Monday, February 20, 2012

Why I Won't Invest In J&J

David Vinjamuri, Contributor  (2/16/12)

Four years ago, I would have said that Johnson & Johnson was one of the best companies in the world. As a former J&J marketer (for almost half of the 90′s) and a second generation J&J alum (my dad worked in finance for J&J in the 60′s), I was proud of the ethical standards of the company. No longer. The shock first hit me in 2010 when my infant son’s fever spiked above 104 degrees and our pediatrician warned me not to use infant Tylenol if I happened to find it on the shelves.
J&J has issued more than twenty-five recalls since 2009 and the problems aren’t slowing down. Yesterday, The New York Times reported that the cloud surrounding the marketing of an artificial hip by the DePuy division of Johnson & Johnson is growing:
The health care products giant Johnson & Johnson continued to market an artificial hip in Europe and elsewhere overseas after the Food and Drug Administration rejected its sale in the United States based on a review of company safety studies.
During that period, the company also continued to sell in this country a related model, which earlier went on the market using a regulatory loophole that did not require a similar safety review.
The market hasn’t quite caught on. Johnson & Johnson’s share price is up 12% over the past three years (although the S&P has done much better .) The public trusts J&J, too: this week the Harris Poll ranked Johnson & Johnson as the 7th most reputable brand in the world. That’s down from #2 last year, but it doesn’t sound like a company that has been plagued by recalls and ethical lapses for three years.
But brands are durable and Johnson & Johnson has one of the strongest. Business schools around the world still teach the 1982 Tylenol Tampering incident as a model ethics case. Fortune named former CEO Jim Burke one of the “greatest CEOs of all time” for his handling of the crisis. In 1982, Johnson & Johnson pulled Tylenol off the shelves in just seven days after the death of twelve-year-old Mary Kellerman was followed by a string of six more deaths in Chicagoland. This wasn’t a typical passive recall, either. Johnson & Johnson sent headquarters personnel into the field to help get the product off shelves and ran a massive media campaign to promote awareness.
If this sounds like a no-brainer, it wasn’t. The deaths were all local and the company had already ruled out a manufacturing problem at the time of the recall. Business pundits predicted that J&J was putting Tylenol permanently out of business. But because of the design of the Tylenol product at the time (a capsule), Johnson & Johnson couldn’t prevent a copycat from tampering with the pain reliever.
So you’d think the company would know exactly what to do if anything ever happened to Tylenol again, right?
Just over a quarter of a century later, Johnson & Johnson was faced with more complaints about Tylenol, but took a very different course. Complaints of an odd smell and nausea or stomach upset from Tylenol caplets surfaced as early as 2008, but McNeil – a J&J company – took no public actions for more than a year as Reed Abelson reported for The New York Times:
McNeil did not alert the F.D.A. until September 2009 and then didn’t start a substantial recall until December 2009 — during an F.D.A. inspection of the plant, according to F.D.A. documents.
In January 2010, the agency sent a warning letter to Peter Luther, the president of McNeil, complaining that the company’s initial investigation “was unjustifiably delayed and terminated prematurely.” It said that even though consumers had also complained about a moldy smell in Rolaids and Extra-Strength Tylenol, the company had not widened its investigation to include those products.
At the Johnson & Johnson I knew, a revelation of this magnitude would have rocked the company to its core and set things aright. But that’s not what happened. Since 2009, Johnson and Johnson has issued more than 25 different recalls on products as diverse as Motrin, Rolaids, DePuy artificial hips and Aveeno baby lotion. Instead of taking responsibility, Johnson & Johnson CEO William Weldon ducked for cover. When Congress asked him to testify, he instead had back surgery and sent Colleen Goggins in his place. Ms. Goggins, who headed the consumer group, was retired from the company the following spring. But Topamax, Risperdal, Blake Silicon Drains, DePuy artificial hips and numerous other products recalled came from areas not under Goggin’s supervision. (FULL DISCLOSURE: I worked for Colleen Goggins at Johnson & Johnson in the 1990’s).
Johnson & Johnson can fairly say a number of things in its defense. The manufacturing issues with products from McNeil have been hard to trace and may relate to a pallet supplier. There is no discernible connection between many of the other recalls and it is often the case that when a company’s actions reflect negatively on the supervision of the FDA that company is subsequently held to a higher standard. There have been lots and lots of statements by senior J&J management attesting to the company’s intentions to put things right.
I raised the issue of the recalls on a group for J&J alumni on LinkedIn and there were a variety of opinions but one thing kept resurfacing, a theme which I also heard from friends still at Johnson & Johnson: the company culture has changed. The LinkedIn group is private, so I can’t attribute it here, but here is a similar comment from an anonymous forum. The post is titled “The Credo is Dead”:
JNJ used to be a great place to work. Now, the higher level management is full of mediocre, self-serving yes-men. It’s really sad how the company has changed.
To be clear, this is just one comment from an anonymous source in a forum where disgruntled or laid-off employees come to grouse. And even on that thread there are some who defend J&J. But when I listen to people who once loved the company I can’t help but come away with a feeling that something has changed.
So I am sad to say that as a parent and an ex-employee, I no longer trust the company or its brands. And as an investor, I won’t be putting my money in Johnson & Johnson.

No comments:

Post a Comment