Gsb 621 Return Driven Execution Presentation On Johnson & Johnson And Abbott Laboratories

February 23, 2008

R t D i E tiReturn Driven Execution:Strategy and Execution Research Project _______________

GSB 621 Return Driven StrategyFebruary 2008

Matthew JacobsonAman Manna Parimal Mehta Ji P l

yProfessor Mark L. FrigoProfessor Joel LitmanKellstadt Graduate School of BusinessDePaul University

Jim PolsonShannon ReslerRipal ShahKurt Wunderlich

Page 1Do not copy or redistribute without express written consent of Dr. Mark L. Frigo

e au U e s ty

Do not copy or redistribute without express written consent of Dr. Mark L. Frigo

In 2005, U.S. Healthcare Spending Was Two Trillion DollarsWas Two Trillion Dollars

This is approximately 16% of GDP

A i d thAs we grow in age…so does the spending


…So Why Are These Men So Happy?

HOLT Slides for Johnson & Johnson and Abbott Laboratories

Johnson & Johnson Abbott Laboratories


Execution of Strategy

• J&J’s commitment to its CredoPatients and customers, First

Employeesp y

Communities

Shareholders

J&J’s main priorities• J&J’s main prioritiesWinning in healthcare

Capitalizing on convergence

Accelerating growth in emerging marketsAccelerating growth in emerging markets

Developing leadership and talent

• Operational excellence Decentralization

Manufacturing excellence

Organizational redesign


• Office of Strategy and Growth

Johnson & Johnson’s Growth Strategy

J&J wants to grow its business with strategic acquisitions of other pharmaceutical and medical devicespharmaceutical and medical devices companies to expand their offerings and establish themselves in growing markets as well as maintaining/expanding their

BRIEF statement of the initiative as it applies Specific measure/metrics Actual target

current products.

state e t o t e t at e as t app esto that particular Tenet

Spec c easu e/ et csemployed

ctua ta get

Commitment Tenant

Ethically Maximize Wealth

Continue track record of growth – 75 consecutive years of sales increases, 24 consecutive years of adjusted earnings increases

2007 Operational sales growth2007 Adjusted EPS growth

11.5-12.5%$3.88-$3.93

G l T T A i C i b ild i i i i C #1 #2 k 70% f hGoal Tenants Target Appropriate Customer Groups

Continue to build strong competitive positions across seven therapeutic areas (Pharmaceuticals)

Capture #1 or #2 market positionsGrowth in Emerging Markets

70% of pharma sales from #1/ #2 products; Low double digit growth

Competency Innovate Offerings Develop wide variety of offerings; many new # of filings/approvals for new 1 approval, 4 filings


Tenants offerings will be best in class or first in class products in 2007; 7-10 new filings by 2010

Supporting Tenants

Balance Focus and Options

Ensure future growth by investing in R&D and product extensions and advancing the pipeline

Investments in R&D 8% growth

Johnson & Johnson’s Productivity Strategy

Ethicon Products, a Johnson & Johnson Medical Devices Company, strives to constantly improve its brand image by providing its customers a cheaper, more reliable delivery option.

BRIEF statement of the initiative as it applies to that particular Tenet

Specific measure/metrics employed

Actual target

Commitment Tenant


Increase in customer profitability due to lowered distribution costs

Mark-up per product orderCost to ship

2-3%$7 flat fee delivery

Goal Tenants Fulfill Otherwise Unmet Customer Needs

Increase in Customer Satisfaction amongst those who use Suture Express

Customer Satisfaction Ratings 100%

Competency Tenants

Deliver Offerings Implemented the “Smart Program”, which improved on-time deliveries

Percentage of On-time deliveries 100%


Supporting Tenants

Partner Deliberately Added Suture Express to their Distribution Team Improve on-time delivery from 2-3 days

