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MarketScreener Homepage  >  Equities  >  Nyse  >  Johnson & Johnson    JNJ

JOHNSON & JOHNSON

(JNJ)
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JOHNSON & JOHNSON : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

10/23/2020 | 04:11pm EST

RESULTS OF OPERATIONS

Sales to Customers


Analysis of Consolidated Sales
For the fiscal nine months of 2020, worldwide sales were $60.1 billion, a total
decrease of 2.0%, including an operational decline of 0.8% as compared to 2019
fiscal nine months sales of $61.3 billion. Currency fluctuations had a negative
impact of 1.2% for the fiscal nine months of 2020. In the fiscal nine months of
2020, the net impact of acquisitions and divestitures on worldwide operational
sales growth was a negative 0.4%.

Sales by U.S. companies were $31.3 billion in the fiscal nine months of 2020,
which was flat as compared to the prior year. In the fiscal nine months of 2020,
the net impact of acquisitions and divestitures on the U.S. operational sales
growth was a negative 0.4%. Sales by international companies were $28.8 billion,
a decrease of 4.0%, including an operational decline of 1.7%, and a negative
currency impact of 2.3% as compared to the fiscal nine months sales of 2019. In
the fiscal nine months of 2020, the net impact of acquisitions and divestitures
on the international operational sales growth was a negative 0.4%.

In the fiscal nine months of 2020, sales by companies in Europe experienced a
decline of 0.7%, which included an operational increase of 0.1% and a negative
currency impact of 0.8%. Sales by companies in the Western Hemisphere, excluding
the U.S., experienced a decline of 11.6%, which included an operational decline
of 0.4%, and a negative currency impact of 11.2%. Sales by companies in the
Asia-Pacific, Africa region experienced a decline of 5.1%, including an
operational decline of 4.3% and a negative currency impact of 0.8%.



[[Image Removed: jnj-20200927_g1.jpg]][[Image Removed: jnj-20200927_g2.jpg]]

Note: values may have been rounded

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  Table of Content
For the fiscal third quarter of 2020, worldwide sales were $21.1 billion, a
total increase of 1.7%, and operational increase of 1.7% as compared to 2019
fiscal third quarter sales of $20.7 billion. In the fiscal third quarter of
2020, the net impact of acquisitions and divestitures on worldwide operational
sales growth was a negative 0.3%.

Sales by U.S. companies were $11.1 billion in the fiscal third quarter of 2020,
which represented an increase of 2.7% as compared to the prior year. In the
fiscal third quarter of 2020, the net impact of acquisitions and divestitures on
the U.S. operational sales growth was a negative 0.1%. Sales by international
companies were $10.0 billion, a total increase of 0.6%, and an operational
increase of 0.6%. In the fiscal third quarter of 2020, the net impact of
acquisitions and divestitures on the international operational sales growth was
a negative 0.5%.

In the fiscal third quarter of 2020, sales by companies in Europe achieved
growth of 8.0%, which included operational growth of 4.6% and a positive
currency impact of 3.4%. Sales by companies in the Western Hemisphere, excluding
the U.S., experienced a decline of 12.9%, which included an operational decline
of 1.2%, and a negative currency impact of 11.7%. Sales by companies in the
Asia-Pacific, Africa region experienced a decline of 2.7%, including an
operational decline of 3.2% and a positive currency impact of 0.5%.




[[Image Removed: jnj-20200927_g3.jpg]][[Image Removed: jnj-20200927_g4.jpg]]

Note: values may have been rounded

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Table of Content

Analysis of Sales by Business Segments


Consumer Health*
Consumer Health segment sales in the fiscal nine months of 2020 were $10.4
billion, an increase of 1.0% as compared to the same period a year ago,
including operational growth of 3.4% and a negative currency impact of 2.4%.
U.S. Consumer Health segment sales increased by 11.1%. International Consumer
Health segment sales decreased by 6.4%, including an operational decline of 2.2%
and a negative currency impact of 4.2%. In the fiscal nine months of 2020, the
net impact of acquisitions and divestitures on the Consumer Health segment
operational sales growth was a negligible.

Major Consumer Health* Franchise Sales - Fiscal Nine Months Ended

                                                         September 27,       September 29,            Total               Operations              Currency
(Dollars in Millions)                                        2020                2019                Change                 Change                 Change
OTC                                                      $    3,639$    3,249                  12.0  %                 13.5  %               (1.5) %
Skin Health/Beauty**                                          3,273               3,443                  (5.0)                   (3.6)                 (1.4)
Oral Care                                                     1,204               1,135                   6.0                     8.9                  (2.9)
Baby Care                                                     1,110               1,254                 (11.5)                   (6.6)                 (4.9)
Women's Health                                                  664                 733                  (9.4)                   (2.7)                 (6.7)
Wound Care/Other                                                545                 516                   5.8                     7.2                  (1.4)
Total Consumer Health* Sales                             $   10,435$   10,331                   1.0  %                  3.4  %               

(2.4) %



* Previously referred to as Consumer
** Previously referred to as Beauty

Consumer Health segment sales in the fiscal third quarter of 2020 were $3.5
billion, an increase of 1.3% as compared to the same period a year ago,
including operational growth of 3.0% and a negative currency impact of 1.7%.
U.S. Consumer Health segment sales increased by 11.6%. International Consumer
Health segment sales decreased by 5.6%, including an operational decline of 2.7%
and a negative currency impact of 2.9%. In the fiscal third quarter of 2020, the
net impact of acquisitions and divestitures on the Consumer Health segment
operational sales growth was a negative 0.1%.

Major Consumer Health* Franchise Sales - Fiscal Third Quarter Ended

                                                          September 27,        September 29,            Total              Operations              Currency
(Dollars in Millions)                                          2020                 2019               Change                Change                 Change
OTC                                                       $     1,142$     1,098                 4.0  %                  4.0  %                0.0  %
Skin Health/Beauty**                                            1,149                1,151                (0.2)                    0.9                  (1.1)
Oral Care                                                         412                  379                 8.5                    10.8                  (2.3)
Baby Care                                                         393                  417                (5.9)                   (0.7)                 (5.2)
Women's Health                                                    230                  255                (9.6)                   (4.1)                 (5.5)
Wound Care/Other                                                  189                  168                12.5                    13.5                  (1.0)
Total Consumer Health* Sales                              $     3,514$     3,469                 1.3  %                  3.0  %               (1.7) %


* Previously referred to as Consumer
** Previously referred to as Beauty

The OTC franchise achieved operational growth of 4.0% as compared to the prior
year fiscal third quarter. Growth was primarily attributable to sales from
TYLENOL® driven by COVID-19 stocking demand, digestive health products in the
U.S. and ZARBEES® Naturals. International sales were negatively impacted by
COVID-19.

