Staying on Top
Lots of executives at Johnson & Johnson have stories about William C. Weldon's powers of persuasion. The onetime drug salesman who now leads the health-care giant is famed for his ability to convince, cajole, or sometimes just sweet-talk colleagues into seeing things his way. A couple of years ago, Dr. Per A. Peterson, the chief of pharmaceutical research and development, was fed up with personnel headaches and told Weldon he was thinking of leaving the company. The next morning, Peterson, who lives minutes from Weldon in central New Jersey, got a call from the boss at 5:30, inviting him over for breakfast. As Weldon tended to the skillet, the two men discussed Peterson's concerns. And then they talked some more: Their conversation lasted well into the afternoon. Eventually, Peterson agreed to stay, and within a week Weldon had made the changes Peterson sought. "What else can you say to a guy who cooks you an omelette at six in the morning?" says Peterson with a laugh. "You say yes."
Weldon, 54, and one year into the job, will need those skills in spades as he guides J&J in the new century. The 117-year-old company is an astonishingly complex enterprise, made up of 204 different businesses organized into three divisions: drugs, medical devices and diagnostics, and consumer products. Much of the company's growth in recent years has come from pharmaceuticals; they accounted for almost half of J&J's sales and 61% of its operating profits last year. With revenue of $36 billion, J&J is one of the largest health-care companies in the U.S. That allows it to take bigger risks: When a surgical device business lost some $500 million between 1992 and 1995, J&J hardly felt it.
Consumers know Johnson & Johnson for its Band-Aids and baby powder. But competitors know the company as a fierce rival that boasts a rare combination of scientific expertise and marketing savvy. It regularly develops or acquires innovative products and then sells them more aggressively than almost anyone around. Even if a hospital might prefer to purchase its surgical tools from one company and its sutures from another, it could likely end up buying both from J&J because J&J offers favorable prices to hospitals that buy the whole package. J&J can also trade on its "heritage," as Weldon calls it, when it comes to persuading doctors to try its new drugs and devices. Or when it comes to persuading consumers: When J&J launched anemia drug Procrit in 1991, few expected it to make much of a difference to the company's performance. Not only did J&J spend millions to educate physicians about the condition, it also ran a series of ads on television -- an unusual move considering that the drug is marketed specifically to treat anemia in chemotherapy patients. But it worked: Procrit is now J&J's best-selling drug.
The company Weldon inherited from his predecessor, Ralph S. Larsen, has been one of the most consistent, most successful health-care companies for years. Others around it are suffering as patents for important drugs expire with little of real consequence to replace them. That's expected in an industry so dependent on the unpredictable pace of scientific innovation. But not at J&J. The company is famed for delivering at least 10% earnings growth year in and year out going back nearly two decades. In the first quarter, it reported a 13% rise. Its stock price, meanwhile, has increased from less than $3, split-adjusted, in the mid-1980s to almost 20 times that now. Over the past two years, as the Standard & Poor's 500-stock index has fallen 28.1%, J&J stock has increased 19.4%. And in 2002, J&J earned $6.8 billion (excluding special charges), compared with $5.9 billion the previous year.
Maintaining that record could be Weldon's biggest challenge: Just to keep up, he must in essence create a new $4 billion business every year. But J&J's crucial drug business is finally succumbing to the pressures slowing down the rest of the industry. Procrit sales were nearly flat in the first quarter because of a new rival, news that sent the stock down 3% in one day. And like its peers, J&J doesn't have much coming out of its labs now. Meanwhile, its new drug-coated stent has been held up at the Food & Drug Administration. Approval still seems highly likely. But if the device does not get the O.K., it would be a huge blow to J&J.
What makes matters worse for Weldon is that the other component of J&J's growth -- acquisitions -- could become more problematic, too. Over the past decade, J&J has bought 52 businesses for $30 billion; 10% to 15% of its top-line growth each year comes from such investments. But to buy something that really affects overall performance is a different proposition for a $36 billion company than it is for a $10 billion company. "You get to a point where finding acquisitions that fit the mold and make a contribution becomes increasingly difficult," warns UBS Warburg analyst David Lothson. "This puts pressure on the sustainability of this strategy, and ultimately it could break down."
