New Tylenol fatality case finds Johnson & Johnson better able to regain stride
Boston — For the second time in 31/2 years, Johnson & Johnson has found that being the market leader is dangerous business. It appears that, once again, responsiveness to the public and a strong balance sheet can steer it around the hazards that come with the territory. On Monday the company learned that a New York woman had died Saturday after taking two Tylenol capsules laced with potassium cyanide. It was a jolting bit of d'ej`a vu for Johnson & Johnson, which had gone through a similar trauma in 1982 when seven people died from cyanide-laced Tylenol capsules. At that time, the recall cost the company $100 million and drove the entire industry to repackage nonprescription drug products to make them tamper-resistant.
The new case appears to be an isolated incident of murder, police investigators say, and probably could not have happened in the manufacturing process. Potassium cyanide would have eaten through the capsule in eight to 10 days, but this particular lot of Tylenol was manufactured in May and shipped in August.
Johnson & Johnson, whose subsidiary McNeil Consumer Products manufactures the drug, reacted with the same speed that won it accolades in 1982. The company alerted major chains carrying Tylenol, and many of them -- including 1,000 A&P stores in 25 states, as well as Walgreen and Osco drugstores -- pulled Tylenol off the shelves. Johnson & Jounson's chairman, James E. Burke, held a press conference within 24 hours. The company canceled its advertising for Tylenol and the media relations staff worked until 1 a.m. answering questions from the press.
That will ``keep the Johnson & Johnson name sacrosanct,'' says Art Stevens, author of ``The Persuasion Explosion.'' ``It's the first 10 to 12 hours of `no commenting' that results in a backlash.''
Mark Moriarty, a marketing professor at Purdue University, agrees: ``People balance these setbacks with the overwhelming positive experience they've had. There's a lot of inertia'' in buying patterns.
Investment analysts say that the effect will be short term, most likely limited to the lost revenues from the bottles pulled off the shelves and the additional advertising required to restore consumer confidence. They say the product won't see its market share drop by 75 percent, the way it did in 1982.
But Johnson & Johnson has more basic problems to worry about. It is not the fast-growing company it was before the first incident. Between 1976 and '82, net profits grew at an average 16.9 percent a year; in 1983 and '84, they grew 4.5 percent and then fell 6 percent.
The outlook for 1985 is brighter, with analysts projecting growth in the mid-teens. But that can't be counted on, says Joseph Riccardo, a pharmaceutical analyst at Bear, Stearns.
``They ought to do a massive restructuring and get out of their unprofitable and low-growth businesses'' like technicare and ortho-diagnostics, he says. Also, the competition in J.&J.'s most profitable products -- Tylenol and sanitary napkins -- faces stiff competition, he says.
Johnson & Johnson is highly decentralized -- some say unwieldy -- with 165 operational groups, each run like separate companies. Anne Underhill, an investment analyst at State Street Bank in Boston, says the firm seems to be centralizing and cutting costs. She calls it one of the best-managed companies in the business.