The Skin Health/Beauty franchise achieved operational growth of 0.9% as compared
to the prior year fiscal third quarter. Growth was primarily attributable to
OGX® and DR. CI:LABO products partially offset by negative COVID-19 related
impacts in the U.S., Asia Pacific and Latin America regions and competitive
pressure.

The Oral Care franchise achieved operational growth of 10.8% as compared to the
prior year fiscal third quarter primarily due to sales of LISTERINE® mouthwash
related to COVID-19 stocking demand globally and new product launches in Asia
Pacific.

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The Baby Care franchise experienced an operational decline of 0.7% as compared
to the prior year fiscal third quarter. The decline was primarily due to
COVID-19 related impacts and the Baby Center divestiture in the U.S. partially
offset by strength in AVEENO® baby.

The Women's Health franchise experienced an operational decline of 4.1% as
compared to the prior year fiscal third quarter primarily driven by price
reductions and COVID-19 impacts.
The Wound Care/Other franchise achieved operational growth of 13.5% as compared
to the prior year fiscal third quarter. Growth was due to strong performance of
BAND-AID® Brand Adhesive Bandages in the U.S. and COVID-19 related demand in the
Asia Pacific region.
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Table of Content

Pharmaceutical

Pharmaceutical segment sales in the fiscal nine months of 2020 were $33.3
billion, an increase of 5.2% as compared to the same period a year ago, with an
operational increase of 6.1% and a negative currency impact of 0.9%. U.S.
Pharmaceutical sales increased 5.2% as compared to the same period a year ago.
International Pharmaceutical sales increased by 5.3%, including operational
growth of 7.4% and a negative currency impact of 2.1%. In the fiscal nine months
of 2020, the net impact of acquisitions and divestitures on the Pharmaceutical
segment operational sales growth was a negative 0.2%.

Major Pharmaceutical Therapeutic Area Sales** - Fiscal Nine Months Ended

                                                           September 27,       September 29,           Total               Operations              Currency
(Dollars in Millions)                                          2020                2019                Change                Change                 Change
Immunology                                                 $   10,950$   10,428                  5.0  %                  5.7  %              (0.7) %
   REMICADE®                                                    2,846               3,345                (14.9)                  (14.0)                (0.9)
   SIMPONI®/ SIMPONI ARIA®                                      1,667               1,673                 (0.4)                    0.9                 (1.3)
   STELARA®                                                     5,463               4,661                 17.2                    17.7                 (0.5)
   TREMFYA®                                                       965                 742                 30.2                    30.3                 (0.1)
   Other Immunology                                                 9                   8                 12.4                    19.1                 (6.7)
Infectious Diseases                                             2,662               2,547                  4.5                     6.1                 (1.6)
   EDURANT®/rilpivirine                                           716                 639                 12.1                    12.6                 (0.5)
   PREZISTA®/ PREZCOBIX®/ REZOLSTA®/ SYMTUZA®                   1,615               1,566                  3.1                     4.8                 (1.7)
   Other Infectious Diseases                                      331                 342                 (3.2)                       0.0              (3.2)
Neuroscience                                                    4,850               4,762                  1.8                     2.9                 

(1.1)

   CONCERTA®/methylphenidate                                      469                 544                (13.8)                  (12.6)                

(1.2)

   INVEGA SUSTENNA®/ XEPLION®/ INVEGA TRINZA®/
TREVICTA®                                                       2,688               2,459                  9.3                     9.8                 (0.5)
   RISPERDAL CONSTA®                                              475                 528                (10.1)                   (9.2)                (0.9)
   Other Neuroscience                                           1,218               1,231                 (1.1)                    1.1                 (2.2)
Oncology                                                        8,933               7,976                 12.0                    13.1                 (1.1)
   DARZALEX®                                                    2,937               2,168                 35.5                    37.0                 (1.5)
   ERLEADA®(1)                                                       519                 216              *                     *                      *
   IMBRUVICA®                                                   3,011               2,536                 18.7                    20.2                 (1.5)
   VELCADE®                                                       311                 636                (51.2)                  (50.7)                (0.5)
   ZYTIGA®/ abiraterone acetate                                 1,848               2,118                (12.7)                  (12.3)                (0.4)
   Other Oncology                                                 308                 303                  1.7                     3.3                 (1.6)
Pulmonary Hypertension                                          2,283               2,000                 14.1                    14.6                 (0.5)
   OPSUMIT®                                                     1,187               1,001                 18.6                    19.2                 (0.6)
   UPTRAVI®                                                       792                 611                 29.6                    29.8                 (0.2)
   Other Pulmonary Hypertension(2)                                304                 388                (21.7)                  (21.3)                

(0.4)

Cardiovascular / Metabolism / Other                             3,625               3,936                 (7.9)                   (7.2)                (0.7)
   XARELTO®                                                     1,716               1,704                  0.7                     0.7                    -
   INVOKANA®/ INVOKAMET®                                          578                 558                  3.6                     4.3                 (0.7)
   PROCRIT®/EPREX®                                                423                 607                (30.4)                  (29.9)                (0.5)
   Other                                                          908               1,067                (14.9)                  (12.9)                (2.0)
Total Pharmaceutical Sales                                 $   33,304$   31,650                  5.2  %                  6.1  %              

(0.9) %



* Percentage greater than 100% or not meaningful
**Certain prior year amounts have been reclassified to conform to current year
presentation
(1) Previously included in Other Oncology
(2) Inclusive of TRACLEER® which was previously disclosed separately


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  Table of Content
Pharmaceutical segment sales in the fiscal third quarter of 2020 were $11.4
billion, an increase of 5.0% as compared to the same period a year ago, with an
operational increase of 4.6% and a positive currency impact of 0.4%. U.S.
Pharmaceutical sales increased 1.5% as compared to the same period a year ago.
International Pharmaceutical sales increased by 9.7%, including operational
growth of 8.8% and a positive currency impact of 0.9%. In the fiscal third
quarter of 2020, the net impact of acquisitions and divestitures on the
Pharmaceutical segment operational sales growth was a negative 0.1%.

