Johnson & Johnson's troubled times

By Parija Kavilanz, senior writer


NEW YORK (CNNMoney.com) -- Criminal investigations, "phantom" recalls and executive oustings are exposing a dark side of Johnson & Johnson, once considered a pillar of American industry.

Here's the latest intrigue:

J&J's double whammy: First, lawmakers investigating J&J's (JNJ, Fortune 500) string of drug recalls announced a second hearing to ask executives to explain inconsistencies in testimony of what they knew about problems with drugs like Tylenol and Benadryl and why they were yanked off store shelves. Those over-the-counter drugs were made by the company's McNeil Consumer Healthcare unit.

Johnson & Johnson CEO William Weldon was invited to testify at the first hearing but he didn't appear due to illness. It'll be harder for him to give lawmakers the run around a second time. Colleen Goggins, chairman of Johnson & Johnson's global consumer products division, who stood in for Weldon in May, announced her retirement last Thursday.

However, Peter Luther, the president of the troubled McNeil division, is still employed by the company.

"Goggins' exit is worrisome. It's another black eye for Johnson & Johnson because she was touted as the next CEO of the company," said Damien Conover, analyst with Morningstar.

Secret recalls: Lawmakers unveiled documents in May that showed Johnson & Johnson hired contractors to conduct a clandestine recall of more than 88,000 Motrin tablets.

To conduct clandestine recalls products are removed from store shelves without notifying consumers of potential problems.

Johnson & Johnson has maintained that its executives never authorized such a broad based recall of Motrin but e-mails released last Thursday indicate that despite assertions to the contrary, Luther may have approved the "phantom" recall of Motrin.

On May 27, 2009, Luther writes to other McNeil executives and seems to be pushing the secret Motrin recall:

"Group, given our current financial situation, I hope we're not really going to double our cost to do this. Let's make this happen ASAP."

An email dated June 30, 2009, from WIS, a "phantom" recall subcontractor hired by Johnson & Johnson, indicates that the companies may have also been planning a secret recall of children's Tylenol and that Johnson & Johnson knew about problems with those drugs months before they were officially recalled.

"We are exploring another similar but potentially larger recall for July involving children's Tylenol. WIS will look to explore next week the potential quantities in 400 geographically dispersed stores to 'assess' the quantities on shelves ....this across mass, grocery, drug and convenience [stores]. (Wal-Mart is on the list.)"

"J&J could ask Inmar/WIS to move ahead on a scope to purchase product that would make our Motrin project look small." [Inmar and WIS are the contractors involved in the Motrin recall.]

Hits keep coming. Morningstar's Conover says the investigations are making Johnson & Johnson vulnerable on two fronts: Its bottomline and the reputation of its brands.

"The financial impact can be quantified but the hit to the brand is less quantifiable," he said. J&J has said that its recent drug recalls will cost the company $600 million in sales this year, or about 1% of J&J's total sales.

"J&J has three big groups. It's branded drugs, its consumer products division which includes McNeil and its medical device units. So when its OTC division keeps getting the black eyes, it hurts the entire reputation of the company," he said.

Johnson & Johnson's over-the-counter drugs are more dependent on brand image than any of its other products, Conover said.

"Right now, the negative hits are rapid but the magnitude from the financial aspect is not overly dramatic. But if there are even more hits coming, that will further tarnish the brand." To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 17,776.12 -200.19 -1.11%
Nasdaq 4,900.89 -46.56 -0.94%
S&P 500 2,067.89 -18.35 -0.88%
Treasuries 1.93 -0.03 -1.48%
Data as of 4:23am ET
Company Price Change % Change
Bank of America Corp... 15.39 -0.13 -0.84%
Apple Inc 124.43 -1.94 -1.54%
General Electric Co 24.81 0.00 0.00%
Microsoft Corp 40.66 -0.30 -0.74%
Intel Corp 31.27 -0.19 -0.60%
Data as of Mar 31
Sponsors

Sections

Walmart CEO Doug McMillon asked the govenor of Arkansas to veto a religious freedom law similar to the one adopted by Indiana last week. More

U.S. Treasury Secretary Jack Lew said Tuesday that China's yuan is not yet ready to join an elite grouping of currencies used by the International Monetary Fund. More

Amazon's new Dash button lets users program products to buy with the click of a literal button. More

Low-income families plan to spend more than 5% of their income on prom this year, according to a new survey from Visa. More