Johnson & Johnson Pricing Spineometer: 4 of 5 Vertebrae

Johnson & Johnson, a global pharmaceutical and medical technology company, had a positive Q1 2024. Revenue rose 2.3% to $21.4 billion and earnings before interest and taxes rose 3.9% to $6.1 billion over the same period last year.

A review of Johnson & Johnson’s April 16^th earnings call and associated financial reports provided insight regarding the importance of pricing on performance.

Pricing and price management were not key discussion points of executives at Joquin Duato, Chairman and CEO, nor Joe Wolk, CFO at Johnson & Johnson.  Yet their comments did indicate a large number of challenges best addressed by pricing professionals.  And their comments indicated that pricing is highly complex at Johnson & Johnson.

Johnson & Johnson

• Operates globally indicating a need for pricing professionals to be distributed globally.
• Has seven different areas of strategic partnerships, collaborations, and licensing providing one dimension of the breadth of pricing challenges they face.
• Serves six segments in medicine including oncology, immunology, neuroscience, infectious diseases, pulmonary hypertension, and cardiovascular/metabolism/other.
• Serves four segments in medical technology including surgery, orthopedics, cardiovascular, and vision.
• Faces price declines on major products associated with patent expirations and development of biosimilars.
• Faces relatively new pricing challenges, albeit on older offerings, related to the U.S. Inflation Reduction Act and its impact on drug pricing, both short-term and long-term.

Johnson & Johnson’s business operations imply a need for 170 to 850 pricing professionals to be on staff to meet industry benchmarks.  Given the complexity and geographic dispersion of their business, we would expect staffing levels to be at the upper end of this range.

Challenges pricing should address at Johnson & Johnson include:

1. New Product Development (NPD) pricing with the number of new products being offered and the extensive timeline between identifying a potential new medical solution and launching the product or service following clinical trials and evidentiary medicine.
2. Product lifecycle pricing to manage pricing at the end of a product’s lifecycle, the onset of competition, and the potential commodification of an offering.
3. Price negotiation guardrails, sales guidance, and sales incentive alignment to guide deal pricing toward the best possible outcome.
4. Pricing analytics to develop the necessary deal-specific pricing guidelines.
5. Commercial policy management across geographies.
6. Geographic specificity in pricing to value.
7. Price segmentation to meet the dual mandate at Johnson & Johnson of both ensuring access to medical care for the maximum number of patients as possible while delivering necessary profits to reinvest in medical solutions and grow the business, thus rewarding shareholders with growth.

Research into the investment by Johnson & Johnson in pricing yielded mixed results.

1. Under 80 professionals are suspected to be primarily engaged in pricing at Johnson & Johnson, well below the industry benchmark. In keeping with industry benchmarks, they are geographically dispersed across the globe to address the unique commercial challenges every sovereign domain presents.
2. Tiles ranged from specialist, analyst and manager to head, director, and vice president.
3. The responsibilities of pricing professionals at Johnson & Johnson varied widely. Business operations areas included operations, contracting, commercial insights, and market research.  Others were engaged with government contracting, government policy, and healthcare economics.  And then there are those engaged with strategy and global pricing challenges.  One person identified as the “Chief Global Value and Access Officer,” a title that could be interpreted in so many delightful ways.

Given the importance and capability of pricing at Johnson & Johnson as indicated in financial reports, management statements, and our pricing team research, and given their performance, we have come to the following conclusion as of April 2024.

Johnson & Johnson Pricing Spineometer: 4 out of 5 Vertebrae. I was impressed at the level of responsibility and presumably accountability pricing holds at Johnson & Johnson, yet the workloads for the team must be overwhelming given the disparity between the industry benchmark and the observed number of professionals engaged in pricing there.

JNJ (Johnson and Johnson) was relatively unchanged at 148 the day prior to their earnings call and 149 one week later. FY 2023 revenue of $85 billion with a 26% operating margin and P/E ratio near 10.

For FY 2023, a 1% improvement in price would yield a 4% improvement in operating profits holding all else constant at Johnson & Johnson.