Major Pharmaceutical Therapeutic Area Sales** - Fiscal Third Quarter Ended

                                                         September 27,       September 29,           Total              Operations              Currency
(Dollars in Millions)                                        2020                2019               Change                Change                 Change
Immunology                                               $    3,789$    3,711                 2.1  %                  1.9  %               0.2  %
   REMICADE®                                                    921               1,136               (18.9)                  (18.4)                (0.5)
   SIMPONI®/ SIMPONI ARIA®                                      592                 586                 0.9                     0.8                  0.1
   STELARA®                                                   1,947               1,698                14.7                    14.0                  0.7
   TREMFYA®                                                     327                 290                13.1                    12.2                  0.9
   Other Immunology                                               3                   2                35.6                    44.6                 (9.0)
 Infectious Diseases                                            864                 839                 3.0                     2.6                  0.4
   EDURANT®/rilpivirine                                         236                 218                 8.1                     4.1                  4.0
   PREZISTA®/ PREZCOBIX®/ REZOLSTA®/ SYMTUZA®                   526                 508                 3.5                     4.3                 

(0.8)

   Other Infectious Diseases                                    102                 113                (9.4)                   (8.1)                (1.3)
 Neuroscience                                                 1,605               1,595                 0.6                     0.4                  0.2
   CONCERTA®/ methylphenidate                                   149                 193               (22.6)                  (22.5)               

(0.1)

   INVEGA SUSTENNA®/ XEPLION®/ INVEGA TRINZA®/
TREVICTA®                                                       926                 851                 8.8                     8.0                  0.8
   RISPERDAL CONSTA®                                            152                 167                (9.3)                   (9.9)                 0.6
   Other Neuroscience                                           377                 384                (1.8)                   (0.6)                (1.2)
 Oncology                                                     3,129               2,761                13.3                    12.4                  0.9
   DARZALEX®                                                  1,099                 765                43.8                    43.4                  0.4
   ERLEADA®(1)                                                  206                  86                *                     *                      *
   IMBRUVICA®                                                 1,031                 921                11.9                    11.2                  0.7
   VELCADE®                                                     105                 149               (30.1)                  (30.8)                 0.7
   ZYTIGA®/ abiraterone acetate                                 590                 741               (20.4)                  (22.1)                 1.7
   Other Oncology                                                98                 100                (1.7)                   (2.8)                 1.1
 Pulmonary Hypertension                                         749                 654                14.5                    13.9                  0.6
   OPSUMIT®                                                     392                 347                13.0                    12.3                  0.7
   UPTRAVI®                                                     260                 210                23.6                    23.2                  0.4
   Other Pulmonary Hypertension(2)                               97                  96                 0.1                    (0.3)                

0.4

 Cardiovascular / Metabolism / Other                          1,281               1,316                (2.6)                   (2.5)                (0.1)
   XARELTO®                                                     630                 613                 2.9                     2.9                    -
   INVOKANA®/ INVOKAMET®                                        224                 179                24.7                    24.9                 (0.2)
   PROCRIT®/ EPREX®                                             132                 198               (33.3)                  (33.6)                 0.3
   Other                                                        294                 325                (9.5)                   (9.0)                (0.5)
Total Pharmaceutical Sales                               $   11,418$   10,877                 5.0  %                  4.6  %               

0.4 %



* Percentage greater than 100% or not meaningful
**Certain prior year amounts have been reclassified to conform to current year
presentation
(1) Previously included in Other Oncology
(2) Inclusive of TRACLEER® which was previously disclosed separately





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Immunology products achieved operational growth of 1.9% as compared to the same
period a year ago driven by strong uptake of STELARA® (ustekinumab) in Crohn's
disease and Ulcerative Colitis and strength in TREMFYA® (guselkumab) in
Psoriasis. This was partially offset by COVID-19 related demand and lower sales
of REMICADE® (infliximab) due to increased discounts/rebates and biosimilar
competition.

The patents for REMICADE® (infliximab) in certain countries in Europe expired in
February 2015. Biosimilar versions of REMICADE® have been introduced in certain
markets outside the United States, resulting in a reduction in sales of
REMICADE® in those markets. Additional biosimilar competition will likely result
in a further reduction in REMICADE® sales in markets outside the United
States. In the United States, a biosimilar version of REMICADE® was introduced
in 2016, and additional competitors continue to enter the market. Continued
infliximab biosimilar competition in the U.S. market will result in a further
reduction in U.S. sales of REMICADE®.

Infectious disease products achieved operational growth of 2.6% as compared to
the same period a year ago primarily due to strong sales of SYMTUZA® in the U.S.
and the launch uptake of JULUCA®. This was partially offset by lower sales of
PREZISTA® and PREZCOBIX®/REZOLSTA® due to increased competition and loss of
exclusivity of PREZISTA® in certain countries outside the U.S.

Neuroscience products achieved operational sales growth of 0.4% as compared to
the same period a year ago. Paliperidone long-acting injectables growth driven
by sales of INVEGA SUSTENNA®/XEPLION® (paliperidone palmitate) and INVEGA
TRINZA®/TREVICTA® from new patient starts and persistence. The growth was
partially offset by cannibalization of RISPERDAL CONSTA® (risperidone), declines
in U.S. CONCERTA® (methylphenidate) due to competitive entrants and the negative
impact of COVID-19.
Oncology products achieved strong operational sales growth of 12.4% as compared
to the same period a year ago. Contributors to the growth were strong sales of
DARZALEX® (daratumumab) driven by patient uptake in all lines of therapy,
IMBRUVICA® (ibrutinib) due to increased patient uptake globally partially offset
by a one-time sales return in the prior year and the continued global launch
uptake of ERLEADA® (apalutamide). Additionally, the growth was negatively
impacted declining sales of ZYTIGA® (abiraterone acetate) and VELCADE®
(bortezomib) due to generic competition.

Pulmonary Hypertension achieved operational sales growth of 13.9% as compared to
the same period a year ago. Sales growth of OPSUMIT® (macitentan) and UPTRAVI®
(selexipag) were due to continued share gains, market growth and payer mix,
partially offset by the impact of COVID-19.

Cardiovascular / Metabolism / Other products experienced an operational decline
of 2.5% as compared to the same period a year ago. Sales growth of
INVOKANA®/INVOKAMET® (canagliflozin) were due to market growth and favorable
channel mix dynamics in the U.S. and strength in the European region. The growth
of XARELTO® (rivaroxaban) included a one-time pricing adjustment in 2020 and
demand growth partially offset by higher rebates. Lower sales of PROCRIT®/
EPREX® (epoetin alfa) were due to biosimilar competition.

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Medical Devices
The Medical Devices segment sales in the fiscal nine months of 2020 were $16.4
billion, a decrease of 15.3% as compared to the same period a year ago, with an
operational decline of 14.6% and a negative currency impact of 0.7%. U.S.
Medical Devices sales decreased 15.1%. International Medical Devices sales
decreased by 15.5%, including an operational decline of 14.1% and a negative
currency impact of 1.4%. In the fiscal nine months of 2020, the net impact of
acquisitions and divestitures on the Medical Devices segment operational sales
growth was a negative 0.9% primarily due to the divestiture of the ASP business.