Next-day delivery

- Execution of Strategy

• Abbott’s Competitive Advantage: Broad Portfolio of Businesses

• Abbott’s Strategic Focus

• Innovation

•Targeting High Growth Markets

•Deep Late Stage Product PipelineDeep Late Stage Product Pipeline

•Strong Internal R&D

• Profitable Growth

•Strategic Acquisitions

•Consistent, Strong Cash Flows

•Accelerated Earnings GrowthAccelerated Earnings Growth

•Sales Momentum in Key Products


Abbott Laboratories’ Growth Strategy

ABT leverages its broad product offering to generate the financial strength to continue i ti i d t d t h l finvesting in new products and technology for customers and patients while deploying substantial amounts of cash back to its shareholdersshareholders



Actual target

Commitment Tenant


Effectively return cash to shareholders •Increase Dividend •Share repurchases

•10%•> $1 billion

G l T t F lfill Oth i U t I d i t t i bi l i f iliti d R&D I t d d b ilt t t f th t C it lGoal Tenants Fulfill Otherwise Unmet Customer Needs

Increased investments in biologics facilities and R&D – total market opportunity in 2016 of $20B

Invested and built state of the art biologics facility in Puerto Rico

Capital investment-- $450M

Competency Tenants

Innovate Offerings Submitted 6 major products for regulatory approval Exceeded timeline for every late stage product submission for approval

100%


Supporting Tenants

Partner Strategically Completion of the integration of KOS Pharmaceuticals – strengthened ABT’s position in Lipid management

Incurred integration expenses and increased R&D – total paid for deal of $3.7 billion

Accretive to EPS in 2009

Abbott Laboratories’ Productivity Strategy

ABT desired to refine and refocus its product pipeline across all business segments

Given the increasingly competitive environment, ABT had to increase R&D efficiency and quality while targeting the mostefficiency and quality while targeting the most attractive and highly profitable markets



Actual target

Commitment Tenant


Leverage financial strength to invest more in R&D and commercial operations – ensure steady pipeline

d t f d t l h

Increase funds invested in combined R&D and product l h

>10% of revenue

and support of new product launches launches

Goal Tenants Fulfill Otherwise Unmet Customer Needs

Expand application of Humira to treat Crohn’s disease

Gain market share > 30%

Competency Tenants

Deliver Offerings Productivity improvements in the R&D program -quicker move from discovery to development

New molecular compounds advanced to the next stage of

> 75%


Tenants quicker move from discovery to development advanced to the next stage of discovery or development in 2007

Supporting Tenants

Partner Strategically TAP joint venture: increase product offerings for gastrointestinal disorders

Increase in operating income $350 - $400 million

Comparison of Abbott Laboratories and Johnson & Johnson with respect to execution of Return Driven Strategy

Tenet 1 Commitment

Tenet

Strengths/Weaknesses:S – CAGR of 10%, buyback shares $1.0 BW – Relatively low operating margins

Strengths/Weaknesses:S – Strong established brand name and relationshipsW – Growth decrease in core pharmaceutical products/Tenet W Relatively low operating margins

Opportunities/Threats:O – Growing blood glucose testing marketT – Pending lawsuits (21) , fierce competition

W Growth decrease in core pharmaceutical products/ Opportunities/Threats:O – Growing population in developing nationsT – Fierce Competition / Lawsuits

Tenet 2 – 3

Goal Tenets

Strengths/Weaknesses:S – Strong R&D capability – test for AIDS, ArthritisW Approvals of key drugs from FDA

Strengths/Weaknesses:S – Aging demographic in developed marketsW Lack of unique products in the pipelineGoal Tenets W – Approvals of key drugs from FDA

Opportunities/Threats:O – Increasing therapeutic coverage of HumiraT – Third world countries overriding patents to import /create generics of AIDS drugs

W – Lack of unique products in the pipelineOpportunities/Threats:O –New offerings (Generic Drugs / Health Services)T – Patent Expiration on Key Products

Tenet Strengths/Weaknesses: Strengths/Weaknesses:Tenet 4 – 6

Competency Tenets

Strengths/Weaknesses:S – Offering innovation, branding at product level for target customers and effective deliveryW – Less exposure to internet advertising Opportunities/Threats:O – Targeting nutrition products in emerging markets as personal income improves

Strengths/Weaknesses:S – Presence in Growing Oncology MarketW – R&D costs of products in pipeline Opportunities/Threats:O – Increased Market Share in OncologyT – Growing generic pharmaceutical products

