Healthcare company Johnson & Johnson (JNJ) has inducted Alex Gorsky from the company itself to the position of chief executive officer. He will be inheriting the company that is better equipped than some 5-6 years back. He will have lots of work to do especially the quality aspect that is ruining its image currently.
The appointment follows after its current CEO William Weldon decided to give up his CEO position and retain the chairmanship. The announcement comes on the heels of the company announcing weak earnings outlook for 2012 that failed to impress investors. The company is plagued by different problems including lapses in manufacturing and recall of products resulting in government initiating inquiries.
The once trusted household name had come under various setbacks, especially during the last two years, particularly from the recall of Tylenol meant for children and other medications such as artificial hips and contact lenses.
The appointment of Gorsky is no surprise to anyone given the fact that Johnson & Johnson had made him vice chairman along with Sheri McCoy as vice chairwoman in 2010. Their induction was a clear indication to what is in store as and when Wildon decides to leave his CEO position. The tilting factor in favor of Gorsky seemed to have been the planned decision to buy Swiss-based medical device maker Synthes for $21 billion.
The new CEO will assume the role in April and will inherit the quality issues that had already cost over $1 billion to the company due to lost sales and shut down of production units. As a result of product recalls, the company indicated in January that it will incur $3 billion charges towards metal artificial hips among other things.
The recall problem compounded last week when the Johnson & Johnson had to recall the entire supply, numbering about 574K, of its infant Tylenon following the return of the product to the shelves of pharmacy operators. The recalled products include heart devices like stents, lenses besides insulin pump cartridges.
The company was also accused of indulging in hiring contractors to pose as if they were customers to buy Motrin defective bottles from drugstores instead of alerting the general public. Weldon had to appear before the Congress to address the concerns raised by the members.
Johnson & Johnson had agreed to allow regulators to supervise three of its manufacturing units in McNeil consumer healthcare division in March 2011.
During the fourth quarter of 2011, sales from the U.S. dipped 3.4 percent to $6.00 billion from $7.23 billion, while International division contribution grew 10.2 percent to $9.27 billion from $8.42 billion. Importantly, the U.S. Pharmaceutical and Medical Devices and Diagnostics divisions' sales dropped 8.3 percent and 0.4 percent respectively.
In a nutshell, Gorsky is going to handle a consumer segment that is struggling with various problems. He will have to refurbish the image of the trusted name before embarking on newer initiatives.
Given the current scenario, the stock will not have any significant effect in the near term. The stock closed February 21 trading at $65.04. This is 4.4 percent below 52-week high of $68.05.