Major Medical Devices Franchise Sales* - Fiscal Nine Months Ended

                               September 27,        September 29,        Total       Operations      Currency
(Dollars in Millions)              2020                 2019            Change         Change         Change
Surgery                      $         5,803      $         7,059       (17.8) %        (16.6) %       (1.2) %
   Advanced                            2,723                3,019        (9.8)           (8.7)         (1.1)
   General(1)                          3,080                4,040       (23.8)          (22.5)         (1.3)
Orthopaedics                           5,572                6,566       (15.1)          (14.7)         (0.4)
   Hips                                  908                1,061       (14.5)          (13.9)         (0.6)
   Knees                                 825                1,085       (24.0)          (23.7)         (0.3)
   Trauma                              1,892                2,034        (7.0)           (6.5)         (0.5)
   Spine, Sports &
Other(2)                               1,947                2,384       (18.3)          (18.0)         (0.3)
Vision                                 2,843                3,483       (18.4)          (17.8)         (0.6)
   Contact Lenses/Other                2,198                2,559       (14.1)          (13.6)         (0.5)
   Surgical                              645                  923       (30.2)          (29.6)         (0.6)
Interventional Solutions               2,153                2,223        (3.1)           (2.7)         (0.4)
Total Medical Devices
Sales                        $        16,370$        19,331       (15.3) %        (14.6) %       (0.7) %


*Certain prior year amounts have been reclassified to conform to current year
presentation
(1) Includes Specialty Surgery which was previously disclosed separately
(2) Previously referred to as Spine & Other

The Medical Devices segment sales in the fiscal third quarter of 2020 were $6.2
billion, a decrease of 3.6% as compared to the same period a year ago, with an
operational decline of 3.9% and a positive currency impact of 0.3%. U.S. Medical
Devices sales increased 1.2%. International Medical Devices sales decreased by
8.1%, including an operational decline of 8.5% partially offset by a positive
currency impact of 0.4%. In the fiscal third quarter of 2020, the net impact of
acquisitions and divestitures on the Medical Devices segment operational sales
growth was a negative 0.6%. While results in the fiscal third quarter were net
negatively impacted by COVID-19, primarily related to reduced procedures, the
Company did see improvement throughout the quarter as countries and states began
to gradually re-open. For example, sales in the U.S. returned to gradual growth
in the fiscal third quarter. However, the ultimate COVID-19 impact on Medical
Devices fiscal year sales remains highly fluid and will continue to evolve with
geographical re-openings and virus waves.

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Major Medical Devices Franchise Sales* - Fiscal Third Quarter Ended
                                September 27,        September 29,        Total       Operations      Currency
 (Dollars in Millions)              2020                 2019            Change         Change         Change
 Surgery                      $         2,152      $         2,311        (6.9) %         (6.9) %        0.0  %
    Advanced                            1,000                1,010        (1.1)           (1.2)          0.1
    General(1)                          1,152                1,301       (11.4)          (11.3)         (0.1)
 Orthopaedics                           2,083                2,138        (2.6)           (3.1)          0.5
    Hips                                  345                  336         2.4             1.9           0.5
    Knees                                 308                  344       (10.9)          (11.6)          0.7
    Trauma                                685                  677         1.3             0.7           0.6
    Spine, Sports &
 Other(2)                                 745                  778        (4.3)           (5.0)          0.7
 Vision                                 1,081                1,193        (9.4)           (9.5)          0.1
    Contact Lenses/Other                  830                  893        (7.1)           (7.2)          0.1
    Surgical                              251                  299       (16.3)          (16.4)          0.1
 Interventional Solutions                 836                  741        12.9            12.4           0.5

 Total Medical Devices
 Sales                        $         6,150      $         6,383        (3.6) %         (3.9) %        0.3  %


*Certain prior year amounts have been reclassified to conform to current year
presentation
(1) Includes Specialty Surgery which was previously disclosed separately
(2) Previously referred to as Spine & Other
The Surgery franchise experienced an operational sales decline of 6.9% as
compared to the prior year fiscal third quarter. The operational decline in
Advanced Surgery was primarily driven by the negative impact of COVID-19 and
competitive pressures in the U.S. This was partially offset by global growth in
Biosurgery led by share gains from SURGIFLO® which was positively impacted due
to the recovery of an isolated supply disruption in the prior year. The
operational decline in General Surgery was primarily driven by the negative
impact of COVID-19.

The Orthopaedics franchise experienced an operational sales decline of 3.1% as
compared to the prior year fiscal third quarter. The operational growth in hips
was driven by market procedure recovery as well as our leadership in the
Anterior approach, strong market demand for the ACTIS® stem and enabling
technologies - KINCISE™ and VELYS™ Hip Navigation. The operational decline in
knees was driven by the negative impact of COVID-19. The operational growth in
Trauma was driven by procedures rebounding and strength from new products. The
operational decline in Spine, Sports & Other was driven by the negative impact
of COVID-19 partially offset by the uptake of the SYMPHONY™
Occipito-Cervico-Thoracic (OCT) System in Spine.

The Vision franchise experienced an operational sales decline of 9.5% as compared to the prior year fiscal third quarter. The Contact Lenses/Other operational decline was due to the negative impact of COVID-19 which was partially offset by growth in the U.S. driven by higher level of stocking. The Surgical operational decline was primarily driven by the negative impact of COVID-19 and competitive pressures in the U.S.


The Interventional Solutions franchise achieved operational growth of 12.4% as
compared to the prior year fiscal third quarter driven by atrial fibrillation
procedure growth coupled with strength from new products.
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ANALYSIS OF CONSOLIDATED EARNINGS BEFORE PROVISION FOR TAXES ON INCOME Consolidated earnings before provision for taxes on income for the fiscal nine months of 2020 was $14.9 billion representing 24.7% of sales as compared to $13.1 billion in the fiscal nine months of 2019, representing 21.4% of sales.


Consolidated earnings before provision for taxes on income for the fiscal third
quarter of 2020 was $4.4 billion representing 20.9% of sales as compared to $1.6
billion in the fiscal third quarter of 2019, representing 7.9% of sales.

Cost of Products Sold

[[Image Removed: jnj-20200927_g5.jpg]][[Image Removed: jnj-20200927_g6.jpg]]

(Dollars in billions. Percentages in chart are as a percent to total sales)


Fiscal Nine months Q3 2020 versus Fiscal Nine months Q3 2019
Cost of products sold increased as a percent to sales driven by:
•Medical Device idle capacity costs associated with COVID-19 related production
slow downs and fixed cost deleveraging.
•Establishment of obsolescence reserves associated with the impact of COVID-19
in the Medical Devices business
The intangible asset amortization expense included in cost of products sold for
the fiscal nine months of 2020 and 2019 was $3.4 billion and $3.3 billion,
respectively.

