Johnson & Johnson

HOLD

Johnson & Johnson (NYSE:JNJ) is the world's second largest and most broadly based manufacturer of health care products, with 2008 annual sales of $63.8 billion. The company holds a significant share of the consumer and pharmaceutical markets, and is the world's largest developer and manufacturer of medical treatment and diagnostic devices.

The consumer health market is expanding as consumers are taking greater responsibility and interest in their own health. Johnson & Johnson owns highly successful brands such as Tylenol, Band-Aid, and Neutrogena. The acquisition of Pfizer's Consumer Healthcare division in 2006 and addition of brands such as Listerine, Lubriderm, Visine, and Neosporin further solidified Johnson & Johnson dominance in consumer health care.

The company's pharmaceutical segment faces many of the challenges that face all pharmaceutical companies, including issues surrounding patent expiration and FDA approval. In addition, there are constant threats of litigation and a growing pressure in the US and abroad to lower the price of medication.

BULLS

Well-diversified mix of health care, pharmaceuticals, and medical devices

The company's broad-spectrum, diverse business mix of consumer health care, pharmaceuticals, and medical devices decreases the risk of investment.

Aging Baby Boomer Population will Drive Profits

Demand for the diversified set of products in J&J portfolio will only increase as the baby Boomer population ages. Drugs, medical devices, medical supplies and over the counter medicines will all be used in higher volumes driving even higher profits.

BEARS

Drug development is costly and its success is inherently risky

Drug development is costly and its success is inherently risky.

FDA warnings are bad for business

The FDA sends warning letters to manufacturers of medical devices when there is concern for product safety or reliability, creating negative publicity. In 2004, the FDA sent a warning letter to Johnson & Johnson's Cordis, identifying safety concerns in its manufacturing plants. This created negative publicity which has slowed the growth of this franchise until follow-inspections resolved the issue in 2006.

Generics eat into profits

Like products of other major drugmakers, most of Johnson & Johnson's pharmaceutical products has been or will eventually be affected by generic medications. The U.S. patent for Risperdal, the company's most profitable drug, will expire in the end of 2007, and sales are likely to decline significantly after the loss of patent protection.

References

http://www.wikinvest.com/stock/JOHNSON_%26_JOHNSON_%28JNJ%29/Bears