T – AIDS group lawsuit could attract negative publicity

Tenet 7-11 Supporting

Tenetsand

Genuine

Strengths/Weaknesses:S – Agreement with Takeda to leverage sales distribution network, providing drugs to consumers efficientlyW – Expiring patent & Lack of patent protection to save genuine assets

Strengths/Weaknesses:S – Established Channels of DistributionW – Overdependence/focus on key pharmaceuticalsOpportunities/Threats:O – Strategic Acquisitions


AssetsgOpportunities/Threats:O – More M&A activity to gain market share and improve marginsT – Need to be vigilant to environmental pollution problems threatening financial performance

gT – Industry Consolidation

…Why Are These Men So Happy?

2005 – 2015

• Healthcare Spending: Projected to grow from $2 p g j gTrillion to $5 Trillion in the U.S. (16% to 20% of GDP)

CEO Bill WeldonCEO Miles White

• Wouldn’t you be smiling too?


February 23, 2008

R t D i E tiReturn Driven Execution:Strategy and Execution Research Project

AppendixGSB 621 Return Driven StrategyFebruary 2008

Matthew JacobsonAman Manna Parimal Mehta Jim PolsonProfessor Mark L. Frigo

Professor Joel LitmanKellstadt Graduate School of BusinessDePaul University

Jim PolsonShannon ReslerRipal ShahKurt Wunderlich

Page 12Do not copy or redistribute without express written consent of Dr. Mark L. FrigoDo not copy or redistribute without express written consent of Dr. Mark L. Frigo

Appendix: ABT Financial Strength

Uses of Cash Initiatives

Share repurchase programApproved a $2.5 Billion share repurchase program in xxx, 2006

2007 Goal – purchase over $1 billion in stock

Dividend PolicyDividends have increased for each of the last 35 years

2007 Goal – dividend increase of 10%

Source - Tom Freyman, CFO, 3rd Quarter Earnings Conference Call, October 17, 2007

“The second highlight from last year was the effective return of cash to shareholders. We paid approximately $2 billion in dividends the 35th consecutive year of increasing dividends and we repurchased


approximately $2 billion in dividends, the 35th consecutive year of increasing dividends, and we repurchased more than $1 billion worth of Abbott stock.” – Miles White, CEO, 4th Quarter Earnings Conference Call, Jan 23, 2008 (see sources slide #19)

Appendix: ABT Assets

Unique, Well Balanced Product Portfolio

Broad Based Healthcare CompanyConsistent and Balanced Performance

Diversified Growth OpportunitiesFocused on Innovation

Strong Momentum entering 2008Accelerating EPS Growthg“Our confidence in the future is based on the strength and the balance of our broad mix of leading

businesses from medical products to pharmaceuticals, to nutritionals and diagnostics. Together these businesses provide a diverse mix of cash flows and multiple sources of earnings growth that should help us achieve consistent leading performance in the coming years. Going forward, we're targeting higher growth


markets, including emerging markets where we can distinguish Abbott from the competition with leading technology and innovative new products that meet the needs of patients and customers.”

Source – Miles White, CEO, 4th Quarter Earnings Conference Call, Jan. 23, 2008

Appendix: ABT Assets

Unique, Well Balanced Product Portfolio

Our businesses are focused on two things: innovation and profitable growth. We are targeting markets where we can distinguish ourselves from the competition with leading technology and products. As we enter 2008, we are pleased with the momentum in our key products, our late stage pipeline and across our businesses in general As a result we continue to expect to deliver an accelerating rate of earningsbusinesses in general. As a result, we continue to expect to deliver an accelerating rate of earnings

growth in 2008 as compared to 2007

Through a series of strategic acquisitions, as well as internally developed R&D, we positioned Abbott with multiple sources of earnings power.