Q3 2020 versus Q3 2019
Cost of products sold remained flat as a percent to sales driven by:
•Medical Device idle capacity costs associated with COVID-19 related production
slow downs and fixed cost deleveraging.
partially offset by:
•Favorable mix within the Pharmaceutical and Consumer businesses.
The intangible asset amortization expense included in cost of products sold for
the fiscal third quarters of 2020 and 2019 was $1.2 billion and $1.1 billion,
respectively.

Selling, Marketing and Administrative Expenses

[[Image Removed: jnj-20200927_g7.jpg]][[Image Removed: jnj-20200927_g8.jpg]]

(Dollars in billions. Percentages in chart are as a percent to total sales)





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Fiscal Nine months Q3 2020 versus Fiscal Nine months Q3 2019
Selling, Marketing and Administrative Expenses decreased as a percent to sales
driven by:
•Leveraging in the Pharmaceutical business
•Planned prioritization and reduced brand marketing expense in the Consumer
Health business
•Favorable product mix with a higher percentage of sales coming from the
Pharmaceutical business
  partially offset by:
•Deleveraging in the Medical Devices business resulting from the COVID-19 impact
on sales

Q3 2020 versus Q3 2019
Selling, Marketing and Administrative Expenses decreased as a percent to sales
driven by:
•Expense leveraging in the Pharmaceutical business
•Favorable segment mix with a higher percentage of sales coming from the
Pharmaceutical business
partially offset by:
•Deleveraging in the Medical Devices business resulting from the COVID-19 impact
on sales
•Increased brand marketing expense in the Consumer Health business

Research and Development Expense

[[Image Removed: jnj-20200927_g9.jpg]][[Image Removed: jnj-20200927_g10.jpg]]

(Dollars in billions. Percentages in chart are as a percent to total sales)


Fiscal Nine months Q3 2020 versus Fiscal Nine months Q3 2019
Research and Development increased slightly as a percent to sales driven by:
•Higher upfront/milestone payments in the fiscal nine months of 2019, primarily
related to the argenx collaboration
  partially offset by:
•The negative COVID-19 impact on Medical Devices sales
•Increased investment in the Medical Devices business related to robotics and
digital programs

Q3 2020 versus Q3 2019
Research and Development increased as a percent to sales driven by:
•Portfolio progression including the COVID-19 vaccine in the Pharmaceutical
business
•The negative COVID-19 impact on Medical Devices sales
•Increased investment in the Medical Devices business related to robotics and
digital programs
•Segment mix with a higher percentage of sales coming from the Pharmaceutical
business
partially offset by:
•Lower upfront/milestone payments in the fiscal third quarter of 2020

Research and Development costs for the remainder of the fiscal year will include incremental investment spending associated with vaccines and the recently completed Momenta Pharmaceuticals acquisition to advance the pipeline.

In-Process Research and Development (IPR&D)


In the fiscal third quarter and fiscal nine months of 2020, the Company recorded
a partial IPR&D charge of $0.1 billion related to timing and progression of the
digital surgery platforms acquired with the Auris Health acquisition. In the
fiscal first quarter of 2019, the Company recorded an IPR&D charge of $0.9
billion for the remaining intangible asset value related to the development
program of AL-8176, an investigational drug for the treatment of Respiratory
Syncytial Virus (RSV) and human metapneumovirus (hMPV) acquired with the 2014
acquisition of Alios Biopharma Inc. The impairment charge was based on
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additional information, including clinical data, which became available and led
to the Company's decision to abandon the development of AL-8176.

Interest (Income) Expense


Interest (Income) Expense in the fiscal nine months of 2020 was a net interest
expense of $16 million as compared to income of $43 million in same period a
year ago. This was primarily due to reduced interest income resulting from lower
rates of interest earned on cash balances and a higher average debt balance.
Interest (Income) Expense in the fiscal third quarter of 2020 was a net interest
expense of $32 million as compared to income of $41 million in the same period a
year ago. This was primarily due to reduced interest income resulting from lower
rates of interest earned on cash balances and a higher average debt balance. The
balance of cash, cash equivalents and current marketable securities was
$30.8 billion at the end of the fiscal third quarter of 2020 as compared to
$17.9 billion at the end of the fiscal third quarter of 2019. The Company's debt
position was $37.8 billion as of September 27, 2020 as compared to $29.2 billion
the same period a year ago.

Other (Income) Expense, Net

Fiscal Nine months Q3 2020 versus Fiscal Nine months Q3 2019 Other (income) expense, net for the fiscal nine months of 2020 was favorable by $2.0 billion as compared to the prior year primarily due to the following:

          Fiscal Nine Months
          (Dollars in Billions)(Income)/Expense            2020       2019       Change
          Litigation expense(1)                           $ 2.2        4.8       (2.6)
          Acquisition and Integration related(2)           (1.1)       0.2       (1.3)
          Unrealized (gains)/losses on securities          (0.2)      (0.2)       0.0
          Equity step-up gain related to DR. CI:LABO        0.0       (0.3)       0.3
          Divestiture Gains(3)                             (0.1)      (2.1)       2.0
          Restructuring related                             0.1        0.1        0.0
          Other                                            (0.4)       0.0       (0.4)
          Total Other (Income) Expense, Net               $ 0.5        2.5       (2.0)


(1)2019 included higher litigation expense primarily related to the agreement in
principle to settle opioid litigation
(2) 2020 is primarily driven by a contingent consideration reversal of
approximately $1.1 billion related to the timing of certain developmental
milestones associated with the Auris Health acquisition.
(3) 2019 included the divestiture of ASP

Q3 2020 versus Q3 2019
Other (income) expense, net for the fiscal third quarter of 2020 was favorable
by $3.0 billion as compared to the prior year primarily due to the following:
            Fiscal Third Quarter
            (Dollars in Billions)(Income)/Expense         2020       2019      Change
            Litigation expense(1)                        $ 1.5       4.0       (2.5)
            Acquisition and Integration related           (0.1)      0.1       (0.2)
            Unrealized (gains)/losses on securities        0.0       0.1       (0.1)

            Other                                         (0.2)      0.0       (0.2)
            Total Other (Income) Expense, Net            $ 1.2       4.2       (3.0)

(1)2019 included higher litigation expense primarily related to the agreement in principle to settle opioid litigation

