Johnson Johnson stock collapse

The much publicized Tylenol incident in 1982 led to stringent packaging regulations for over-the-counter pharmaceutical drugs. The sudden incident and the swift progression of associated events offer a unique opportunity to assess the wealth effects of the resultant regulations. The market value of common stock of Johnson & Johnson, makers of Tylenol, declined by approximately 29 percent, amounting to $2.31 billion. Although other firms in the industry also suffered significantly, their share price decline did not occur around the Tylenol incident but occurred around the subsequent packaging regulation proceedings. On average, 28 other pharmaceutical firms analyzed in this study experienced a decline of $310 million per firm, or a total of about $8.68 billion. The results suggest that the regulation had a significant negative effect on the common stock prices of firms in the pharmaceutical industry.

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Companies in Crisis - What to do when it all goes wrong
Johnson & Johnson and Tylenol
Crisis need not strike a company purely as a result of its own negligence or misadventure. Often, a situation is created which cannot be blamed on the company - but the company finds out pretty quickly that it takes a huge amount of blame if it fumbles the ball in its response.

One of the classic tales of how a company can get it right is that of Johnson & Johnson, and the company's response to the Tylenol poisoning.

What happened

In 1982, Johnson & Johnson's Tylenol medication commanded 35 per cent of the US over-the-counter analgesic market - representing something like 15 per cent of the company's profits.

Unfortunately, at that point one individual succeeded in lacing the drug with cyanide. Seven people died as a result, and a widespread panic ensued about how widespread the contamination might be.

By the end of the episode, everyone knew that Tylenol was associated with the scare. The company's market value fell by $1bn as a result.

When the same situation happened in 1986, the company had learned its lessons well. It acted quickly - ordering that Tylenol should be recalled from every outlet - not just those in the state where it had been tampered with. Not only that, but the company decided the product would not be re-established on the shelves until something had been done to provide better product protection.

As a result, Johnson & Johnson developed the tamperproof packaging that would make it much more difficult for a similar incident to occur in future.

Cost and benefit
The cost was a high one. In addition to the impact on the company's share price when the crisis first hit, the lost production and destroyed goods as a result of the recall were considerable.

However, the company won praise for its quick and appropriate action. Having sidestepped the position others have found themselves in - of having been slow to act in the face of consumer concern - they achieved the status of consumer champion.

Within five months of the disaster, the company had recovered 70% of its market share for the drug - and the fact this went on to improve over time showed that the company had succeeded in preserving the long term value of the brand. Companies such as Perrier, who had been criticised for less adept handling of a crisis, found their reputation damaged for as long as five years after an incident.

In fact, there is some evidence that it was rewarded by consumers who were so reassured by the steps taken that they switched from other painkillers to Tylenol.

Conclusion
The features that made Johnson & Johnson's handling of the crisis a success included the following:

They acted quickly, with complete openness about what had happened, and immediately sought to remove any source of danger based on the worst case scenario - not waiting for evidence to see whether the contamination might be more widespread
Having acted quickly, they then sought to ensure that measures were taken which would prevent as far as possible a recurrence of the problem
They showed themselves to be prepared to bear the short term cost in the name of consumer safety. That more than anything else established a basis for trust with their customers
Links:
Johnson & Johnson website
 

