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J&J CEO To Testify On Recalls; Tylenol Brand Dips

29.09.2010 -

Johnson & Johnson's massive recall of popular medicines, including a stealthy recall of some Motrin packages, has eroded the company's reputation and put pressure on chief executive Bill Weldon who appears before a congressional committee on Thursday.

J&J recalled 40 widely used nonprescription products for children and infants, such as Tylenol, in late April after Food and Drug Administration inspectors found filthy equipment and contaminated ingredients at a Pennsylvania factory. The plant operated by J&J's McNeil unit is still closed, crimping sales, cutting the consumer standing of well-known J&J brands and marring Weldon's generally successful eight years at the helm.

Combined with several other recalls since January, the company has pulled nearly 200 million bottles of various medicines. No injuries from recalled products have been reported but industry analysts say consumers have turned to cheaper, store brand alternatives.

How "is J&J going to rebuild a product loyalty and product identity when the products have been off the market for so long," asked Ira Loss, who follows FDA matters for Washington Analysis Corp.

It will be Weldon's first major appearance on the recalls. He did not appear at a congressional hearing in May; the company said he was recovering from back surgery.

Other witnesses due to appear before the U.S. House of Representatives Oversight and Government Reform Committee on Thursday include FDA Deputy Commissioner Joshua Sharfstein and Colleen Goggins, the company's longtime consumer healthcare chief who is due to leave March 1. J&J's recalls have prompted Committee Chairman Edolphus Towns to push legislation giving the FDA greater recall power.

Weldon's Future

There is no mandatory retirement age for CEOs at J&J. Weldon, the silver-haired native New Yorker who joined the company 39 years ago, has not announced plans to retire. Some analysts said Weldon could stay for another year or so to get improvements in place before making what could be seen as a natural exit.

"This will be just a minor blemish on what's been a steadily growing company," said Gabelli & Co analyst Jeff Jonas, who said a leading Weldon successor is Dominic Caruso, the company's gregarious chief financial officer who is often front and center at company investor meetings. Investors have so far been forgiving.

Since the April recall, its shares have roughly matched the overall market, falling 3.5% compared with the 3.8% in the S&P 500 index. But a survey released Tuesday showed consumer opinion of Tylenol products, even those not recalled, slipping among consumers from 2009. Out of 500 brands polled this year, Tylenol allergy products dropped nearly 200 places in the rankings from 289 to 488 while Tylenol pain products fell 76 spots from 243 to 319, according to Brand Keys, a consumer and brand loyalty consulting firm that has conducted the survey for 14 years.

While few analysts see Weldon's performance Thursday as harming the 61-year-old executive's tenure, it could have a real effect on whether consumers return when the products do.

"The well of loyalty is not bottomless," said Robert Passikoff, president of Brand Keys. "The J&J thing has been going on for a while, and as that happens there is this erosion of the emotional link between the brand and the consumer."

Soft Recall

J&J declined to offer any update, ahead of the hearing, on its efforts to fix McNeil's Fort Washington, Pa. plant. The company has previously said the factory will be closed until the end of the year. The FDA has said it is weighing possible civil and criminal action against J&J for its actions.

Weldon is expected to face sharp questioning over the manufacturing issues and also whether the company had FDA permission to conduct a soft recall of Motrin in 2009 from 4,000 stores across 40 states. It hired a contractor to send out employees posing as buyers for an eight-caplet package sold at convenience stores. Last week, lawyers for J&J said the purchases were legal and that FDA knew about them despite the lack of a formal agreement. But the FDA has said that is not the case.

"Right now, there is no independent evidence that showed anybody at the FDA approved it," said a congressional source familiar with the committee investigation. The contractors involved have submitted numerous documents to the panel, the source said. Gabelli analyst Jonas said Weldon's best strategy would be to take responsibility and come out publicly and admit J&J made mistakes.

"He needs to stick with that message and be as specific as possible about how they're overhauling the plants," he said.