J&J CEO Gorsky Says Company Will Grow While Rivals Shrink
When Alex Gorsky takes over as Johnson & Johnson (JNJ)’s chief executive officer today, he won’t be shedding operations like his peers at Pfizer Inc. (PFE) and Abbott Laboratories. (ABT) He’s looking to get bigger.
Gorsky sees value in being a large, diversified company and said he has no plans to sell any of J&J’s businesses. He expects to use some of company’s $14 billion in cash to do deals, focusing on medical devices such as heart valves and acquisitions that will expand sales in China and other emerging markets, he said.
“When there are large opportunities that we think can give us some strategic advantage, we will obviously take a look,” Gorsky, 51, said in a telephone interview. “We are committed to being diversified across the whole health-care continuum.”
Gorsky will officially takes over as CEO today of the world’s second-largest seller of health-care products during the New Brunswick, New Jersey-based company’s annual meeting. He steps into the role as J&J’s image has been tarnished by recalls of artificial hips and over-the-counter drugs; safety concerns over its vaginal mesh products that spurred hundreds of lawsuits; and more than $1.1 billion in fines over the marketing of schizophrenia treatment Risperdal.
The interview yesterday represents Gorsky’s first public comments since he was named CEO in February, replacing William Weldon, who ran the company since 2002.
‘Disappointed’ With Quality
A former army captain and endurance athlete, Gorsky said he is “disappointed” with the quality issues that led to the recall of hundreds of millions of packets of Tylenol, Motrin, Benadryl and other over-the-counter consumer products.
His focus is on getting those products back on market shelves this year and next, he said. J&J has made organizational changes that put new systems in place to prevent future recalls, he said without going into further detail.
“We realize we have a lot of work to do, but the most important thing we think we can do is get the products back on the shelf,” Gorsky said. “We know we are going to have to win the hearts and minds and pocketbooks of the consumer.”
On Feb. 13, just before Gorsky was named to his new role, J&J was knocked from one of the top two spots in Harris Interactive’s annual consumer poll of corporate images for the first time in 13 years, falling to seventh. This month, the drugmaker said it is taking longer than anticipated to correct problems at the plant where the recalled drugs were manufactured. It doesn’t expect to have all the pulled products back on the market until 2013, the company said.
Not ‘So Broken’
“I don’t think the company is so broken that it needs to be completely repaired,” said David Heupel, a portfolio manager with Thrivant Financial for Lutherans.
“A lot of the elements you need for improvement are there. It’s just an execution issue” that Gorsky will have to make work to get the company on the right track, Heupel said in a telephone interview.
For Gorsky, the challenge will be organizational and financial. J&J shares have been little changed for the past 12 months, compared with a 7.6 percent gain in the Standard and Poor’s 500 Health Care Index. The company rose less than 1 percent to $64.75 at the close in New York.
J&J got 40 percent of its revenue from medical devices, 37 percent from pharmaceuticals and 23 percent from over-the- counter products in 2011. The company generated $65 billion in 2011 sales selling everything from Band-Aids to cancer drugs.
Pfizer is the world’s top seller of health-care products with $67.4 billion in 2011 revenue. Pfizer CEO Ian Read has said he wants to reduce the New York-based drugmaker’s size and on April 23 the company announced it would sell its infant- nutrition business to Nestle SA (NESN) for about $11.9 billion.
Abbott, with $38.9 billion in 2011 revenue, said it would split the company into a drugmaker and diversified health-care business by year’s end.
Along with organizational issues, Gorsky and J&J also face mounting legal challenges.
An Arkansas judge ruled on April 12 that J&J must pay $1.1 billion in fines, after a jury found the company misled doctors about the antipsychotic medication Risperdal. J&J said the fine is “excessive” and that it would appeal the ruling if its motion for a dismissal fails.
Gorsky was vice president of sales and later president of J&J’s Janssen Pharmaceutical unit, which sold Risperal. Lawyers for the U.S. Justice Department are trying to compel Gorsky to testify in a lawsuit claiming J&J paid kickbacks to boost sales of the antipsychotic drug. The U.S. sued J&J in January 2010, saying the company paid millions of dollars to induce Omnicare Inc. (OCR) to buy J&J drugs including Risperdal.
Gorsky said he couldn’t comment on the litigation. J&J says the payments to Omnicare were allowable rebates, not illegal kickbacks.
More than 550 lawsuits have also been filed against J&J’s Ethicon unit by women who blame the company’s vaginal mesh implants for internal injuries. The company similarly faces more than 6,000 lawsuits from patients who received faulty artificial hips that were recalled in 2010.
Gorsky, a graduate of the U.S. Military Academy at West Point, joined J&J’s Janssen unit in 1988 as a sales representative, according to a company biography. He left the company in 2004 to join Basel, Switzerland-based Novartis AG, where he headed North American pharmaceuticals.
Four years later, he returned to J&J, and he was named global chairman of the devices and diagnostics groups in 2009. He’ll be paid $1.2 million as CEO, the company said in a filing.
“Going forward we really believe that health care is probably going to be the biggest problem we face as a generation,” said Gorsky. “We are going to have to be bold in this new health care environment.”
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