CEO: J&J learned recall lessons, will bounce back

AP News
Posted: Apr 28, 2011 5:17 PM
CEO: J&J learned recall lessons, will bounce back

Johnson & Johnson's chief executive told shareholders at their annual meeting Thursday that the company will come back "stronger than ever" after addressing quality problems that led to an astounding string of product recalls.

William Weldon, who became CEO in 2002, said the series of "disappointing recalls" troubled him and employees and meant thousands of parents could not get medicines they needed for their children.

Since September 2009, the company has had about two dozen recalls of prescription and nonprescription medicines, replacement hips, contact lenses and diabetes test strips, including tens of millions of bottles of children's and adult Tylenol and Motrin.

Many of those nonprescription drugs were made at a nonprescription medicine factory in Fort Washington, Pa., that J&J closed a year ago, gutted and is rebuilding as a state-of-the-art liquid medicines factory. Shareholders saw photos of the plans and steel framework as work there continues, while Weldon tried to reassure them.

"You would be right to ask if we made mistakes, and yes, we did," Weldon said. "Our goal is to restore McNeil Consumer Health Care to the highest level of quality ... thus restoring confidence in McNeil."

Weldon, 62, said J&J has inspected 120 plants around the world and invested millions to improve the quality of its manufacturing and satisfy federal regulators, who have three of its factories under scrutiny. J&J has shifted manufacturing of some products to other factories.

Roughly 1,300 shareholders packed into four different rooms at a hotel opposite J&J's headquarters seemed satisfied with Weldon's explanation of the recalls and what J&J has been doing to rectify the problems. The audience clapped repeatedly during his comments and lengthy presentations about the company's financial results and innovative medicines and medical devices in development.

Analyst Steve Brozak of WBB Securities said Weldon handled the mostly elderly shareholders at the meeting well. Weldon opened with news of a deal reached Wednesday for a huge acquisition, a big hike in J&J's generous quarterly dividend and the recent settlement of a long arbitration battle with Merck & Co.

Shareholders also were treated to goody bags full of Johnson & Johnson products and a fancy food spread.

"It's bread and circuses," Brozak said. "If it was any other company that had gone through this, they would not have been able to leave an annual shareholders meeting unscathed."

But after 2 1/4 hours of speeches, slideshows and testimonials about J&J products and health care programs, only six people in the audience asked questions or made comments.

"When I look at what's been happening at J&J over the last couple of years, I see a fundamental attack on the credo," Tom Williamson told Weldon.

He referred to J&J's corporate pledge, displayed prominently at headquarters, that stresses responsibility to patients, doctors and nurses.

"Your company tried to do a stealth recall of Motrin," he added.

Congress has been investigating that 2008 incident, in which J&J paid a third company to quietly buy up faulty Motrin packets, rather than issuing a recall.

But another shareholder, Kathleen Bennett, told Weldon she appreciates his efforts to fix the recall-related problems.

"I say, Mr. Bill Weldon, well done," she said, drawing loud applause.

About 90 percent of shareholders voted for a J&J proposal to give them an advisory vote every year on compensation for top officers.

Yet only 61 percent supported the company proposal for advisory approval of its executive compensation policies and the compensation top officers received last year. Weldon's 2010 pay package was worth more than $23 million, down about $2.5 million after two unprecedented years of revenue declines.

Stockholders voted down all three shareholder proposals on the agenda, each by 95 percent or more.

One, by the Sisters of Charity of Saint Elizabeth and other religious groups, would have restricted future prescription drug price increases sharply. Another would have expanded J&J's employment nondiscrimination policy to include people with health problems, but J&J said its broad policy is sufficient.

The third would have required ending use of animals in training surgeons to use J&J's high-tech surgical tools; Weldon said J&J already tries to use alternatives when possible. That proposal was presented by Alka Chandna, a spokeswoman for People for the Ethical Treatment of Animals. The group had four picketers outside the hotel protesting on the issue, two in big pink piggy suits because pigs are sometimes used in surgical training.

A second group of three medical students picketed beside them, because J&J has not agreed to join an international "medicine patent pool" that would make it easier and cheaper for generic drugmakers to produce inexpensive HIV medicines for developing countries.

Weldon told the audience an acquisition reached the day before is J&J's biggest ever. J&J agreed to buy U.S.-Swiss medical device maker Synthes Inc. for $21.3 billion. The deal would give J&J a much bigger share of the market for surgical trauma equipment and orthopedic implants.

"It is consistent with our long-term strategy to strengthen our leadership position around the world," Weldon said.

"Our pipeline today is considered one of the best in the industry," Weldon added.

Meanwhile, J&J's board decided to raise the quarterly dividend on company stock by 5.6 percent, from 54 cents to 57 cents per share.

In trading Thursday, shares of the company fell 19 cents to $65.38.