A Glimmer of Hope for Johnson & Johnson Despite Lawsuit Concerns and FDA Scrutiny
Muhammad is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Johnson & Johnson (NYSE: JNJ) shareholders are not the happiest of people right now. In recent days, the stock has been making frequent appearances on the news. All through, a big part of the news has revolved around negatives. This has placed a large bearish halo above the head of this niche market leader.
In my opinion, there is a glimmer of hope though remote. Critics may be quick to say that this is farfetched. Some may even label me a Johnson fanatic. I, however, believe that making the right speculation demands outside the box reasoning.
Before pouring out all my views and speculations of a future shrouded in uncertainty, it would be in order for me to lay all cards on the table. In simple terms, it is obligatory to analyze the current situation as it is before settling on conclusions.
It’s the FDA again
The FDA; I personally deem it as drug manufacturers’ most common yet frightening nightmare. Just recently, the FDA sent a warning to a Johnson & Johnson unit over the KY lubricant. The letter, dated May 22nd, revealed that there were over 200 complaints regarding the KY product. The FDA went on to add that most of the complaints revolved around the product not dissolving and having an untypical consistency in texture.
These complaints were primarily focused on McNeil PPC, the Johnson unit that manufactured the controversial batch of KY lubricants. The FDA also went on to add that McNeil had failed to conduct adequate investigation regarding an incorrect lot number. Ever heard of hitting the nail on the head? This is worse. The FDA went on to further add that the Johnson & Johnson was late in submitting reports on a person who is being diagnosed with toxic shock syndrome after using an O.B tampon. Apparently, the tampon was also manufactured by McNeil PPC.
The picture that has been painted about McNeil does a lot to mar Johnson’s image. In my opinion, its marred image is detrimental to its stock performance. This is chiefly because it erodes the commitment of by far the most important stakeholders - the customers. Nobody is going to buy a product that is potentially dangerous or harmful.
Another Product Goes Down the Gutter
Ever heard of the surgical mesh? This is a product that was primarily designed to relieve the common yet serious pelvic pain and discomfort that a staggering number of women experience. Johnson & Johnson has held the fire on further production of this product. This follows reports of serious health complications and injuries brought about by the product. The FDA has also ordered new studies on the product following the wake of the complaints.
Some of the complaints allegedly suggest the product resulted into several fatalities. This is a very serious issue for Johnson & Johnson. Personally, I think that this product will impose a great degree of problems for Johnson & Johnson. For one, it has affected sales figures. Secondly, it will put Johnson & Johnson’s moral standpoint and social role to the test.
Johnson & Johnson has been involuntary lodged between a rock and a hard place. On one end, it has to protect its interests and those of its stakeholders. On the other hand, there is the issue about social responsibility. This is a really slippery road for Johnson.
The glimmer of hope
The glimmer of hope does not come from within. It comes from the prevailing circumstances in the market. Currently the drug manufacturing industry is on the receiving end of pressure. Most of the big players have expired patents. Similarly, quarterly revenue growths of most big players seem to have dipped below the dreaded ‘0’ threshold. In simple terms, most drug big wigs are shrinking. Even the mighty Pfizer (NYSE: PFE) is exhibiting quarterly revenue growth rates of negative 6.6%.
This means that Johnson is operating on level ground with most of its competitors. It, therefore, still has a chance.
The tempo in the industry will also leap several notches higher after senate approved to speed up FDA reviews. The 96-1 landslide approval will help drug manufacturing heavyweights like Johnson to bolster activities and avail more products.
Please take note of my careful selection of words. I am insistent that the hope is a mere glimmer- a small flash, as if lightening in a dark night. Johnson still has a backlog of issues to deal with. Nonetheless, hope is not totally absent.
muhammadbazil has no positions in the stocks mentioned above. The Motley Fool owns shares of Johnson & Johnson. Motley Fool newsletter services recommend Johnson & Johnson and Pfizer. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
