New J&J CEO Parachuting Into Tough Terrain
Johnson & Johnson is sending in a former Army Ranger to clean up several big messes that have hurt its reputation, earnings and share price in the past three years.
Alex Gorsky said in an interview his biggest priority is to complete a revamping of the company's factories and manufacturing processes to fix quality control lapses that sparked huge recalls of Tylenol, Motrin and dozens of other consumer medicines over the past three years.
"Mission No. 1, 2 and 3 is getting these products back on the shelves," said the 51-year old who becomes chief executive at J&J's annual shareholders meeting on Thursday.
The company is working overtime, under close federal supervision, to revamp a big factory in Fort Washington, Pennsylvania, where most of the Tylenol brands were manufactured.
The company had hoped to solve the problems by 2011, but now expects the task to stretch into 2013. Some analysts fret it could take until 2014, costing billions of dollars of additional lost sales and further jeopardizing consumers' brand loyalty.
"We are all disappointed but we are absolutely committed to getting these fixed, and moving on. And we're in the throes of that as we speak," Gorsky said, "with a lot of changes in place ... a lot of new processes, investments, new auditing procedures."
Gorsky has climbed the ladder at the diversified healthcare company from his start as a salesman in 1988, with senior management roles in the company's pharmaceuticals and medical device businesses.
The new CEO will also have to grapple with costly recall of approximately 93,000 metal-on-metal artificial hips made by J&J's DePuy orthopedics unit. The company recently took a $3 billion charge for the August 2010 recall of the defective ASR products.
J&J is expected to offer settlements to the patients who received the ASR devices, which have a failure rate approaching 30% -- three times the typical rate of similar rival devices. The devices were recalled about a year after Gorsky was named global chairman of J&J's medical devices group.
And federal investigators have asked Gorsky to personally testify in a lawsuit involving allegations the company improperly marketed its Risperdal schizophrenia drug for unapproved uses in children and the elderly.
An Arkansas judge earlier this month ordered J&J to pay a $1.1 billion penalty for alleged fraudulent marketing of the former blockbuster product.
Similar lawsuits are pending in a number of other states, and the federal government is investigating the allegations.
Gorsky declined to comment on the hips and Risperdal litigation, citing the ongoing investigations and lawsuits.
He said his other biggest priorities are to successfully integrate J&J's biggest planned acquisition, of Swiss medical device maker Synthes, once the $21 billion deal is approved by U.S. regulators, and to steer a promising array of experimental drugs successfully through clinical trials.
Rebounding drug pipeline
"Where I see tremendous growth opportunity is continuing launches of our pharmaceutical brands," he said, following introductions of five new drugs in the past two years -- including promising treatments for melanoma, prostate cancer and hepatitis C.
"I'd say our (drug) pipeline is as good or better than anyone in the industry," he said, noting that J&J's sales of prescription drugs are on the rebound following patent expirations on Risperdal, epilepsy treatment Topamax and its Levaquin antibiotic that left the medicines prey to generic competition.
J&J, whose hundreds of healthcare units have considerable autonomy, has generated reliable double-digit annual profit growth for most of the past century, largely through acquisitions.
But Gorsky declined to comment on which of J&J's three main businesses it might most bolster through deals in the next few years.
"We're always looking for big areas of unmet need and big growth opportunities. Having this diverse capability enables us to do things other companies cannot do," he said, such as combining drugs and medical devices into a single product -- like its experimental Sedasys sedation system for endoscopy patients.
J&J's current chief executive, William Weldon, will remain chairman of the company after Gorsky takes over as CEO. Although the company's shares have barely budged since Weldon took over a decade ago, he could receive more than $140 million in retirement pay when he eventually leaves the company, according to J&J regulatory filings.
Gorsky will become only the ninth top executive in J&J's 125-year history, meaning its CEOs have held sway for an average of almost 16 years each.
Asked if he planned to lead J&J that long, Gorsky quipped, "We try to manage the CEO business as we do our business, for the long term. That's the way I certainly hope to do it myself."
Gorsky is a graduate of West Point and spent six years in the U.S. Army, where he was a captain in the elite U.S. Army Rangers.
"You never say Ranger in the past tense, I'm still a Ranger," Gorsky said, adding that his military responsibilities have played a big hand in his business success.
"What helped me more than anything else was problem solving; you find yourself in very challenging situations -- how do you quickly collect the facts you need and do the right critical thinking and how decisive are you in putting together a plan with the right contingencies?
"And the first rule of leadership is you have to learn to be a good follower. And it's also about diversity -- being able to work with a broad range of people with different backgrounds. If all look, sound and say the same things, we're not really adding the value."