue. With the company operating in the healthcare and medicine industry, being technologically advanced is essential to meet customers' needs and expectations. Johnson and Johnson spends a considerable amount on R&D, as seen with the recent development of the Johnson and Johnson COVID-19 vaccine, resulting from extensive R&D investment. general, advancements in

industry systems and technologies usually lead to reduced costs. For instance, the use of bioinformatics solutions is expediting the development of pharmaceutical drugs, and IT is crucial in enhancing supply chain efficiency and regulatory compliance. As a result, the industry is likely to experience increased profitability due to reduced operational costs resulting from technology. Legal: The manufacturing, pricing, and marketing of industry products are influenced by several government policies, which result in the industry being heavily regulated. As regulations become more stringent, compliance-related operational costs are expected to rise, putting a strain on the industry's profits. It is crucial for multinational companies like Johnson and Johnson to comply with the laws of the markets where they operate. Even minor negligence could result in significant financial and reputational damage due to bans and penalties. The company must ensure that its factories adhere to strict regulations for worker health and safety and anti- discrimination laws in human resource practices to avoid lawsuits. Data protection regulations, maximum pricing laws, quality standards, and consumer protection laws must also be considered. Protecting patents and other valuable ideas is also essential, and Johnson and Johnson has developed strict policies regarding the use of intellectual property rights. Adherence to these laws and regulations can provide a competitive advantage to the company. Environmental: The significance of environmental analysis has increased due to growing concerns about global climate change, increasing pollution, and its effects on human health. Consumers now prefer companies that use renewable technologies, and some countries even offer subsidies to attract investors to invest in renewable technologies. Johnson and Johnson can also benefit from these renewable subsidies and invest in renewable technologies, which will ensure long-term sustainability, increase stakeholder satisfaction, and expand its customer base

through enhanced brand image. Additionally, different countries have varying levels of strictness regarding the issue of resource depletion. Thus, Johnson and Johnson must study the policies of each government on resource depletion to avoid any bad publicity. Its excessive use of resources can draw negative responses from environmental protection groups, customers, and the general public, which can harm the company financially and reputation-wise. Further analysis of the pharmaceutical industry using Porter’s five forces model: The threat of New Entrants for Johnson & Johnson can be considered low. Being a top pharmaceutical and FMCG company, Johnson & Johnson operates in three businesses, namely Consumer Health Products, Medical Devices, and Pharmaceutical Products. Although new entrants may come into the Consumer Health Products industry with changing technology, it would still be difficult for them to surpass Johnson & Johnson's sales due to the company's robust supply chain. The same applies to the Medical Devices and Pharmaceutical Products sectors, where sales depend on extensive research and development and a robust supply chain. Manufacturing medical devices requires significant capital investment and expertise, and Johnson & Johnson spends more than $12 billion on research and development, which would be difficult for new entrants to match. Additionally, the medical industry has stringent legal requirements and regulations, requiring significant capital investment, which new entrants may struggle to acquire. The company's economies of scale also provide an advantage. Trust is vital in the medical industry, and Johnson & Johnson's brand is trusted by people, making it challenging for new entrants to establish their brand.

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The threat of Substitutes for the company should be moderate. While natural health products can act as substitutes for artificial health products in the Consumer Health Products domain, the availability of substitutes for pharmaceutical products manufactured by Johnson & Johnson is limited in the market. However, the emergence of newer products through innovation and patents can potentially pose a threat. In the medical devices market, fast-evolving technology is bringing about substitutes that outperform the currently available products. Hence, the company needs to continue investing in research and development to remain competitive in the market. Notably, during the COVID-19 pandemic, Johnson & Johnson, with its skilled research team and significant funds, was able to research and produce in-demand medicines ahead of the competition, gaining a first-mover advantage and potentially deterring substitute products. Bargaining Power of Customers towards Johnson & Johnson can be considered moderate. Johnson & Johnson serves various types of customers, including patients, doctors, online and offline retailers in its Consumer Health Products and Pharmaceutical Products business. In the Consumer Health Products sector, customers have numerous options and can easily switch between products, resulting in high bargaining power. However, Johnson & Johnson's sales do not rely heavily on individual customers, minimizing the impact of their demands on the company. In the Pharmaceutical Products business, few companies are as well-established and reputable as Johnson & Johnson, creating a significant brand name and credibility that reduces customer bargaining power.In the medical devices business, hospitals, clinics, and general patients are the primary customers, and individual customers' opinions matter significantly as most of the business comes from major hospitals and clinics, which are the clients of Johnson & Johnson. Nonetheless, the absence of significant competitors in this domain has resulted in both