 
It has been almost two decades since a consumer products company's worst nightmare became tragic reality for Johnson & Johnson. In the space of a few days starting Sept. 29, 1982, seven people died in the Chicago area after taking cyanide-laced capsules of Extra-Strength Tylenol, the painkiller that was the drugmaker's best-selling product.
.
Marketers predicted that the Tylenol brand, which accounted for 17 percent of the company's net income in 1981, would never recover from the sabotage. But only two months later, Tylenol was headed back to the market, this time in tamper-proof packaging and bolstered by an extensive media campaign. A year later, its share of the $1.2 billion analgesic market, which had plunged to 7 percent from 37 percent following the poisoning, had climbed back to 30 percent.
.
What set apart Johnson & Johnson's handling of the crisis from others? It placed consumers first by recalling 31 million bottles of Tylenol capsules from store shelves and offering replacement product in the safer tablet form free of charge.
.
"Before 1982, nobody ever recalled anything," said Albert Tortorella, a managing director at Burson-Marsteller Inc., the New York public relations firm that advised Johnson & Johnson. "Companies often fiddle while Rome burns."
.
James Burke, the company's chairman, was widely admired for his leadership in the decision to pull Tylenol capsules off the market, and for his forthrightness in dealing with the media. In a news conference only a month and a half after the tragedy, he gave a full chronology of what the company had done. "He looked in complete control," said Tortorella.
.
The moves were costly. Johnson & Johnson spent more than $100 million for the 1982 recall and relaunch of Tylenol. A much smaller recall in 1986, and a second relaunch also ran into millions of dollars.
.
But Johnson & Johnson's shareholders were hurt only briefly. In 1982, the stock, which had been trading near a 52-week high just before the tragedy, see-sawed in panic selling but recovered to its highs only two months later.
.
Investors have had little to complain about since then. If you had invested $1,000 in Johnson & Johnson shares on September 28, 1982, just before the first Tylenol episode, you would have $22,062 today, after four stock splits. The company has paid out increasing dividends for 39 years.
.
Michael Holland, manager of the Holland Balanced Fund, said Johnson & Johnson's handling of the crisis was confirmation of its superior management. "It's one of the reasons it is the largest holding in my fund," he said.
.
Johnson & Johnson is a very different company today. Once known for consumer products such as baby shampoo and Band-Aid bandages, it has become a pharmaceutical powerhouse. Last year, 45 percent of sales came from prescription drugs, up from just 18 percent in 1980. Its medical devices division is also generating excitement for its new drug-coated arterial stent, which is considered a medical breakthrough.
.
"It illustrates a strength of Johnson & Johnson that is nearly unique, their expertise in medical devices and in pharmaceuticals, and their convergence," said Scott Davison, an analyst with U.S. Bancorp Piper Jaffrey.
.
[Not to be reproduced without the permission of the author.] It has been almost two decades since a consumer products company's worst nightmare became tragic reality for Johnson & Johnson. In the space of a few days starting Sept. 29, 1982, seven people died in the Chicago area after taking cyanide-laced capsules of Extra-Strength Tylenol, the painkiller that was the drugmaker's best-selling product.
.
Marketers predicted that the Tylenol brand, which accounted for 17 percent of the company's net income in 1981, would never recover from the sabotage. But only two months later, Tylenol was headed back to the market, this time in tamper-proof packaging and bolstered by an extensive media campaign. A year later, its share of the $1.2 billion analgesic market, which had plunged to 7 percent from 37 percent following the poisoning, had climbed back to 30 percent.
.
What set apart Johnson & Johnson's handling of the crisis from others? It placed consumers first by recalling 31 million bottles of Tylenol capsules from store shelves and offering replacement product in the safer tablet form free of charge.
.
"Before 1982, nobody ever recalled anything," said Albert Tortorella, a managing director at Burson-Marsteller Inc., the New York public relations firm that advised Johnson & Johnson. "Companies often fiddle while Rome burns."
.
James Burke, the company's chairman, was widely admired for his leadership in the decision to pull Tylenol capsules off the market, and for his forthrightness in dealing with the media. In a news conference only a month and a half after the tragedy, he gave a full chronology of what the company had done. "He looked in complete control," said Tortorella.
.
The moves were costly. Johnson & Johnson spent more than $100 million for the 1982 recall and relaunch of Tylenol. A much smaller recall in 1986, and a second relaunch also ran into millions of dollars.
.
But Johnson & Johnson's shareholders were hurt only briefly. In 1982, the stock, which had been trading near a 52-week high just before the tragedy, see-sawed in panic selling but recovered to its highs only two months later.
.
Investors have had little to complain about since then. If you had invested $1,000 in Johnson & Johnson shares on September 28, 1982, just before the first Tylenol episode, you would have $22,062 today, after four stock splits. The company has paid out increasing dividends for 39 years.
.
Michael Holland, manager of the Holland Balanced Fund, said Johnson & Johnson's handling of the crisis was confirmation of its superior management. "It's one of the reasons it is the largest holding in my fund," he said.
.
Johnson & Johnson is a very different company today. Once known for consumer products such as baby shampoo and Band-Aid bandages, it has become a pharmaceutical powerhouse. Last year, 45 percent of sales came from prescription drugs, up from just 18 percent in 1980. Its medical devices division is also generating excitement for its new drug-coated arterial stent, which is considered a medical breakthrough.
.
"It illustrates a strength of Johnson & Johnson that is nearly unique, their expertise in medical devices and in pharmaceuticals, and their convergence," said Scott Davison, an analyst with U.S. Bancorp Piper Jaffrey.
.