J&J's success has hinged on its unique culture and structure. But for the company to thrive in the future, that system has to change. Each of its far-flung units operates pretty much as an independent enterprise. Businesses set their own strategies; they have their own finance and human resources departments, for example. While this degree of decentralization makes for relatively high overhead costs, no chief executive, Weldon included, has thought that too high a price to pay. Johnson & Johnson has been able to turn itself into a powerhouse precisely because the businesses it buys, and the ones it starts, are given near-total autonomy. That independence fosters an entrepreneurial attitude that has kept J&J intensely competitive as others around it have faltered.
Now, though, the various enterprises at J&J can no longer operate in near isolation. Weldon believes, as do most others in the industry, that some of the most important breakthroughs in 21st century medicine will come from the ability to apply scientific advances in one discipline to another. The treatment of many diseases is becoming vastly more sophisticated: Sutures are coated with drugs to prevent infections; tests based on genomic research could determine who will respond to a certain cancer drug; defibrillators may be linked to computers that alert doctors when patients have abnormal heart rhythms.
The company should be perfectly positioned to profit from this shift toward combining drugs, devices, and diagnostics, claims Weldon, since few companies will be able to match its reach and strength in those three basic areas. "There is a convergence that will allow us to do things we haven't done before," he says. Indeed, J&J has top-notch products in each of those categories. It has been boosting its research and development budget by more than 10% annually for the past few years, which puts it among the top spenders, and now employs 9,300 scientists in 40 labs around the world.
But J&J can cash in only if its fiercely independent businesses can work together. In effect, Weldon wants J&J to be one of the few companies to make good on that often-promised, rarely delivered idea of synergy. To do so, he has to decide if he's willing to put J&J's famed autonomy at risk. For now, Weldon is creating new systems to foster better communication and more frequent collaboration among J&J's disparate operations.
Already J&J has been inching toward this more cohesive approach: Its new drug-coated stent, which could revolutionize the field of cardiology, grew out of a discussion in the mid-1990s between a drug researcher and one in J&J's stent business. Now Weldon has to promote this kind of cooperation throughout the company without quashing the entrepreneurial spirit that has made J&J what it is today. Cultivating those alliances "would be challenging in any organization, but particularly in an organization that has been so successful because of its decentralized culture," says Jerry Cacciotti, managing director at consulting firm Strategic Decisions Group. Weldon, like every other leader in the company's history, worked his way up through the ranks. Among other things, it made him a true believer in the J&J system. Whatever he hopes to achieve, he doesn't expect to undermine that.
In many ways, Weldon personifies the Johnson & Johnson ethos. Though he was one of the first J&J executives to go casual in the 1990s and sometimes schedules business lunches at his favorite burger joint in Manhattan, Weldon is compulsively competitive. As he says, "it's no fun to be second." One of his first bosses recalls how Weldon badgered him to release sales figures early because Weldon was desperate to know if he had won a company competition. Weldon is such an intense athlete that he was just a sprint away from ruining his knee altogether when he finally gave up playing basketball. It's not easy for him to keep a respectable distance from his managers now. "It's like a barroom brawl [where] you are outside looking in when you want to be in the middle of it," he says.
Weldon became famous for setting near-impossible goals for his people and holding them to it. "There was rarely an empty suit around Bill," says one former J&Jer. "If you weren't pulling your weight, you were gone." In the 1990s, when Weldon ran a business that sold surgical tools, executives back at headquarters in New Brunswick, N.J., used to systematically upgrade the reviews he gave his employees.
With that in mind, consider what Weldon is willing to do so that his changes don't threaten J&J's ecosystem: restrain himself. Although he talks incessantly about synergy and convergence, the steps he's actually taking to make sure his units cross-fertilize are measured ones. He isn't pushing specific deals on his managers. For example, industry sources say J&J has held on-and-off talks with Guidant Corp., which makes implantable defibrillators. That field of cardiovascular medicine is a growing market that's perfectly suited for some of these emerging combination therapies. But Weldon isn't leading the way in those talks. And he's delegating crucial decisions about how to spend R&D dollars.
Weldon is subtly turning up the heat on cooperation between his different units, however. J&J experts in various diseases have been meeting quarterly for the past five years to share information. Weldon and James T. Lenehan, vice-chairman and president of J&J, are now setting up two groups, focused on two diseases (they won't say which), that will work together more formally. After six months, each group will report on potential strategies and projects.