the company and customers being mutually dependent, thereby reducing the customer's bargaining power. Bargaining Power of Suppliers is not significant for Johnson & Johnson. The company sources its supplies from two types of suppliers, technical equipment suppliers for its medical devices business and raw material suppliers for medicine and healthcare products. With a vast global network of over 50,000 suppliers, Johnson & Johnson is not reliant on a single supplier and can negotiate favorable terms with them. This reduces the suppliers' bargaining power. Additionally, many suppliers consider Johnson & Johnson as their prime customer and strive to maintain the relationship by offering competitive pricing and quality supplies. The company consistently innovates its supply chain to improve efficiency, and long-term contracts with suppliers are commonplace, further reducing their bargaining power in the future. Competitive Rivalry in the industry can be described as moderate for Johnson & Johnson, given that it competes with other major players such as Pfizer, GSK, Medtronic, Roche, Novartis, AbbVie, Reckitt Benckiser, Abbott, and Procter & Gamble. Although the company generates more than $80 billion in sales, it faces fierce competition in the industry, as evidenced by its sale of 300 million doses of COVID-19 vaccine worldwide. To reduce competition in the medical sector, the company needs to invest heavily in research and development to develop better products, patent them, and launch them early in the market through efficient distribution channels to reach end consumers. Therefore, research and development play a crucial role in the medical business, as it helps companies to differentiate themselves from their competitors and gain an advantage in the market.

J&J’s Core Competencies Johnson & Johnson (J&J) is a multinational corporation based in the U.S. operating in the healthcare industry. Established over 135 years, J&J aims to keep people well (Johnson & Johnson, n.d.). Johnson & Johnson values their employees, clients, doctors, nurses, etc. They strive to deliver value, minimize costs, and maintain fair prices. Employees have a right to an inclusive workplace that values diversity and respects individuality. Being a good citizen means supporting charitable causes and promoting improved health, education, and property maintenance (J&J, n.d.). The company has a strong presence in the pharmaceutical, medical devices, and customer health sectors. Over the years, J&J has established research and development, branding, manufacturing and supply chain, and strategic acquisitions as its core competencies, enabling it to become one of the leading healthcare companies globally. Research and Development Research and development are critical to innovation, especially in the healthcare industry. J&J has established a robust research and development infrastructure that includes a network of research facilities globally (Johnson & Johnson, n.d.). The network allows the company to tap into a talent pool and resources, leading to increased innovation and creativity. These efforts have developed many medical devices, successful drugs, and healthcare products (MarketLine, 2020). For instance, the J&J COVID-19 vaccine has depicted high success rates. In addition, J&J’s research and development capabilities prioritizing patient care and safety have accorded it a competitive advantage in the healthcare industry. Branding

