Johnson & Johnson, What Have You Done?

Johnson & Johnson's (NYSE: JNJ  ) recall woes get worse by the day. The House Committee on Oversight and Government Reform launched an investigation yesterday into the recall JNJ announced last week.

Last Friday, the company recalled 43 over-the-counter children's medications -- liquid versions of Tylenol, Motrin, Zyrtec, and Benadryl. The press release for the recall doesn't make it clear exactly what the problem is: "Some of the products included in the recall may contain a higher concentration of active ingredient than is specified; others may contain inactive ingredients that may not meet internal testing requirements; and others may contain tiny particles."

That multiple-choice answer should have been a big clue that something was seriously wrong, and sure enough, on Tuesday, the Food and Drug Administration said there were serious quality control problems at the plant where the drugs were made.

The immediate financial effects of the recall won't be that big for Johnson & Johnson; it doesn't even break out sales of Tylenol. But there's potential for substantial long-term damage to the Johnson & Johnson brand name. Johnson & Johnson's consumer health division made up 24% of sales last quarter. If the Johnson & Johnson name doesn't mean quality, customers may head to competitors.

Just ask Medtronic (NYSE: MDT  ) , which has struggled to regain market share after the leads on its defibrillators had to be recalled. Boston Scientific (NYSE: BSX  ) is also battling back from a recall, and it wasn't even a quality issue. Recalls can seriously damage a brand, as Toyota (NYSE: TM  ) found out this past spring. And toy companies such as Mattel and RC2 have had to deal with brand-degrading recalls of their own.

Since its Tylenol recall in the 1980s -- which wasn't its fault -- Johnson & Johnson has always been the poster child for how to correctly handle a crisis. It seems we're going to get a chance to see how it handles things when the problem apparently is its fault.

Johnson & Johnson is a Motley Fool Income Investor recommendation. Motley Fool Options has recommended buying calls on Johnson & Johnson's shares. Try any of our Foolish newsletters today, free for 30 days

Fool contributor Brian Orelli, Ph.D., has trouble recalling things, but that's just his bad memory. He doesn't own shares of any company mentioned in this article. The Fool owns shares of and has written puts on Medtronic. The Fool has a disclosure policy.


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  • Report this Comment On May 07, 2010, at 3:00 PM, celticfool02 wrote:

    Amazing and SAD! JNJ has changed drastically and this is evidence. I used to work for JNJ and was very proud of my tenure but mostly with the people that I worked for and with. We (JNJ'ers) were so proud of our credo, so proud that even as many of us who moved on still have it hanging in our offices. "We believe that our first responsibility is to the Doctors, Nurses, Patients, Mothers and fathers..." That is line 1 paragraph 1! (MONEY is last line, 1st paragraph).

    The company has changed, Ethicon Endo for example have gotten rid of many/most of the "older and tenured" because they felt they could get better sales out of new and fired up people. What they lost is the culture a culture that protected it's life blood...our credo and our reoutation!

  • Report this Comment On May 07, 2010, at 3:02 PM, celticfool02 wrote:

    Amazing and SAD! JNJ has changed drastically and this is evidence. I used to work for JNJ and was very proud of my tenure but mostly with the people that I worked for and with. We (JNJ'ers) were so proud of our credo, so proud that even as many of us who moved on still have it hanging in our offices. "We believe that our first responsibility is to the Doctors, Nurses, Patients, Mothers and fathers..." That is line 1 paragraph 1! (MONEY is last line, 1st paragraph).

    The company has changed, Ethicon Endo for example have gotten rid of many/most of the "older and tenured" because they felt they could get better sales out of new and fired up people. What they lost is the culture a culture that protected it's life blood...our credo and our reputation!

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