Bloomberg News

J&J Picks Gorsky as Next CEO to Find Stability After Recalls

February 24, 2012

(Updates with closing share price in eighth paragraph.)

Feb. 22 (Bloomberg) -- Johnson & Johnson’s insider pick of Alex Gorsky as the new chief executive officer elevates the person most familiar with the safety and quality issues that have plagued the company.

Gorsky, 51, a former army captain and endurance athlete, now leads the devices and supply-chain units. He will be seen by investors as a force for stability at a time when J&J’s image has been tarnished by recalls of artificial hip implants and over-the-counter drugs, and safety concerns involving vaginal mesh products that have spurred thousands of lawsuits.

“We do not anticipate significant changes in J&J’s strategic direction under his leadership,” Lawrence Biegelsen, an analyst at Wells Fargo Securities in New York, wrote in a research note after the move was announced.

Gorsky, who has spent all but four of the last 24 years at J&J, succeeds outgoing CEO William C. Weldon, 63, who will stay on as chairman. J&J was almost certain to go with an internal candidate after Weldon set up a succession race in 2010 between Gorsky and another top executive, Sheri S. McCoy, 53, the leader of the company’s branded-drug units.

The executives weren’t available for interviews, William Price, a J&J spokesman, said in an e-mailed statement.

Difficult Month

The change comes during a difficult month for J&J, the world’s second-biggest seller of health-care products.

On Feb. 13, the New Brunswick, New Jersey-based company 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. On Feb. 17, the drugmaker said it was recalling more than half-million bottles of infants’ Tylenol, because of complaints with the dosing system.

J&J fell less than a percent to $65 at 4 p.m. New York time. The stock has gained 7.2 percent in the past 12 months, which ranks eighth of the 12 companies in the Standard & Poor’s 500 Pharmaceutical Index.

The recall was the latest of hundreds of millions of packets of Tylenol, Motrin, Benadryl and other products pulled due to foul odors, adulterated ingredients and bad labeling over two years, part of drumbeat of revelations that have undermined the company’s reputation for quality and safety.

“Gorsky is a conservative choice and the strongest internal candidate,” said Erik Gordon, a business professor at the University of Michigan, in Ann Arbor. “That’s a big deal at a company that always taps an insider as its next CEO -- even if what they need is someone from outside the team that led the company into so much trouble.”

Ninth Leader

Gorsky, a graduate of the U.S. Military Academy at West Point, will take over April 26 at the company’s annual meeting as only the ninth leader in J&J’s 126-year history, the company said yesterday in a statement. In an October 2011 speech to fellow military veterans in Chicago, Gorsky offered lessons on making business decisions that he said he learned during his career.

“You don’t have to get it 100 percent right,” Gorsky said in a talk posted online by MBA Veterans, which hosted the conference. “When you get it 60 percent, go! Any more time that you spend trying to figure it out, you’re going to lose in the speed that you’re missing out on.”

Gorsky also described himself as someone who leads by listening before he talks.

“That allows you to collect much more meaningful input and ultimately make the right call,” he said in an online video discussing his education experiences at the University of Pennsylvania’s Wharton School of Business in Philadelphia, where he received his MBA in 1996.

Device Lawsuits

J&J, maker of everything from Band-Aids to cancer drugs, generated $65 billion in 2011 sales. While Gorsky takes over a company that has seen a revival in its drug business, the device unit he ran faces lawsuits over the recalled artificial hips and vaginal mesh implants.

“It’s been a challenging time for devices, but not through any of Alex’s doing,” said Rick Wise, a Leerink Swann & Co. analyst in New York, by telephone. Gorsky is “a thoughtful, disciplined, capable guy” who should steer J&J well, he said.

J&J’s DePuy unit faces more than 4,500 lawsuits over its ASR hips, which the company recalled in August 2010. At the time, The company recalled 93,000 hips worldwide, including 37,000 in the U.S., saying that more than 12 percent failed within five years.

Lawyer’s Response

One lawyer suing the company, Michael A. Kelly, said he was “shocked” that J&J elevated Gorsky.

“It’s clear that the medical device division was not being well supervised, managed or run, certainly from 2006 through 2010, when the entire ASR debacle was going forward,” said Kelly, of Walkup, Melodia, Kelly & Schoenberger in San Francisco.

“I would think somebody would say: At what cost are we making the profits and what message does it send that we promote the person who was in charge of this division to an even higher job, given the way that the entire ASR issue was handled,” Kelly said.

Gorsky, a former marathon runner, joined J&J’s Janssen Pharmaceutica unit in 1988 as a sales representative, according to a company biography. He then left the company in 2004 to join Basel, Switzerland-based Novartis AG, where he headed North American pharmaceuticals.

$1.2 Million Pay

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.

Weldon, in an e-mailed statement, described Gorsky as “an experienced, visionary and disciplined leader with more than 20 years of increased and broad-based responsibilities over two separate periods of employment with Johnson & Johnson.”

Jeff Jonas, an analyst with Gabelli & Co. in Rye, New York, called Gorsky “the natural choice. I don’t think there’s going to be a huge change; he’s been involved in a lot of their recent decisions anyway,” he said in a telephone interview.

Since Weldon took over as CEO on April 15, 2002, the shares have increased an annual 2.8 percent, according to data compiled by Bloomberg. During his tenure, Weldon pulled off the two biggest deals in company history: the $16.6 billion purchase of Pfizer’s consumer products in 2006 and last year’s agreement to buy orthopedics maker Synthes Inc. for $21.3 billion. The latter is pending regulatory reviews.

J&J sales may increase to $66.4 billion this year, Biegelsen, the Wells Fargo analyst, predicted in a Jan. 25 note to clients. That includes $26.2 billion in device revenue, $25 billion from the drug unit and $15.2 billion from the consumer division. New York-based Pfizer Inc. is the world’s biggest seller of medical products.

McCoy, Gorsky’s competitor for the top spot, will continue in her role as head of the pharmaceutical and consumer group, J&J said yesterday in its statement.

--With assistance from Alex Nussbaum in New York and David Voreacos in Newark. Editors: Bruce Rule, Andrew Pollack

To contact the reporters on this story: Drew Armstrong in New York at darmstrong17@bloomberg.net; Robert Langreth in New York at rlangreth@bloomberg.net

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


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