To understand Weldon's vision for the new J&J, it's useful to look at how he reshaped the pharmaceutical operation when he took it over in 1998. At the time, J&J's drug business was posting solid growth thanks to popular products such as the anemia drug Procrit and the anti-psychotic medication Risperdal. But the drug R&D operation was sputtering after several potential treatments had failed in late-stage testing. Weldon's solution was to create a new committee comprised of R&D executives and senior managers from the sales and marketing operations to decide which projects to green-light. Previously, those decisions were made largely by scientists in the company's two major R&D operations; there was no such thing as setting common priorities. Weldon also created a new post to oversee R&D and gave the job to Peterson. "Some people may have thought Bill curtailed their freedom," says Peterson. "But we've improved the decision-making to eliminate compounds that just won't make it."
Although most of the changes Weldon instituted in the pharmaceutical business won't yield real results for years, there is some evidence that this new collaboration is working. Shortly after taking charge of the drug unit, Weldon visited J&J's research facility in La Jolla, Calif., to learn about the company's genomic studies. Researchers were focused on building a massive database using gene patterns that correlate to a certain disease or to someone's likely response to a particular drug. When they told Weldon how useful the database could be for J&J's diagnostic business, he in turn urged Lenehan, who oversees the unit, to send his people out. Now, Peterson says, the diagnostics team is developing a test that the drug R&D folks could use to predict which patients will benefit from an experimental cancer therapy. If the test works, it could significantly cut J&J's drug-development costs.
Even the company's fabled consumer brands are starting to take on a scientific edge. Its new liquid Band-Aid is based on a material used in a wound-closing product sold by one of J&J's hospital-supply businesses. And a few years ago, J&J turned its prescription antifungal treatment, Nizoral, into a dandruff shampoo. Indeed, these kinds of products are one reason operating margins for the consumer business have increased from 13.8% in 2000 to 18.7% in 2002.
But perhaps the most promising result of this approach is J&J's drug-coated stent, called Cypher. A few years after that first meeting between researchers, J&J created teams from the drug business and the device operation to collaborate on manufacturing the stent, which props open arteries after angioplasty. "If we didn't have all this [expertise]," Weldon says, "we'd probably still be negotiating with [outside] companies to put this together." And to show that he is letting managers mind their own businesses, Weldon says that he only gets briefed about the stent's progress every month (though he does invite Robert W. Croce, the division head, to dinner for more casual updates). "They are the experts who know the marketplace, know the hospitals, and know the cardiologists," Weldon says of the Cypher team. "I have the utmost confidence in them."
With that empowerment, though, comes the clear expectation that J&J's experts will go after their markets with the same tenacity Weldon displayed in his climb to the top. Before heading up the drug division, Weldon made his reputation at J&J in the early '90s as head of a new unit, Ethicon Endo-Surgery Inc. Ethicon Endo was supposed to establish itself in the emerging field of endoscopic surgery. J&J did what only a company of its resources can: It poured hundreds of millions into building a full line of tools for surgeons. And Weldon did what he does best: He went after the leading company, United States Surgical Corp., as if it were a mortal threat.
Weldon spent much of his time on the road, traveling the country from his base in Cincinnati to meet with surgeons and hospital executives. Once he canceled a flight home from San Diego after hearing that a potential customer was wavering. He went back the following morning to nail down the deal. Weldon often set more ambitious goals than headquarters did. Nick Valeriani, who was then vice-president of sales and marketing, recalls: "We'd have a great year and Bill would say, 'Nice job. Why couldn't it have been 25% higher?"' By 1996, J&J surpassed U.S. Surgical, which was later bought by Tyco International Ltd.
That's not to say that Weldon doesn't understand the power of positive reinforcement. Twice he wheedled higher bonuses for his managers out of New Brunswick. Another time at Ethicon Endo, he closed up shop for a day of rest after a particularly harried couple of months. He never told anyone at headquarters. And no one in New Brunswick ever said a word about it. "Hell, you are the goddamn boss," he says. "Sometimes it is better to beg forgiveness than to ask permission."