Source – Miles White, CEO, 4th Quarter Earnings Conference Call, Jan. 23, 2008


Appendix: ABT Growth Drivers

Pharmaceutical Products

HumiraBest in class anti TNF therapy

Sales goals for 2007 of ~ $3 billion

Crohn’s disease use gaining market share: >30% since launch

Significant Psoriasis opportunity: Potential for market leadershipg pp y p

In 2007, we expect Humira to become our first $3 billion global product. In fact, Humira achieved $1 billion sales in Europe alone last year, the first time we have had a product reach that level in a single region outside the U.S. That growth has been fueled largely by the

continued momentum in rheumatoid arthritis as well as the addition of new indications”

Source - TF, JP Morgan conference, 3-07 earnings call




Expanding opportunity for biologics$30 Billion market opportunity by 2012pp y y

“We completed construction of our new state-of-the-art biologics manufacturing facility in Puerto Rico to support our long-term growth outlook for HUMIRA and other innovative biologics that are in development.”g p

“With our strong R&D capabilities, state-of-the-art biologics manufacturing and biologics pipeline, we are extremely well-positioned to benefit from this significant market opportunity over the longer term.”

Source - Miles White, CEO, 4th Quarter Earnings call, January 23, 2008

“Abbott's new biotech plant on the 'Bio Island' good to go”, inpharma technologist.com, April 11, 2007, Anna


Lewcock



Lipid FranchiseBuilding a broad lipid franchise

Niaspan2007 sales expectations of $650 million

TriCor – best at lowering TriglyceridesStrong growth continues

“The fifth major achievement I'd mentioned from last year was the completion of the integration of our Kos Pharmaceuticals acquisition which strengthened g g

our position in lipid management.”Sources – MW, 4th quarter earnings call; TF, JP Morgan conference




Strong pipeline – many key drugs in development to drive future growth

Late stage lipid pipeline

Neuroscience & Pain

Oncology

Respiratory disease

Immunology

Source – TF, JP Morgan conference




Strong pipeline – many key drugs in development to drive future growth

First, we met or exceeded every time line for regulatory submission or approval across our broad-based late stage development pipeline. In pharmaceuticals, we received global regulatory approval and launched the Crohn's indication for HUMIRA. We also filed for approval of psoriasis, which we received in both the U.S. and Europe within the last few weeks. In addition, we submitted for the approval of two new products that hold promise for expanding our lipid franchise, Simcor, our combination therapy of Niaspan and generic Simvastatin, and ABT-335, our next generation Fenofibrate. Our fourth product submission was Vicodin CR, our extended release version of the well-known branded pain medication

“And finally, our TAP joint venture filed TAK-390MR, it's next-generation proton pump inhibitor for treatment of gastrointestinal disorders The execution of these filings means that overfor treatment of gastrointestinal disorders. The execution of these filings means that over the next 12 months our commercial teams are poised to launch four new Abbott pharmaceutical brands in the U.S.”

Source – MW, 4Q earnings call



Nutritional Products

Strong operating marginsStrong returns on invested capitalGenerates tremendous cash flowsI t ti lInternational presence

Rapid growth in emerging marketsStrong double digit growth expected in the longer-term

“ In addition, we continued construction at our new manufacturing facility in Singapore to support our long-term growth projections for global nutritionals, where consumer demand is driving rapid growth in the fastest growing emerging economies of Asia and Latin America.”

“Another of our diversified growth drivers is our leading nutritionals business, which generates strong operating margins and return on capital as well as tremendous cash flow With population growth andoperating margins and return on capital as well as tremendous cash flow. With population growth and improving economies around the world, there is a growing demand for high quality nutritional products in the emerging markets. We've seen particularly strong growth in Asia and Latin America. We expect double-digit growth for our international nutritionals business to continue into 2008.”

Sources – TF JP Morgan 3Q earnings call Citigroup Sellside report


Sources – TF, JP Morgan, 3Q earnings call, Citigroup Sellside report


Medical Products

Abbott Diabetes CareEmerging markets opportunitiesAbbott MolecularAbbott Molecular

Sales growing double digitsGlobal diagnostics

“I di l d t b i di b t t d t d bl di it th i th d h lf f l t“In our medical products businesses, diabetes care returned to double-digit growth in the second half of last year, and we expect this momentum to continue into 2008.”

