So long and thanks for all the recalls, Bill Weldon.
Johnson & Johnson (NYS: JNJ) announced last week that its decade-old CEO was stepping down -- but retaining his chairmanship -- effective April 26. Sticking with tradition, Johnson & Johnson is replacing Weldon with home-grown talent: Alex Gorsky, vice chairman responsible for the Medical Devices & Diagnostics Group.
It seems fitting that the head of medical devices, which has become the largest segment at Johnson & Johnson, would become the new CEO. But Gorsky has experience in drugs too, having started at Johnson & Johnson as a drug sales rep and having run Novartis' North American pharmaceuticals business.
A lack of manufacturing supervision at Johnson & Johnson has led to multiple recalls, mostly in the consumer health division, and additional Food and Drug Administration oversight. Weldon stayed around to help turn things around -- it was the least he could do -- and for the most part, Johnson & Johnson is better off than it was a year ago.
A background in sales will help Gorsky lead Johnson & Johnson out of the predicament Weldon's leadership put the conglomerate in. With manufacturing issues mostly under control, recapturing the patients will be the big chore for the consumer health division.
Over-the-counter medication is a cutthroat business where brand loyalty is important since doctors aren't usually making recommendations. With Tylenol and other Johnson & Johnson products unavailable, consumers had no choice but to get their symptoms relieved by drugs produced by rivals Bayer, Merck, and Pfizer (NYS: PFE) . Many of Johnson & Johnson's over-the-counter medications aren't protected by patent, so consumers had the option of going with generics produced by Perrigo (NAS: PRGO) and others as well.
In addition to having to woo back its old customers from the competition, Johnson & Johnson's consumer health division has a new threat from a joint partnership between Teva Pharmaceuticals (NAS: TEVA) and Procter & Gamble (NYS: PG) , established to sell over-the-counter medications.
Can Johnson & Johnson come back? Sure. It survived the 1982 Tylenol tainting recall. But that was one product (and not the company's fault). This isn't going to be as quick of a recovery. Investors should expect it may take Gorsky's entire time at the helm to get the consumer health division back in the premier position it was in.
In the meantime, investors can enjoy their dividend and hope growth in the other divisions can help push the stock price higher. If you're looking for more dividend ideas, check out the Fool's new free report "Secure Your Future With 11 Rock-Solid Dividend Stocks." Just click here to get your free copy.
At the time this article was published Fool contributor Brian Orelli holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Teva Pharmaceutical Industries and Johnson & Johnson. Motley Fool newsletter services have recommended buying shares of Novartis, Procter & Gamble, Johnson & Johnson, Pfizer, and Teva Pharmaceutical Industries. Motley Fool newsletter services have recommended creating a diagonal call position in Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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