And for those executives who fell short, Weldon made it clear he didn't like to be disappointed. When a new J&J drug business, Centocor Inc., failed to meet the aggressive sales goals it set for 2000, Weldon was at the offices in Malvern, Pa., before the week was out. David P. Holveck, former company group chairman of Centocor who now runs J&J's venture-capital arm, says of Weldon: "He is a man of few words. But his body language was very clear: In this game there are two strikes. In 2001, we were expected to get it right." They did.
Not everybody appreciated Weldon's demands. None would speak for attribution, but several former executives at Ethicon Endo say Weldon alienated those he felt weren't part of the team. "He is an intimidator and a dominator," says one former executive who claims Weldon turned on him after he opposed an acquisition.
Weldon hasn't really ever taken much for granted. His father was a stagehand on Broadway for several years. While his mother, a seamstress, worked on costumes for the ballet and theater, Weldon would watch the shows from backstage. She handled Marilyn Monroe's wardrobe the night the actress sang Happy Birthday to President John F. Kennedy in 1962, and she retired last year at the age of 80. "My parents were very hardworking, union people," Weldon says. "It's a tough life."
When Weldon was in elementary school, the family moved to Ridgewood, N.J., which former classmates describe as a wealthy and somewhat socially competitive town. There, Weldon grew up in one of the less prosperous neighborhoods. He was an indifferent student but a determined athlete who played on both the basketball and football teams.
Weldon put himself through Quinnipiac University in Hamden, Conn., by working as a mover in Newark, N.J., on weekends and holidays. He says he got serious about his studies after he married his high school sweetheart, Barbara Dearborn, midway through college. Shortly after graduating with a major in biology, Weldon had his one and only interview at J&J. Howard Klick, who hired him as a sales rep at the McNeil Pharmaceutical unit, recalls asking him for a sales pitch on a pen. Weldon took the pen apart, then gave Klick the hard sell. "He was hungry," Klick says. "He had fire in the belly."
He'll need that drive if he's to maintain J&J's growth trajectory. At this point, most of J&J's important drugs are under assault from competitors. Growth of the company's biggest-selling product, the $4.3 billion Procrit franchise, has stalled in the face of Aranesp, a drug from archrival Amgen Inc. And side-effect problems have plagued the European version, called Eprex. As a result, Procrit, which grew at a 20%-plus rate over the past few years, may actually post a 2% decline in worldwide sales in 2003, according to J.P. Morgan Securities analyst Michael Weinstein. Meanwhile, J&J's $1.3 billion rheumatoid arthritis drug Remicade faces competing products from Amgen and Abbott Laboratories.
Weldon downplays the threat. He argues that Remicade has tremendous potential because it can be used to treat other conditions, including Crohn's disease, and that Procrit will continue to dominate the anemia market. And J&J does have 56 drugs in late-stage testing (though only eight are truly new).
With J&J's blockbusters slowing, Weldon may expect his successor at the drug unit to do something dramatic. That's what he did two years ago when he completed the company's biggest acquisition ever: buying drug-delivery player Alza Corp. for $13.2 billion to shore up the business. There are supposed synergies here too, he says. Alza's technology could help J&J devise safer and more effective formulations of existing drugs. Among them: a new sustained-release version of the epilepsy drug Topamax that could be used to treat obesity.
But buying growth is likely to be more of a challenge for J&J these days. For one thing, nearly every pharmaceutical operation around is looking to make deals. And there are relatively few companies with products that are far enough along and important enough to make a real difference to J&J.
Of course, the drug business' problems now fall to its new boss, Christine A. Poon, whom Weldon helped recruit from Bristol-Myers Squibb Co. But Weldon still jumps in every now and then. One weekend earlier this year, several senior executives were hammering out details on the $2.4 billion acquisition of Scios Inc., a biotech company that has a drug for congestive heart failure. They called Weldon at home to ask for his input on one point. Weldon decided to go to the office to give his answer. And he stayed until well after midnight. Weldon says he wanted to make an appearance because it was Poon's first major acquisition. "I wanted to be there, if nothing else, to give her some moral support," he says.
But you know he got a thrill from being back in the thick of things. As Weldon leads the company into a new era, he'll have to be careful not to cross the line between supporting his executives and encroaching on their territory. Their autonomy has been central to Johnson & Johnson's success. To refine the J&J way, Weldon will have to be among the most disciplined and restrained of executives. Keeping a company on top can be just as hard as getting it there.
By Amy Barrett