Hey, Johnson & Johnson: Eight Is Enough

Johnson & Johnson (NYSE: JNJ  ) announced another recall yesterday. You know it's gotten bad, when the announcement doesn't even faze investors; shares of the health-care giant were up yesterday, even beating the broader market.

Investors are somewhat right: The difference between seven versus eight recalls isn't that big a deal. And the new recall isn't due to quality control issues -- metal particles or too much active ingredient -- as seen with the children's medicines recalled previously. Instead, yesterday's recall of 21 lots is due to a musty odor that's believed to be caused by a chemical in the pallets used for shipping. The company has stopped using the treated pallets because of an earlier recall, but these lots were manufactured before the change.

For a company that set the gold standard for damage control with how it handled Tylenol tampering in the 1980s, it sure has botched this one pretty badly. Why weren't the lots just recalled during the earlier recall instead of dragging this out for months?

The worry here is that the constant supply of bad news jeopardizes the long-term sales of Johnson & Johnson's products. Contrary to the popular saying, there is such a thing as bad press and if you're getting it month after month, it's even worse.

If Johnson & Johnson can't overcome the negative image quickly, consumers will head to competing brand-name drugs from Bayer, Pfizer (NYSE: PFE  ) , Merck (NYSE: MRK  ) , and sanofi-aventis (NYSE: SNY  ) or just grab generic versions of Johnson & Johnson's products made by Perrigo (Nasdaq: PRGO  ) and others.

Johnson & Johnson could be a good turn-around candidate, but cautious investors will want to wait until management proves it has a handle on the situation and can manage at least a couple of months in a row without a recall.

Johnson & Johnson is a Motley Fool Income Investor selection and Motley Fool Options has recommended buying calls on its shares. Pfizer is an Inside Value selection. Try any of our Foolish newsletters today, free for 30 days

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool has a disclosure policy.


Read/Post Comments (4) | Recommend This Article (6)

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  • Report this Comment On July 09, 2010, at 4:05 PM, alex6378 wrote:

    Bill Weldon should shoulder all the responsibilty for this despicable disaster.

    His predecessors would be appalled with his lack of control

    This is on top of bribery and corruption that he fired one of his main directors for.

    Bill it is time for you to take full responsibility and go, with your multi million package that is denied to a lot of your loyal employees

  • Report this Comment On July 10, 2010, at 9:13 AM, Murville wrote:

    From Webster's:

    to phase: to adjust so as to be in a sychronized condition; to conduct or carry out by planned stages.

    to faze: to disturb the composure of; disconcert, daunt.

  • Report this Comment On July 12, 2010, at 12:51 AM, TMFBiologyFool wrote:

    Occupational hazard of writing phase X trials all day. I'll have the copy editors fix it. Thanks Murville.

  • Report this Comment On July 12, 2010, at 12:13 PM, CPACAPitalist wrote:

    lol @ Murville

    I like JNJ as a long term play, but have MRK also to expand me exposure to the sector a little. Both are decent holdings for a long term dividend oriented portfolio - a little extra exposure to a sector that is going to be in high demand long term isn't a bad thing in my book.

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