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Branding is another crucial element of J&J’s success in the healthcare industry. The company has established a strong brand identity based on its commitment to quality, reliability, and effectiveness. In addition, the company’s commitment to research and development and its ability to develop innovative solutions have contributed to its brand recognition (Johnson & Johnson, n.d.). Subsequently, J&J’s aggressive marketing campaigns have played a significant role in building brand awareness. As a result, its products are recognized globally for their high standards and positive impact on patients, earning it a reputation as a trusted healthcare provider. Manufacturing and Supply Chain J&J’s success in the healthcare industry relies heavily on its robust manufacturing and supply chain capabilities. The company’s extensive global manufacturing network allows it to produce its products efficiently and at scale, meeting worldwide demand (MarketLine, 2020). In this regard, the company’s supply chain operations are well-established, ensuring timely and reliable delivery of its products to customers. In addition, they have allowed the company to respond quickly to changing market demands and develop innovative products to meet emerging needs. By streamlining its manufacturing and supply chain processes, the company can focus on delivering high-quality products critical to improving people’s health and well-being worldwide. Strategic Acquisitions The firm’s strategic acquisitions contribute significantly to its growth and success. J&J has an excellent accomplishment record of acquiring businesses that complement its existing product portfolio and provide access to new markets (Johnson & Johnson, n.d.). Notably, the acquisitions have enabled J&J to diversify its revenue streams and expand its product offerings,

contributing to its sustained growth. In addition, by acquiring other successful companies in different markets, J&J has leveraged its expertise to improve its operations and competitive position. J&J’s expertise in identifying and integrating complementary businesses is a core competency that has helped it maintain its leadership position in the industry. J&J’s success in the healthcare industry arises from its key capabilities, which include research and development, branding, manufacturing and supply chain, and strategic acquisitions. J&J has had consistent development and success over the years due to its dedication to its core competencies. The firm is well-positioned to maintain its success in the healthcare sector if it keeps innovation, patient care, and sustainability as its priorities. Innovation Initiatives The goal at Johnson & Johnson is to improve human health through innovative practices. Innovates pervade the culture of J&J by establishing a transformational ecosystem that connects inner creativity with external innovation discovered in external networks. They promote innovation, for example, by employing top scientists to improve the J&J product pipeline and by participating in business development efforts to create active partnerships that will allow J&J to build lasting and beneficial connections. In addition, through the four global J&J Innovation Centers, J&J can identify the best external innovation for potential partnerships, emphasizing gaining access to unique goods from all sources from inception to early phases of development (J&J, Policies, and Positions).

Strategic Implementation ● Reaction from our competitors ● Figure out our competitors & look at what they are doing ● How we respond to competitors ● Talk about gaining + sustaining a competitive advantage ● Distribution strategy for their outreach, brand positioning ● Design and org. structure ● How they should be managed (competencies, training, behaviors, rewards, recognition, etc.) As consultants: Bibliography References Jonson & Johnson. (n.d.). Johnson & Johnson . Johnson & Johnson. Retrieved from https://www.jnj.com/ MarketLine. (2020). Johnson & Johnson company profile . MarketLine. Retrieved from https://advantage.marketline.com/Product?pid=MLIP0663-0001 https://www.jnj.com/about-jnj/policies-and-positions/our-position-on-innovation Industry: Pharmaceutical Biotechnology

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Consultants for Johnson & Johnson Vaccine manufacturers - J&J, Moderna, Pfizer Presenting date: 4/25 Login this sites through Rutgers libraries/NET ID login https://my.ibisworld.com/search/?q=pharma Mergent Online - Company Detail : Johnson & Johnson North America - Pharmaceuticals (marketline.com) https://theorg.com/org/johnson-johnson Strategic Inputs - Environmental Analysis (ch. 3) ● Five Forces ● PESTLE Strategic Formulation - Build an Organization (ch. 4 + 6) ● Talk about J&J's core competencies (how to manage the competencies (ch. 11) Strategic Formulation & Strategic Implementation (build an organization + action plan for implementation) Business strategy: R&D, Innovation Covid vaccine *** think about their business strategy & what they do *** think about their competition (who are their competitors), how are their competitors viewing them, where are they stacking with their competitors, how will they react to their competitors *** look at their organizational structure *** identify key roles, look at R&D Intro - what the industry is

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