Does product recall hurt Johnson & Johnson?

The company's latest recall of children's medicines may push more people to use generics.

By Kim Peterson May 3, 2010 2:55PM
Tylenol. Credit: © Paul Sakuma /AP PhotoA product recall is tough on any company. But when the recall involves children's medicines, the issue becomes very important to parents -- and can have long-lasting consequences.

In the case of Johnson & Johnson (JNJ), some parents are wondering if generic drugs are simply a safer bet. The recent recall of children's Tylenol, Motrin and other medicines is at least the fifth recall in a year for the company's McNeil Consumer Healthcare division.

"Well, then no more baby Tylenol, back to generic brand," one father wrote on his Twitter account, according to The New York Times.

If a growing number of parents feel the same way, then Johnson & Johnson is going to have problems. After all, a brand like Tylenol is supposed to be one that parents trust, and will choose over the generics at the drugstore.

But if Tylenol and Motrin begin to be associated with quality problems, concerned parents will go elsewhere. In the company's press release Friday, it admits that some of its products "may not meet required quality standards."

"It makes me question their quality control," one scientist told the Times. "It makes me wonder if they have the parents’ best interest and the children’s best interest at heart."

One pediatrician in Illinois is even advising parents to choose generic versions of the medicines, according to The Wall Street Journal. And even then, he said, parents should make sure those generics weren't manufactured by Johnson & Johnson.

Comments like those are about as bad as you can get when it comes to corporate PR. Post continues after video:
There are also questions about how Johnson & Johnson handled the recall, at least initially. Our Smart Spending blog reports that the company didn't tell people at first how to get a refund for the products. It merely published a phone number with a three-minute recording for parents. (Now, there is a website with more information at www.mcneilproductrecall.com).

But despite the fallout from the recall, Johnson & Johnson shares were doing fine Monday. The share price was up nearly 2% in the afternoon to $65.47.

That's because there's a lot more to Johnson & Johnson than children's medications. Barron's estimates that J&J shares should rise as much as 20% within a couple of years, largely due to earnings growth, a strong product pipeline and a solid balance sheet, Reuters reports.
The shares are trading above their 50-day and 200-day moving average and their next resistance level is $65.69, Comtex SmarTrend reports.

So Barron's loves the stock, but others aren't so sure. "Johnson & Johnson can't afford this kind of incompetence and the resulting publicity," writes Brett Chase on Portfolio.com.

Related reading:


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