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EARNINGS BEFORE PROVISION FOR TAXES BY SEGMENT


Income before tax by segment of business for the fiscal nine months were as
follows:
                                              Income Before Tax                                                Segment Sales                                             Percent of Segment Sales
                                      September 27,        September 29,       September 27,       September 29,         September 27,
(Dollars in Millions)                      2020                2019                2020                2019                  2020              September 29, 2019
Consumer Health                       $       993$    1,800$   10,435$   10,331                     9.5  %                  17.4  %
Pharmaceutical                             11,787               5,786              33,304              31,650                    35.4                     18.3
Medical Devices                             2,681               6,078              16,370              19,331                    16.4                     31.4
Segment earnings before tax                15,461              13,664              60,109              61,312                    25.7                   

22.3

Less: Expenses not allocated to
segments (1)                                  611                 554
Worldwide income before tax           $    14,850$   13,110$   60,109$   61,312                    24.7  %                  21.4  %



Income before tax by segment of business for the fiscal third quarters were as
follows:
                                               Income Before Tax                                                 Segment Sales                                            Percent of Segment Sales
                                       September 27,        September 29,        September 27,       September 29,         September 27,           September 29,
(Dollars in Millions)                      2020                  2019                2020                2019                  2020                    2019
Consumer Health                       $        191$       653$    3,514$    3,469                     5.4  %                 18.8  %
Pharmaceutical                               3,439                 (222)             11,418              10,877                    30.1                    (2.0)
Medical Devices                              1,010                1,392               6,150               6,383                    16.4                    21.8
Segment earnings before tax                  4,640                1,823              21,082              20,729                    22.0                 

8.8

Less: Expenses not allocated to
segments (1)                                   239                  176
Worldwide income before tax           $      4,401$     1,647$   21,082$   20,729                    20.9  %             

7.9 %

(1) Amounts not allocated to segments include interest (income) expense and general corporate (income) expense.

Consumer Health Segment


The Consumer Health segment income before tax as a percent of sales in the
fiscal nine months of 2020 was 9.5% versus 17.4% for the same period a year ago.
The decrease in the income before tax as a percent of sales in the fiscal nine
months of 2020 as compared to the prior year was primarily driven by the
following:
•Higher litigation expense of $1.2 billion in 2020 vs. $0.2 billion in 2019
(primarily associated with talc related costs, including certain settlements)
•The fiscal nine months of 2019 included a gain of $0.3 billion related to the
Company's previously held equity investment in DR. CI:LABO
partially offset by:
•Planned prioritization and reduced brand marketing expense in the fiscal nine
months of 2020

The Consumer Health segment income before tax as a percent of sales in the
fiscal third quarter of 2020 was 5.4% versus 18.8% for the same period a year
ago. The decrease in the income before tax as a percent of sales in the fiscal
third quarter of 2020 as compared to the prior year was primarily driven by the
following:
•Higher litigation expense of $0.5 billion in 2020 vs. $0.0 billion in 2019
(primarily associated with talc related costs, including certain settlements)
•Increased brand marketing expense
partially offset by:
•Favorable product mix

Pharmaceutical Segment

The Pharmaceutical segment income before tax as a percent of sales in the fiscal
nine months of 2020 was 35.4% versus 18.3% for the same period a year ago. The
increase in the income before tax as a percent of sales for the fiscal nine
months of 2020 as compared to the prior year was primarily driven by the
following:
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•Lower litigation expense of $1.0 billion in 2020 vs. $4.3 billion in 2019
(primarily related to the agreement in principle to settle opioid litigation,
$4.0 billion in 2019 and $1.0 billion in 2020)
•An in-process research and development charge of $0.9 billion in the fiscal
nine months of 2019 related to Alios
•Lower research and development expense in 2020. The fiscal nine months of 2019
included a $0.3 billion upfront payment to argenx
•Lower acquisition and integration related costs in 2020
•Leveraging in selling, marketing and administrative expense

The Pharmaceutical segment income before tax as a percent of sales in the fiscal
third quarter of 2020 was 30.1% versus (2.0)% for the same period a year ago.
The increase in the income before tax as a percent of sales for the fiscal third
quarter of 2020 as compared to the prior year was primarily driven by the
following:
•Lower litigation expense of $1.0 billion in 2020 vs. $4.0 billion in 2019
(primarily related to the agreement in principle to settle opioid litigation)
•Leveraging in selling, marketing and administrative expense
•Favorable product mix

Medical Devices Segment


The Medical Devices segment income before tax as a percent of sales in the
fiscal nine months of 2020 was 16.4% versus 31.4% for the same period a year
ago. The decrease in the income before tax as a percent of sales for the fiscal
nine months was primarily driven by the following:
•A gain of $2.0 billion related to the ASP divestiture recorded in the fiscal
nine months of 2019
•COVID-19 period costs and fixed costs deleveraging and idle capacity charges in
Cost of Products Sold in the fiscal nine months of 2020
•The negative impact of COVID-19 on sales in the fiscal nine months of 2020
•An in-process research and development charge of $0.1 billion in 2020 related
to the Auris Health acquisition
  partially offset by:
•A contingent consideration reversal of approximately $1.1 billion in the fiscal
nine months of 2020 related to the timing of certain developmental milestones
associated with the Auris Health acquisition
•Litigation expense was insignificant in 2020 vs. $0.3 billion in 2019

The Medical Devices segment income before tax as a percent of sales in the
fiscal third quarter of 2020 was 16.4% versus 21.8% for the same period a year
ago. The decrease in the income before tax as a percent of sales for the fiscal
third quarter was primarily driven by the following:
•COVID-19 period costs and fixed costs deleveraging and idle capacity charges in
Cost of Products Sold in the fiscal third quarter of 2020
•The negative impact of COVID-19 on sales in the fiscal third quarter of 2020
•An in-process research and development charge of $0.1 billion in 2020 related
to the Auris Health acquisition
  partially offset by:
•A contingent consideration reversal of approximately $0.2 billion in the fiscal
third quarter of 2020 related to the timing of certain developmental milestones
associated with the Auris Health acquisition