“In molecular diagnostics, our competitive technologies have helped us grow sales three times as fast as the total molecular market. In May, we received U.S. regulatory approval of our M-2000 system, which was launched in Europe in 2006. In our core laboratory diagnostics business, Abbott remains the global l d W h l 70 000 i tit ti l t i th 100 t i O i t ti lleader. We have nearly 70,000 institutional customers in more than 100 countries. Our international business comprises 80% of our total sales, and drove much of the strong growth we saw last year. Emerging markets continue to represent a compelling opportunity for future growth in this business.”

Sources MW 4Q earnings call Lehman Bros Sellside report


Sources – MW, 4Q earnings call, Lehman Bros Sellside report.


Medical Products

VascularStrong pipeline

Xience progress

Significant market opportunities

“In our vascular business, we filed for U.S. regulatory approval of XIENCE V last June, then received aIn our vascular business, we filed for U.S. regulatory approval of XIENCE V last June, then received a positive recommendation for approval from an FDA advisory panel in late November. In our diabetes care business we launched FreeStyle Lite, our new no calibration blood glucose monitoring device, FreeStyle Freedom Lite, our second new no-cal meter was launched in Europe and submitted for U.S. approval. In our global nutritions business we launched new formulations of our leading infant formula brand, Similac, and

ti t d th k t f d lt t iti l th h th i t d ti f E f l ti icontinues to expand the market for adult nutritionals through the introduction of new Ensure formulations in

select markets.”

S MW 4Q i ll M St l t


Sources – MW 4Q earnings call, Morgan Stanley report

Appendix: ABT Near Term Growth Drivers

Generating momentum in the business

Major pharma launchesXience U.S. launchA l ti EPS thAccelerating EPS growth

“As we look ahead to 2008, our strategic position is strong. Our focus now is on operational is execution as we prepared for four major Abbott drug launches, including Humira for psoriasis, p p j g , g p ,Simcor, ABT-335 and controlled release Vicodin. Each of these represents an extraordinary opportunity for commercial success. In addition, we have tremendous opportunities in our medical products and nutritionals businesses, in particular, our Xience drug-eluting stent. In summary, we are very pleased with the state of our company. We are well-positioned with an unprecedented number of major new products across all of our broad based businesses drivingunprecedented number of major new products across all of our broad-based businesses, driving accelerating and double-digit earnings growth as we move into 2008.”

MW, 4Q earnings call


Appendix: ABT Outlook

“For the full year 2008, we expect high single to low double-digit sales growth, and we're providing earnings per share guidance of $3 20 to $3 25 excluding specified items forecasting steady improvement in the gross margin ratioshare guidance of $3.20 to $3.25, excluding specified items, forecasting steady improvement in the gross margin ratio over 2007, with a ratio between 58% and 59% for the full year 2008, reflecting improved product mix and efficiency initiative, forecasting continuing investment in programs to drive future growth with R&D as a percentage of sales between 9% and 10%. SG&A as a percentage of sales for the full-year 2007 was close to 27%. And we're forecasting a similar level for 2008. SG&A in 2008 reflects both the synergies of the Kos acquisition and an appropriate level of investment to properly execute the five major product launches that are planned for the year. Regarding other aspects of our 2008 outlook, we're forecasting income from the TAP joint venture of $350 million to $400 million, a net interest expense of roughly $400 million. We're projecting a modest reduction in the tax rate for 2008, based on continued changes in the mix of income across the various tax jurisdictions. The tax rate for 2008 is expected to be somewhat above 19%. As a result, when you look at the overall P&L for the year, we're forecasting an improvement in our , y y , g poperating margin and net margin ratio in 2008.”

Source - TF, 4Q earnings call


Appendix: ABT Sales Growth

Sales Growth(dollars in billions)

$19 70$19.70$17.50

$15.60$13.70

$12.10$10.90

$8 80$8.80

2000 2001 2002 2003 2004 2005 2006

Sales Growth Year Over Year


1.60% 24.30% 11.00% 13.60% 13.70% 11.80% 12.60%

Appendix: ABT Operating Cash Flow

Operating Cash Flow(d ll i billi )(dollars in billions)

