J&J Promotes Two in Race to Succeed CEO Weldon

Dec. 16 (Bloomberg) -- Johnson & Johnson is setting in motion a competition to replace Chief Executive Officer William Weldon by promoting the heads of its drug and device units to vice chairmen and assigning them to repair its consumer business following product recalls.

The elevation of Alex Gorsky, 50, who leads the devices business, and Sheri McCoy, 52, chief of pharmaceuticals, was announced by the company in a statement yesterday. It follows the recall of more than 40 consumer products since April, and continuing probes into J&J’s production processes. McCoy will supervise the consumer business, and Gorsky the supply chain.

The latest moves may not assuage investors, said Robert Goldman, an analyst at CL King & Associates. Since Weldon, 62, replaced Ralph S. Larsen in April 2002, J&J shares have dropped 1.5 percent. This year, they have fallen 3.1 percent, the third-worst performance in the Standard & Poor’s 500 Pharmaceuticals Index.

“Johnson & Johnson is in a challenged period and that might suggest the need for outside solutions,” said Goldman, who is based in New York, in a telephone interview today. “Clearly, those two are now at the front of the line in the sweepstakes.”

Third-quarter revenue for New Brunswick, New Jersey-based J&J fell 0.7 percent to $15 billion, with sales of consumer products declining 11 percent because of the recalls, the company said Oct. 19. Recalls and suspension of manufacturing at a plant that made some of those products will reduce sales this year by about $600 million, the company said in July.

Split Responsibilities

J&J, the world’s largest health-products company, fell 17 cents to $62.40 at 4:07 p.m. in New York Stock Exchange composite trading.

“The changes are an appropriate step in furthering our long-term succession plans, and assuring talented, experienced leaders at all levels of the organization,” Weldon, who also serves as chairman, said in a statement yesterday. Gorsky and McCoy weren’t available for comment, J&J spokesman Jeffrey Leebaw said in an e-mail today. Spokeswoman Carol Goodrich referred questions about succession to the statement.

Under the changes, the two vice chairmen will split the company’s responsibilities. McCoy is in charge of businesses generating three-fifths of revenue. Gorsky retains oversight of the devices unit, the company’s fastest growing. Sales of devices gained 5.9 percent to $18.3 billion in the first nine months of 2010, while pharmaceutical revenue rose 1 percent to $16.7 billion. The consumer unit fell 5 percent to $11 billion.

Consumer Business

McCoy, a chemical engineer by training, will oversee the consumer business that includes McNeil Consumer Healthcare, responsible for the bulk of the recalls. Reporting to her will be the unit’s new chief, Jesse Wu, 54, who replaces Colleen Goggins, who is retiring.

Before taking over pharmaceuticals last year, McCoy ran the Surgical Care Group. Earlier in her career, she served as head of the company’s medical devices division in Latin America.

Joaquin Duato and Paul Stoffels will report to McCoy as the new co-chairmen of pharmaceuticals, the company said. Duato will oversee commercial businesses and operations, Stoffels drug research.

Gorsky, a former U.S. Army ranger who has also worked at Novartis AG., will run a manufacturing and supply group created to make sure all plants meet quality standards, as well as procurement of goods.

Michael Mahoney will report to Gorsky as the new chairman of medical devices and diagnostics.

‘Bright and Innovative’

Gorsky and McCoy are “capable individuals, bright and innovative,” said Marc Davis of Summit, New Jersey-based Tradition Capital, who owns about 154,000 shares of J&J. “They’re both strong leaders and they’ve been in the healthcare field for a long time, they’ve both operated divisions and been successful.”

They are also “unlikely to shake up the status quo,” said Les Funtleyder, an analyst for Miller Tabak & Co. in New York. “The question is why now? Was this an acceleration of the plan? At some point the investors are going to get fed up and want some answers.”

One concern for investors may be the effect of a competition for the top job on the company, he said. “Often times when you have a succession plan like this, it can lead to distraction within the ranks as everyone’s waiting to see who will be in charge,” Funtleyder said.

Tylenol, Benadryl

J&J sells prescription drugs including Remicade for arthritis and Procrit for anemia; medical devices led by the DePuy unit that makes artificial hips and knees; and over-the-counter treatments such as the Tylenol painkiller.

J&J has recalled Tylenol cold treatments, Children’s Benadryl allergy tablets and more than 40 types of children’s over-the-counter liquid medicines since April, leading to regulatory warnings and Congressional hearings. Yesterday, U.S. regulators cited J&J for violations at a plant where the company suspended over-the-counter drug production earlier this year.

Weldon, testifying about the recalls before a Congressional committee hearing on Sept. 30, said J&J hadn’t maintained its “high-quality standards” and had made “considerable progress” in addressing the manufacturing lapses.

To contact the reporter on this story: Elizabeth Lopatto in New York at elopatto@bloomberg.net.

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net.