J&J Drug Recall Is a Minor Blip: Poll Says

Investors appear to be taking the latest Johnson & Johnson recall news in relative stride, according to a recent poll of 'TheStreet.'
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NEW YORK (TheStreet) -- Based on results from a TheStreet poll -- not to mention Johnson & Johnson's (JNJ) - Get Report stock price behavior since its McNeil Consumer Healthcare division announced yet another medicine recall on Apr. 30 -- investors seem to be taking the news in relative stride.

From Apr. 30 to the end of last week, or May 7, J&J stock fell 2.6% -- considerably less than the Dow's 7% fall and the S&P 500's 8% drop. When compared to these broader indices, J&J's stock price setback seemed quite minor; investors seemed to be taking the news with relative stride. Note that just a day before the announcement, the Department of Justice said that two Johnson & Johnson subsidiaries, Ortho-McNeil Pharmaceutical and Ortho-McNeil-Janssen Pharmaceuticals, agreed to pay more than $81 million to resolve criminal and civil liability arising from the illegal promotion of the epilepsy drug, Topamax.

Results from a poll by


, asking whether J&J's latest recalls and earlier kickback allegations will damage its reputation and sales appear to tell a similar story: About 70.4% of voters said the public will continue to trust J&J products, while a mere 29.6% of voters said the recalls have hurt J&J's reputation and will result in lower sales.

Worth noting is that in January


conducted a similar poll when news about the U.S. Justice Department's kickback allegations against J&J and its latest bout of product recalls were still fresh in the news; at that time, 73.7% of the polltakers said the public would continue to trust J&J products.

While the spate of recent recalls by J&J is arguably cause for alarm -- concerns include bacteria contamination; a higher concentration of active ingredient than specified; inactive ingredients that may not meet internal testing requirements; and "tiny particles" -- the recalls are relatively minor events compared with the Tylenol scare of 1982, in which seven people in the Chicago area died after ingesting Tylenol capsules poisoned with cyanide. Not only did the company survive this ordeal; J&J was able to manage it in a way that helped pave the way for a resurgence of the Tylenol brand in a short period of time.

Likewise, on May 7, J&J's chief executive Bill Weldon tried to reassure customers that the company was doing everything it could to resolve the recall problems, and had, in a way, been publicly reprimanding the McNeil division through J&J's corporate blog: "I have been assured that the chance of a serious medical event from the recalled products is remote. Even so, this does not give us comfort; one of our companies has let you down."

The recent recalls, Weldon said, are of "great concern" and a "disappointment to me."

McNeil Consumer Healthcare has temporarily suspended production at its Fort Washington, Pa., plant, which made products included in the latest recall. RBC Capital Markets thinks that the Fort Washington plant could stay shut for the rest of the year in a worst-case scenario, and calculates that the recall could hurt J&J's earnings per share by a penny after-tax. "There maybe additional recall costs, but we believe that JNJ can absorb the impact."

-- Reported by Andrea Tse in New York


>>Medicine Recall 2010: Photos of Recalled J&J Products

>>Tylenol Recall: Is J&J's Reputation In Tatters?

>>Tylenol Recall: More Recall Woes for J&J

>>Has Johnson & Johnson's Reputation Been Damaged?

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