$5.30$5.00

$4.30

2004 2005 2006


Appendix: ABT Research & Development

Research & Development(dollars in billions) $2.30(dollars in billions) $2.30

$1.80$1.70

2004 2005 2006


2004 2005 2006

Appendix: ABT Cash Dividend

Cash Dividend Per Share(in dollars per share) $1.18

$1 10$1.10$1.04

2004 2005 2006


2004 2005 2006

Appendix: ABT Income Statements

Income Statement

Period Ending Dec. 31, 2004 Dec. 31, 2005 Dec. 31, 2006

Total Revenue 19,680,016.00 22,337,808.00 22,476,322.00 Cost or Revenue 8,884,157.00 10,641,111.00 9,815,147.00 Gross Profit 10,795,859.00 11,696,697.00 12,661,175.00

Operating ExpenseResearch & Developmen 1,696,753.00 1,821,175.00 2,255,271.00 Selling: General & Admin 4,921,780.00 5,496,123.00 6,349,685.00 Non Recurring 279,006.00 17,131.00 2,014,000.00 Others - - -

Operating Income or Loss 3 898 320 00 4 362 268 00 2 042 219 00Operating Income or Loss 3,898,320.00 4,362,268.00 2,042,219.00

Income from Continued OpsTotal Other Income Expe 376,367.00 499,007.00 174,512.00 Earning Before Interest a 4,274,687.00 4,861,275.00 2,692,542.00 Interest Expense 149,087.00 241,355.00 416,172.00

Net Income from Continu 3,175,836.00 3,372,065.00 1,716,755.00

Non-recurring EventsDiscontinued Operations 60,015.00 - -

Net Income 3,235,851.00 3,372,065.00 1,716,755.00

P f d St k d Oth Adj t t


Preferred Stock and Other AdjustmentsNet Income Applicable to Common 3,235,851.00 3,372,065.00 1,716,755.00

Appendix: ABT Acquisitions

Acquisitions and Spin-offAcquisitions and Spin-off

Year Company Activity Goal1999 Perclose acquisition entering vascular care2001 Knoll Pharmaceuticals acquisition adding biologics expertise and Humira2001 Knoll Pharmaceuticals acquisition adding biologics expertise and Humira2004 TheraSense acquisition diabetic care leadership2004 Hospira spin-off new hospital leader2006 Abbot Nutrition International targeting emerging markets2006 Guidant Vascular acquisition forefront of vascular care2006 Kos Pharmaceuticals acquisition pipeline in lipid management2007 Core Lab Diagnostics divestiture innovation-driven business


Appendix: Current Stock Prices

F b 15 2008Feb. 15, 2008Abbott's Stock Price per Share $55.55Johnson and Johnson Price Per Share $62.90

Stock Price in Similar IndustriesAstraZeneca $38.76Novartis AG $50.23Bristol Myers $23.30


Appendix: JNJ General Facts

• Founded in 1886

• William Weldon, Chairman of the Board and Chief Executive Officer

• More than 250 operating companies in 57 countries

• More than 120,500 employees worldwide, 50,000 in the U.S.

• 47% of 2007 revenues from outside the U.S.

• 75 consecutive years of sales increases, 24 consecutive years of adjusted earnings increases, 45 consecutive years of dividends increases

• In December 2006, J&J completed its acquisition of Pfizer Consumer Healthcare for $16.6B increasing its consumer segment from 18% to 25% of total sales



Appendix: JNJ Financial Strength

Uses of Cash Initiatives

Share repurchase programIn 2007, launched a $10B share buyback program; Completed $3,6B in 2007 and continuing

through 2008

Dividend PolicyDividends have increased for each of the last 45 yearsDividends have increased for each of the last 45 years

Generated Free Cash Flow of $12.2B in 2007, a 5.2% increase

Launched a $1.3-$1.6B cost savings initiative in Pharmaceutical and Cordis business in 7/07


Appendix: JNJ Income Statement

Page 36Do not copy or redistribute without express written consent of Dr. Mark L. FrigoSource: Bear Stearns, “JNJ 4Q07: A Strong Finish as Search for Next Growth Platform Intensifies”, January 23, 2008

Appendix: JNJ Balance Sheet

Page 37Do not copy or redistribute without express written consent of Dr. Mark L. FrigoSource: Stanford Group Company, “JNJ: Upgrade to Buy – We Believe JNJ Can Navigate the Turbulence Ahead”, January 23, 2008