[Not to be reproduced without the permission of the author.] It has been almost two decades since a consumer products company's worst nightmare became tragic reality for Johnson & Johnson. In the space of a few days starting Sept. 29, 1982, seven people died in the Chicago area after taking cyanide-laced capsules of Extra-Strength Tylenol, the painkiller that was the drugmaker's best-selling product.
.
Marketers predicted that the Tylenol brand, which accounted for 17 percent of the company's net income in 1981, would never recover from the sabotage. But only two months later, Tylenol was headed back to the market, this time in tamper-proof packaging and bolstered by an extensive media campaign. A year later, its share of the $1.2 billion analgesic market, which had plunged to 7 percent from 37 percent following the poisoning, had climbed back to 30 percent.
.
What set apart Johnson & Johnson's handling of the crisis from others? It placed consumers first by recalling 31 million bottles of Tylenol capsules from store shelves and offering replacement product in the safer tablet form free of charge.
.
"Before 1982, nobody ever recalled anything," said Albert Tortorella, a managing director at Burson-Marsteller Inc., the New York public relations firm that advised Johnson & Johnson. "Companies often fiddle while Rome burns."
.
James Burke, the company's chairman, was widely admired for his leadership in the decision to pull Tylenol capsules off the market, and for his forthrightness in dealing with the media. In a news conference only a month and a half after the tragedy, he gave a full chronology of what the company had done. "He looked in complete control," said Tortorella.
.
The moves were costly. Johnson & Johnson spent more than $100 million for the 1982 recall and relaunch of Tylenol. A much smaller recall in 1986, and a second relaunch also ran into millions of dollars.
.
But Johnson & Johnson's shareholders were hurt only briefly. In 1982, the stock, which had been trading near a 52-week high just before the tragedy, see-sawed in panic selling but recovered to its highs only two months later.
.
Investors have had little to complain about since then. If you had invested $1,000 in Johnson & Johnson shares on September 28, 1982, just before the first Tylenol episode, you would have $22,062 today, after four stock splits. The company has paid out increasing dividends for 39 years.
.
Michael Holland, manager of the Holland Balanced Fund, said Johnson & Johnson's handling of the crisis was confirmation of its superior management. "It's one of the reasons it is the largest holding in my fund," he said.
.
Johnson & Johnson is a very different company today. Once known for consumer products such as baby shampoo and Band-Aid bandages, it has become a pharmaceutical powerhouse. Last year, 45 percent of sales came from prescription drugs, up from just 18 percent in 1980. Its medical devices division is also generating excitement for its new drug-coated arterial stent, which is considered a medical breakthrough.
.
"It illustrates a strength of Johnson & Johnson that is nearly unique, their expertise in medical devices and in pharmaceuticals, and their convergence," said Scott Davison, an analyst with U.S. Bancorp Piper Jaffrey.
.
[Not to be reproduced without the permission of the author.] It has been almost two decades since a consumer products company's worst nightmare became tragic reality for Johnson & Johnson. In the space of a few days starting Sept. 29, 1982, seven people died in the Chicago area after taking cyanide-laced capsules of Extra-Strength Tylenol, the painkiller that was the drugmaker's best-selling product.
.
Marketers predicted that the Tylenol brand, which accounted for 17 percent of the company's net income in 1981, would never recover from the sabotage. But only two months later, Tylenol was headed back to the market, this time in tamper-proof packaging and bolstered by an extensive media campaign. A year later, its share of the $1.2 billion analgesic market, which had plunged to 7 percent from 37 percent following the poisoning, had climbed back to 30 percent.
.
What set apart Johnson & Johnson's handling of the crisis from others? It placed consumers first by recalling 31 million bottles of Tylenol capsules from store shelves and offering replacement product in the safer tablet form free of charge.
.
"Before 1982, nobody ever recalled anything," said Albert Tortorella, a managing director at Burson-Marsteller Inc., the New York public relations firm that advised Johnson & Johnson. "Companies often fiddle while Rome burns."
.
James Burke, the company's chairman, was widely admired for his leadership in the decision to pull Tylenol capsules off the market, and for his forthrightness in dealing with the media. In a news conference only a month and a half after the tragedy, he gave a full chronology of what the company had done. "He looked in complete control," said Tortorella.
.
The moves were costly. Johnson & Johnson spent more than $100 million for the 1982 recall and relaunch of Tylenol. A much smaller recall in 1986, and a second relaunch also ran into millions of dollars.
.
But Johnson & Johnson's shareholders were hurt only briefly. In 1982, the stock, which had been trading near a 52-week high just before the tragedy, see-sawed in panic selling but recovered to its highs only two months later.

Stock in 1982 was at $220 a share

.
Investors have had little to complain about since then. If you had invested $1,000 in Johnson & Johnson shares on September 28, 1982, just before the first Tylenol episode, you would have $22,062 today, after four stock splits. The company has paid out increasing dividends for 39 years.
.
Michael Holland, manager of the Holland Balanced Fund, said Johnson & Johnson's handling of the crisis was confirmation of its superior management. "It's one of the reasons it is the largest holding in my fund," he said.
.
Johnson & Johnson is a very different company today. Once known for consumer products such as baby shampoo and Band-Aid bandages, it has become a pharmaceutical powerhouse. Last year, 45 percent of sales came from prescription drugs, up from just 18 percent in 1980. Its medical devices division is also generating excitement for its new drug-coated arterial stent, which is considered a medical breakthrough.
.
"It illustrates a strength of Johnson & Johnson that is nearly unique, their expertise in medical devices and in pharmaceuticals, and their convergence," said Scott Davison, an analyst with U.S. Bancorp Piper Jaffrey.