Johnson & Johnson has a lot more to worry about besides DePuy’s badly designed ASR hip replacements that led to the hip recall. Currently, the pharmaceutical giant is recalling 300 million packages of medicine, including over-the-counter standards such as Children’s Tylenol, Motrin, Rolaids, and Benadryl. The underlying factor of these massive recalls points to contamination at the plants where these drugs were manufactured, forcing the U.S. government to intervene by supervising three of these plants. There are also other J&J subsidiaries that have not been performing well. According to some patients, there are reported malfunctions with Cordis’s heart devices, as well as leaking insulin cartridges sold by the company Animas. All these events put together may do serious damage to J&J.
It is apparent that the company is being affected by these events just by looking at J&J’s revenue in 2010, which dropped by 19% amounting to $900 million. Surely, investors would not be able to ignore that J&J’s stock has lost 8% of its value in the last 15 months and is down to about $59 per share. This would provide prime opportunity for the company’s competitors to steal away its customers and increase advertising for their competing products. However, some investors believe that now is the time to buy up Johnson & Johnson, and even go so far as to think that its stock might sell for 30-35% of its current value in the near future.
Despite all these ominous facts, these investors will continue to invest in Johnson & Johnson because of the company’s trusted brand name. Johnson & Johnson still ranks number one in consumer opinion surveys of pharmaceutical companies. Investors are optimistic that J&J will change from its decentralized business model, in which 250 subsidiaries will cease operating independently. Instead, J&J will exercise more control in the future, leading to safer products. These investors also believe that the catastrophic recalls are just minor mistakes that will be eventually corrected, and that the company will still be profitable for them.
With so much optimism, it is questionable whether or not these investors are taking into account the severity of the DePuy recall. Just a few months ago, Johnson & Johnson set aside nearly one billion dollars for the DePuy lawsuits that will continue to accumulate. It is estimated that currently about 93,000 patients have received DePuy hip replacements world wide, and recent reports show about 49% of these devices will fail in 6 years. These numbers are devastating in terms of the amount of potential damages these recipients will seek against the company.
There are other issues with Johnson & Johnson than just the DePuy hip replacement recall. Those that have already been affected by these defective devices should consult with an experienced attorney to obtain the compensation they are entitled to.