Restructuring


In the second quarter of 2018, the Company announced plans to implement actions
across its global supply chain that are intended to enable the Company to focus
resources and increase investments in critical capabilities, technologies and
solutions necessary to manufacture and supply its product portfolio of the
future, enhance agility and drive growth. The Company expects these supply chain
actions will include expanding its use of strategic collaborations, and
bolstering its initiatives to reduce complexity, improving cost-competitiveness,
enhancing capabilities and optimizing its network. Discussions regarding
specific future actions are ongoing and are subject to all relevant consultation
requirements before they are finalized. In total, the Company expects these
actions to generate approximately $0.6 to $0.8 billion in annual pre-tax cost
savings that will be substantially delivered by 2022. The Company expects to
record pre-tax restructuring charges of approximately $1.9 to $2.3 billion. In
the fiscal nine months of 2020, the Company recorded a pre-tax charge of $363
million, which is included on the following lines of the Consolidated Statement
of Earnings, $187 million in restructuring, $69 million in cost of products sold
and $107 million in other (income) expense. In the fiscal third quarter of 2020,
the Company recorded a pre-tax charge of $130 million, which is included on the
following lines of the Consolidated Statement of Earnings, $68 million in
restructuring, $32 million in cost of products sold and $30 million in other
(income) expense. In the fiscal nine months of 2019, the Company recorded a
pre-tax charge of $360 million, which is included on the following lines of the
Consolidated Statement of Earnings, $162 million in restructuring, $81 million
in cost of products sold and $117 million in other (income) expense. In the
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fiscal third quarter of 2019, the Company recorded a pre-tax charge of $128
million, which is included on the following lines of the Consolidated Statement
of Earnings, $69 million in restructuring, $20 million in cost of products sold
and $39 million in other (income) expense. Restructuring charges of
approximately $1.2 billion have been recorded since the restructuring was
announced.

See Note 12 to the Consolidated Financial Statements for additional details related to the restructuring.

Provision for Taxes on Income

For discussion related to the fiscal nine months of 2020 provision for taxes refer to Note 5 to the Consolidated Financial Statements.


During the second quarter of 2020, the Internal Revenue Service proposed
regulations that may, if issued in their current form, limit the tax
deductibility of the payments under the agreement in principle to settle opioid
litigation that was initially accrued for in fiscal 2019 for $4.0 billion and an
additional $1.0 billion in the fiscal third quarter of 2020 at an effective rate
of 21.4%
(for more information see Note 21 in the Company's Annual Report on Form 10-K
for the fiscal year ended December 29, 2019). The financial impact of these
regulations may be material to the Company's financial results in the period in
which they are finalized which could be later in fiscal 2020.
LIQUIDITY AND CAPITAL RESOURCES

[[Image Removed: jnj-20200927_g11.jpg]] [[Image Removed: jnj-20200927_g12.jpg]]

                    [[Image Removed: jnj-20200927_g13.jpg]]


Cash Flows

Cash and cash equivalents were $19.0 billion at the end of the fiscal third quarter of 2020 as compared with $17.3 billion at the end of fiscal year 2019. The primary sources and uses of cash that contributed to the $1.7 billion increase were:

        (Dollars In Billions)
        $                 17.3   Q4 2019 Cash and cash equivalents balance
                          15.2   cash generated from operating activities
                         (12.9)  net cash used by investing activities
                          (0.5)  net cash used by financing activities
                          (0.1)  effect of exchange rate and rounding
        $                 19.0   Q3 2020 Cash and cash equivalents balance



In addition, the Company had $11.8 billion in marketable securities at the end
of the fiscal third quarter of 2020 and $2.0 billion at the end of fiscal year
2019.







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Cash flow from operations of $15.2 billion was the result of:
(Dollars In Billions)
$                 13.0    Net Earnings
                          non-cash expenses and other adjustments primarily for depreciation and
                          amortization, stock-based compensation, asset

write-downs and credit losses

                          and accounts receivable allowances partially 

offset by the deferred tax

                   6.1    provision and net gain on sale of assets/businesses
                  (0.1)   decrease in accounts payable and accrued liabilities
                          an increase in accounts receivable, inventories and other current and
                  (2.6)   non-current liabilities and other current and non-current assets

                          contingent consideration reversal (related to the timing of certain
                          developmental milestones associated with the

Auris Health acquisition) and

                  (1.2)   rounding
$                 15.2    Cash Flow from operations


Investing activities use of $12.9 billion of cash was primarily used for: (Dollars In Billions)

                         primarily related to the acquisitions of 

bermekimab and related assets

                         from XBiotech Inc. as well as the acquisition of all outstanding shares
$                (0.9)   in Verb Surgical Inc.
                 (2.0)   additions to property, plant and equipment
                 (9.6)   net purchases of investments

                 (0.4)   other (primarily licenses and milestones)
$               (12.9)   Net cash used for investing activities


Financing activities use of $0.5 billion of cash was primarily used for: (Dollars In Billions) $

                 (7.8)   dividends to shareholders
                  (2.9)   repurchase of common stock
                   9.9    net proceeds from short and long term debt
                          proceeds from stock options exercised/employee 

withholding tax on stock

                   0.9    awards, net
                  (0.6)   other
$                 (0.5)   Net cash used for financing activities



The Company has access to substantial sources of funds at numerous banks
worldwide. In September 2020, the Company secured a new 364-day Credit Facility.
Total credit available to the Company approximates $10 billion, which expires on
September 9, 2021. Interest charged on borrowings under the credit line
agreement is based on either bids provided by banks, the prime rate, London
Interbank Offered Rates (LIBOR), or other applicable market rates as allowed
under the terms of the agreement, plus applicable margins. Commitment fees under
the agreement are not material.

In the fiscal third quarter of 2020, the Company's notes payable and long-term
debt was in excess of cash, cash equivalents and marketable securities. As of
September 27, 2020, the net debt position was $7.0 billion as compared to the
prior year of $11.3 billion. Considering recent market conditions and the
on-going COVID-19 crisis, the Company has re-evaluated its operating cash flows
and liquidity profile and does not foresee any significant incremental risk. The
Company anticipates that operating cash flows, the ability to raise funds from
external sources, borrowing capacity from existing committed credit facilities
and access to the commercial paper markets will continue to provide sufficient
resources to fund operating needs, including the agreement in principle to
settle opioid litigation of which the majority may be paid over the next two to
three years. In addition, the Company monitors the global capital markets on an
ongoing basis and from time to time may raise capital when market conditions are
favorable. In the fiscal third quarter of 2020, the Company issued approximately
$5.0 billion of commercial paper, with approximately $3.0 billion outstanding at
quarter end which had a weighted average interest rate of 0.15% and a weighted
average maturity of 1.2 months. In the fiscal third quarter of 2020, the Company
issued senior unsecured notes for a total of $7.5 billion at favorable rates.
The net proceeds from this offering were used to fund the
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Momenta Pharmaceuticals, Inc. acquisition on October 1, 2020 and for general
corporate purposes. Additionally, as a result of the Tax Cuts and Jobs Act
(TCJA), the Company has access to its cash outside the U.S. at a significantly
reduced cost.