Appendix: JNJ 2007 Sales by Segment

Consumer24%

Pharmaceutical

24%

40%

MD&D36%


Appendix: JNJ 2007 Operating Profit by Segment

Consumer14%

Pharmaceutical48%

MD&D38%


Appendix: JNJ R&D

8

6

7

$5.3$7.7$7.1$6.5

4

5

2

3

0

1


2004 2005 2006 2007

Appendix: JNJ Products by Segment

Pharmaceutical (2007 Sales of $24.9B)•Remicade ($3.3B)•Procrit/Eprex ($2.9B)•Topamax ($2 5B)

MD&D (2007 Sales of $21.7B)•Cordis circulatory disease management products

•Depuy orthopaedic joint

Consumer (2007 Sales of $14.5B)• Tylenol• Motrin• Imodium•Topamax ($2.5B)

•Aciphex/Pariet ($1.4B)•Duragesic ($1.2B)•Concerta ($1.0B)•Velcade ($0.5B)•Anti psychotics including Risperdal

•Depuy orthopaedic joint reconstruction and spinal care products

•Ethicon wound care and women’s health productsEthicon Endo S rger

• Imodium• Benadryl• Rolaids• Pepcid AC• Listerine

Nicorette•Anti-psychotics, including Risperdal ($4.7B)

•Levaquin•Ortho Evra/Tricyclen Lo•Elmiron•Doxil

•Ethicon Endo-Surgery minimally invasive surgical products

•Lifescan blood glucose monitoring and insulin delivery

d t

• Nicorette• Aveeno• Neutrogena• Clean & Clear• Rogaine

Vi i•Doxil•Leustatin•Orthoclone OKT3•Razadyne ER•Retin APrezista

products•Ortho-Clinical Diagnostics•Vision Care disposable contact lenses (including Acuvue)

• Visine• Splenda• Band-Aids• Johnson’s Baby Powder, Lotions,

Bath ProductsB G•Prezista

•Virco Type HIV-1

70% of sales from #1 or #2 market iti

80% of sales from #1 or #2 market

• BenGay


positions positions

Sources

Johnson & Johnson Web Site. April 17, 2007. Johnson & Johnson, Inc. February 10, 2008. <http://www.jnj.com>

Mehrotra, Louise. Keynote Address. Q4 2007 Johnson & Johnson Earnings Conference Call. January 22, 2008 8:30AM EST.

White Miles Keynote Address CEO ABT Q4 2007 Abbott Earnings Conference Call January 23 2008 9:00AM ESTWhite, Miles. Keynote Address, CEO. ABT – Q4 2007 Abbott Earnings Conference Call. January 23, 2008 9:00AM EST.

Morales, Soniya. Personal Interview. February 10, 2008.

Willick, Mike. Personal Interview. February 6, 2008

Peete, Adam. Personal Interview. February 9, 2008.

Johnson, Brandon. Personal Interview. February 12, 2008.

Yahoo Finance. February 12, 2008. Yahoo. February 12, 2008. <http://finance.yahoo.com/q?s=JNJ>

Hernia Solutions. February 14, 2008. Ethicon a Johnson & Johnson Company. February 14, 2008. <www.herniasolutions.com>

MyPreceptor. 2002. MrPreceptor.com Sponsored by Ethicon. February 17, 2008. <www.dermabondtraining.com>

“JNJ 4Q2007: A Strong Finish as Search for Next Growth Platform Intensifies.” Bear Stearns. January 23, 2008. February 15, 2008. <http://www.bearstearns.com>

“ABT 4Q07: A solid 2007 Sets the Stage for EPS Growth.” Bear Stearns. January 24, 2008. February 5, 2008. <http://www.bearstearns.com>


p

“JNJ: Upgrade to Buy – We Believe JNJ Can Navigate the Turbulence Ahead.” Stanford Group Company. January 23, 2008. February 13, 2008.

Sources (continued)

“Abbott Laboratories Company Profile.” Datamonitor. March 28, 2007. February 6, 2008.

