There have been several changes for Johnson & Johnson (JNJ) recently, but the question for investors is whether or not these changes are for the better.
When former CEO William Weldon stepped down from his position of joint CEO and company Chairman to hold the title of Chairman only, he received a huge reduction in salary. This should warm the hearts of investors as they can rest safe in the knowledge that company money is not being foolishly wasted on excessive management salaries. In addition, a new direction in the management structure for the company may mean that the recent troubles Johnson & Johnson has experienced are nearing an end. The salary reduction is a clear indication that Weldon is no longer the company's CEO and should no longer have a role in the strategic operations and allocations of the resources of the company.
With the recent changes in management, the company may need to reevaluate its stance in the pharmaceutical market. The new CEO, Alex Gorsky, plans to improve the company's quality control. This is not a surprising direction for Johnson & Johnson to take following the numerous recalls that it has recently taken on. Unfortunately, many of these recalls featured Johnson & Johnson's top products, causing the company to be hit hard. As a result, consumer sales dropped significantly, a problem caused by the delay in the return of several of these products to the market. On top of that, the company is in the process of negotiating a very important merger.
One advantage, though, is that the consumer segment where the decline has been felt the most is also one of the company's smallest segments. In short, Johnson & Johnson has a lot to fall back on and should, in my opinion, recover from the recalls any day now.
The new CEO's strategy seems to involve expansion by acquiring other companies on a very large scale. The company's cardiovascular sales have fallen steadily over the past five years, leading it to consider acquiring medical device companies dealing in such things as artificial heart valves in order to boost profits and revenue. As far as I can see, this is the only real way for the company to remain a serious player in cardiology. Edwards Lifesciences (EW) and St. Jude Medical (STJ) may be a few of the companies on Johnson & Johnson's consideration list of medical device manufacturers. Some may question the company's devotion to the cardiology industry though, especially considering a decline of nearly 44% in sales in said area that Johnson & Johnson has faced since 2006.
Even Johnson & Johnson's attempts to speed up its own growth have met with some obstacles. For example, when it merged with a medical device company in order to increase its revenue, several of the hip implants used by the company were, you guessed it, recalled. Needless to say, the company will have to be more cautious with its acquisitions moving forward.
However, while other companies suffer from patent woes, Johnson & Johnson is not expecting major patent expirations any time soon. These patent expirations, which allow the way for generic knock-off drugs, are a pharmaceutical company's worst nightmare. Not having to contend with this currently is a great help to the company's rebound.
Sanofi-Aventis (SNY), another prominent player in the drug industry, recently announced its intention to begin shutdown proceedings of its plant in Kansas. This follows a significant drop in production form that plant. There are currently 337 employees working at the plant who will lose their jobs between now and August 2016. The first round of layoffs is set to happen on July 1, when 112 employees will lose their jobs. The company has planned this lengthy lay-off schedule, most likely, to avoid any dynamic moves on its value and stock price.
A new strategy that several of the drug companies out there are adopting is to take older drugs and extend their uses. Pfizer (PFE), for example, recently reported positive results in a study to see whether its drug Pristiq can be extended to treat menopausal depression symptoms. At present, the drug is on the market for the treatment of Major Depressive Disorder, but if the company is able to extend its use its revenue will improve. This may be just what Pfizer needs to get back into the game and become a serious player in the field once more.
GlaxoSmithKline (GSK) and Human Genome Sciences (HGSI) are continuing their strange relationship, with more tension. GSK made an aggressive bid to acquire HGSI following a rejected private bid made a few weeks ago. This time, GSK, which has not upped its offer in the least, approached shareholders directly. Despite the aggressive nature of the move, GSK hopes that the matter will be resolved on friendly terms and it is willing to discuss the offer with HGSI at any time should the smaller company wish it. The industry should be keeping a close eye on any news concerning the takeover.
This seems contrary to the stance that GSK recently announced regarding AstraZeneca (AZN) takeover rumors. Basically, GSK said that it has no interest at all in acquiring the small pharmaceutical company, which may lead some to wonder what exactly it sees in Human Genome Sciences that it does not see in AstraZeneca. AstraZeneca has suffered a series of substantial setbacks recently and seems to be behind its competitors in that it is unwilling to diversify to increase its revenue. In short, it is a target for takeover, but GSK seems uninterested. Even given the recent setbacks, AstraZeneca has a much better track record of success than Human Genome Sciences, so GSK continues to baffle investors for the time being.
Johnson & Johnson should be over the setbacks caused by its former CEO and the string of recalls it was made to handle. Now is the real test. Investors should wait for signs that the company can, in fact, rebound, before buying in. But the first sign of new success should be enough to at least pique interest in the company's future.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.