In the fiscal second quarter of 2020, the Company paid approximately $1.3
billion to the U.S.Treasury related to the normal estimated tax payment for the
fiscal first and second quarters of 2020 and the current installment due on
foreign undistributed earnings as part of the TCJA (see Note 8 to the
Consolidated Financial Statements as contained in the Company's Annual Report on
Form 10-K for the fiscal year ended December 29, 2019).

Dividends


On July 20, 2020, the Board of Directors declared a regular cash dividend of
$1.01 per share, payable on September 8, 2020 to shareholders of record as of
August 25, 2020.

On October 22, 2020, the Board of Directors declared a regular cash dividend of
$1.01 per share, payable on December 8, 2020 to shareholders of record as of
November 24, 2020. The Company expects to continue the practice of paying
regular quarterly cash dividends.

OTHER INFORMATION

New Accounting Pronouncements

Refer to Note 1 to the Consolidated Financial Statements for new accounting pronouncements.

Economic and Market Factors


COVID-19 considerations and business continuity
The Company has considered various internal and external factors in assessing
the potential impact of COVID-19 on its business and financial results based
upon information available at this time, as follows:
•Operating Model: The Company has a diversified business model across the
healthcare industry with flexibility designed into its manufacturing, research
and development clinical operations and commercial capabilities.
•Supply Chain: The Company continues to leverage its global manufacturing
footprint and dual-source capabilities while closely monitoring and maintaining
critical inventory at major distribution centers away from high-risk areas to
ensure adequate and effective distribution.
•Business Continuity: The robust, active business continuity plans across the
Company's network have been instrumental in preparing the Company for events
like COVID-19 and the ability to meet the majority of patient and consumer needs
remains uninterrupted.
•Workforce: The Company has put procedures in place to protect its essential
workforce in manufacturing, distribution, commercial and research operations
while ensuring appropriate remote working protocols have been established for
other employees
•Liquidity: The Company's high-quality credit rating allows the Company superior
access to the financial capital markets for the foreseeable future. In the
fiscal third quarter of 2020, the Company issued approximately $5.0 billion of
commercial paper, with approximately $3.0 billion outstanding at quarter end,
for additional liquidity at favorable interest rates. Additionally, in the
fiscal third quarter of 2020, the Company issued senior unsecured notes for a
total of $7.5 billion at favorable rates. The net proceeds from this offering
were used to fund the Momenta Pharmaceuticals, Inc. acquisition on October 1,
2020 and for general corporate purposes.
•Domestic and Foreign Legislation: The Company will continue to assess and
evaluate the on-going global legislative efforts to combat the COVID-19 impact
on economies and the sectors in which it participates. Currently, the recent
legislative acts put in place are not expected to have a material impact on the
Company's operations.
In the fiscal second and third quarters of 2020, the Company entered into a
series of contract manufacturing arrangements for vaccine production with third
party contract manufacturing organizations. These arrangements provide the
Company with future supplemental commercial capacity for vaccine production and
potentially transferable rights to such production if capacity is not required.
Amounts paid and contractually obligated to be paid to these contract
manufacturing organizations of approximately $0.8 billion are reflected in the
prepaid expenses and other, other assets, accrued liabilities and other
liabilities accounts in the Company's consolidated balance sheet upon execution
of each agreement. Additionally, the Company has entered into certain vaccine
development cost sharing arrangements with government related organizations.

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The Company operates in certain countries where the economic conditions continue
to present significant challenges. The Company continues to monitor these
situations and take appropriate actions. Inflation rates and currency exchange
rates continue to have an effect on worldwide economies and, consequently, on
the way the Company operates. The Company has accounted for operations in
Venezuela and Argentina as highly inflationary, as the prior three-year
cumulative inflation rate surpassed 100%. This did not have a material impact on
the Company's results in the period. In the face of increasing costs, the
Company strives to maintain its profit margins through cost reduction programs,
productivity improvements and periodic price increases.

In June 2016, the United Kingdom (U.K.) held a referendum in which voters
approved an exit from the European Union (E.U.), commonly referred to as
"Brexit" and on January 31, 2020, the U.K. formally exited the E.U. Given the
lack of comparable precedent, it is unclear what the ultimate financial, trade,
regulatory and legal implications the withdrawal of the U.K. from the E.U. will
have. Brexit creates global political and economic uncertainty, which may cause,
among other consequences, volatility in exchange rates and interest rates,
additional cost containment by third-party payors and changes in regulations.
However, the Company currently does not believe that these and other related
effects will have a material impact on the Company's consolidated financial
position or operating results. As of September 27, 2020 and for the fiscal nine
months, the business of the Company's U.K. subsidiaries represented less than 3%
of both the Company's consolidated assets and fiscal nine months revenues,
respectively.

Governments around the world consider various proposals to make changes to tax
laws and regulations, which may include increasing or decreasing existing
statutory tax rates. A change in statutory tax rate in any country would result
in the revaluation of the Company's deferred tax assets and liabilities related
to that particular jurisdiction in the period in which the new tax law is
enacted.  This change would result in an expense or benefit recorded to the
Company's Consolidated Statement of Earnings.  The Company closely monitors
these proposals as they arise in the countries where it operates. Changes to the
statutory tax rate may occur at any time, and any related expense or benefit
recorded may be material to the fiscal quarter and year in which the law change
is enacted.

The Company faces various worldwide health care changes that may continue to
result in pricing pressures that include health care cost containment and
government legislation relating to sales, promotions and reimbursement of health
care products.

Changes in the behavior and spending patterns of purchasers of health care products and services, including delaying medical procedures, rationing prescription medications, reducing the frequency of physician visits and foregoing health care insurance coverage, may continue to impact the Company's businesses.


The Company also operates in an environment increasingly hostile to intellectual
property rights. Firms have filed Abbreviated New Drug Applications or
Biosimilar Biological Product Applications with the FDA, initiated Inter Partes
Review proceedings in the United States Patent and Trademark Office, or
otherwise challenged the coverage and/or validity of the Company's patents,
seeking to market generic or biosimilar forms of many of the Company's key
pharmaceutical products prior to expiration of the applicable patents covering
those products. In the event the Company is not successful in defending the
patent claims challenged in these actions, generic or biosimilar versions of the
products at issue may be introduced to the market, resulting in the potential
for substantial market share and revenue losses for those products, and which
may result in a non-cash impairment charge in any associated intangible asset.
There is also a risk that one or more competitors could launch a generic or
biosimilar version of the product at issue following regulatory approval even
though one or more valid patents are in place. For further information, see the
discussion on "Litigation Against Filers of Abbreviated New Drug Applications"
in Note 11 to the Consolidated Financial Statements.


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