“Johnson & Johnson Company Profile.” Datamonitor. August 10, 2007. February 6, 2008.

“Abb tt L b t i St k R t ” St d d & P ’ F b 2 2008 F b 5 2008“Abbott Laboratories Stock Report.” Standard & Poor’s. February 2, 2008. February 5, 2008. <http://www2.standardandpoors.com/portal/site/sp/en/us/page.home>

“Johnson & Johnson Stock Report.” Standard & Poor’s. February 2, 2008. February 5, 2008.<http://www2.standardandpoors.com/portal/site/sp/en/us/page.home>

“Johnson & Johnson”. ValueLine. February 5, 2008. <http://www.valueline.com/vlquotes/quote.aspx?symbol=JNJ>

“Abbott Laboratories.” ValueLine. February 5, 2008. <http://www.valueline.com/vlquotes/quote.aspx?symbol=ABT>

Freyman, Tom. Keynote Address, CFO. ABT 3rd Quarter 2007 Earnings Conference Call. October 17, 2008.

White, Miles. Keynote Address, CEO. ABT 4th Quarter 2007 Earnings Conference Call. January 23, 2008.

Freyman, Tom. Keynote Address, CFO. ABT Presentation, JP Morgan Healthcare Conference. January 7, 2008.

Lewock Anna “Abbott's new biotech plant on the 'Bio Island' good to go ” Inpharmatechnologis com April 11 2007Lewock, Anna. Abbott's new biotech plant on the 'Bio Island' good to go. Inpharmatechnologis.com. April 11, 2007. <http://www.in-pharmatechnologist.com/news/ng.asp?id=75648>

Wise, Rick. “A Solid 2007 Sets the Stage for EPS Growth Acceleration.” Bear Stearns. January 24, 2008.

Reicin, Glenn. “4Q 2007: Good Quarter; We Remain Buyers.” Morgan Stanley. January 23, 2008.


Reicin, Glenn. 4Q 2007: Good Quarter; We Remain Buyers. Morgan Stanley. January 23, 2008.

Sources (continued)

Butler, Anthony. “Abbott Laboratories: Change of Earnings Forecast.” Lehman Brothers Equity Research. January 24, 2008.

“Abbott Laboratories: Q4 More Of The Same.” Citigroup Global Markets Equity Research. January 23, 2008.g p q y y

Butler, Anthony. “Abbott Shows Strong Mix.” Lehman Brothers. January 24, 2008.

Dodds, Matthew. “More of the Same.” Citigroup. January 23, 2008.

S d i J h C K t Add W ld id Ch i Ph ti l J h d J h Ph ti l SScodari, Joseph C. Keynote Address, Worldwide Chairman Pharmaceuticals. Johnson and Johnson Pharmaceutical Summary Presentation. Accessed February 17, 2008.

Baigorri, Manuel. ‘Abbott stock beats the industry and indicates a bright year ahead.” Medill Reports. February 7, 2008. February 8, 2008. <http://news.medill.northwestern.edu/chicago/news.aspx?id=77617>

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Strategy, Execution, Performance, Valuation

Σ FCF1 + Discount Rate

= ForecastedFree Cash Flows

Valuation

Cash Flow ROI Capital investment growth

Margins X Turns Turns X Sales ΔPerformance

Sales Less CostsSales

Sales Capital Investment

EBITDA% COGS% SGA%

CAPX, NWC, R&DO

Sales Δ

Sales Δ

Performance

COGS% SGA% Other LT Assets

# customers, PoPs Market dominance

# new stores, same store sales,

% sold new products

new store development process,

R&D/ sales

Sales Δ

E ti Price Δ X Volume Δ% repeat purchases

% sold new productsCapacity: people/AUMSix sigma flaws target

R&D/ sales, employee turnover,training hours per yr

Are management’s wealth creation goals aligned with investors?

Execution


Are management s wealth-creation goals aligned with investors?Can the firm fulfill customers’ unmet needs - and continue to? Do targeted market size and growth rates support valuations?

Does the firm create and deploy Genuine Assets to resist fade?Strategy

Documents

Gsb 621 Return Driven Execution Presentation On Johnson & Johnson And Abbott Laboratories