What's Going On at J&J?

Back at the dawn of time, when I was in business school, Johnson & Johnson was held up as the gold standard for handling product recalls, for its swift response when cyanide-laced Tylenol capsules in a handful of Chicago-area stores caused seven consumer deaths in 1982. The company immediately pulled every single Tylenol off every single store shelf in the United States.

As I have written before (here), there was some surprise at the time that a company would react so dramatically, with so little (apparent) consideration for immediate profit concerns. The long-term effect was terrific consumer loyalty.

But that loyalty seems to have been taking a beating lately.

"More than two years after the Food and Drug Administration began receiving complaints about the failure of a hip replacement implant made by the DePuy Orthopaedics units of Johnson & Johnson, the company said Thursday that it was recalling two kinds of hip implants, " reports Natasha Singer in today's New York Times. [Full article here]

In addition, as Singer also noted, the FDA earlier this week sent the company a warning letter, claiming that DePuy was marketing one device without "marketing approval or clearance ... which is a violation of the law" and marketing another "for unapproved uses".

Earlier this year [see my blogpost on that subject here], two years of complaints from consumers about moldy-smelling bottles finally led J&J to recall an assortment of OTC products from its McNeil Consumer Health Care unit (including ... Tylenol!)

Earlier this week, J&J recalled millions of its Acuvue contact lenses sold in Japan and several other countries. As noted by the Associated Press, that was the ninth recall of a J&J consumer product in a year.

Singer quotes a health-care investment banker: "No. 1, is there a systemic issue at J&J? No. 2, is this [the hip-replacement recall] reflective of that systemic issue? And, No. 3, is there more to come?"

That banker isn't the only one asking that question. I am too, and I'll bet a lot of other consumers are as well.

The recalls are also having an immediate effect on the bottom line.

In Katharine Hobson's late July Wall Street Journal blogpost, she reported that the McNeil recalls "cut $200 million from the [second] quarter’s sales and will pare an estimated $600 million from sales for all of 2010."

But -- as was the case in 1982 -- profits can recover. Trust? Not so much.