JNJ Gets 'Nailed', Again

Near As I can tell, everyone loves Johnson & Johnson (JNJ). Guys like Cramer think it’s the stock for the second half of the year. Maybe. My problem with the company is execution. It seems that they are constantly recalling one product or the other. Now they have to do another recall. This time it is for nails that they sell.

JNJ bought Synthes for a very pricy $19.7Bn back in June (the deal was announced in April 2011). The deep thinkers at JNJ were willing to pay this monster tab knowing full well that Synthes had a problem.

Synthes was a Swiss company that had a fantastic reputation for special medical devices. The company’s focus was on trauma. When bones break, Synthes has a product to help a patient.

In 2001 Synthes developed a “glue” that was supposed to help patients who had suffered a fractured vertebrae. Rather then screwing or nailing a broken bone, the idea was to use glue. That didn’t work out at all. People died. There are ongoing lawsuits. The bad news for JNJ is that the story was made (very) public with this article a month ago (Link). Some of the juicy lines from the article:

Department of Health and Human Services agents told her that the government had come across new information about her mother’s death. Her 83-year-old mother, had unexpectedly died during spine surgery.

The agent told her that the surgeon had injected bone cement into her mother’s spine and that the product — which was not approved for that use — may have played a role in her death.

The agent explained that the government had filed criminal charges against the maker of the cement, a company called Synthes, and four of its executives.

In 2009 the U.S. attorney in Philadelphia accused the company of running illegal clinical trials — essentially, experimenting on humans.

The Food and Drug Administration explicitly told Synthes not to promote Norian (glue) for certain spine surgeries, but the company pushed forward anyway.

Synthes denied patients the right to choose whether they wanted to be test subjects.

The assistant U.S. attorney who led the prosecution, urged the court to send the executives to jail for their “venal crime.” The “callous disregard of patient safety warrants the highest sentence the law will allow.”

When Norian was injected into the bloodstream of a pig, “the entire pulmonary artery system had clotted off.”

A surgeon was operating on an 83-year-old prize-winning physicist. Shortly after injecting him with (glue) the patient’s blood pressure sank. The doctor couldn’t resuscitate him, and he died on the table.

Again, the problems with Sythes’ bad glue was 10 years before JNJ wrote the big check. The brass at JNJ “bought” the lawsuits (and the publicity) that has followed. They had to know what was in the offing.

It’s my understanding that Synthes has another headache on its hands. This time surgical nails are the problem.

The company makes screws, plates and other fasteners (all highly machined and made with special steel). It has a product that is widely used in hip repairs. The surgeons who use it refer to it as a “nail”. Nails are very big business for Synthes.

There’s nothing wrong with Synthes’ nails. It seems the company has a problem with packaging. The nails are delivered in sterilized containers . Apparently, questions have been raised as to the possibility of a package getting a tear at some point. In an abundance of caution, Synthes is going to replace the existing inventory of nails (most trauma hospitals have these nails in inventory) .

I want to be very clear on this. There is absolutely no suggestion that any nails that have been used in the past were tainted in anyway. No patient has been injured. Period.

This is another JNJ packaging problem. It will be fixed without significant long-term consequence. But then again, this is another JNJ packaging problem.

A Doc I spoke with had this to say about Synthes’ latest gaff:

They’re idiots.

Replacement nails are months away. In the meantime I have to use a competitor’s product.

This is a pain in the ass with the hospital billing office. Changing suppliers for this kind of high volume product does not come easy. It will not be reversed back to Synthes when they get some new nails.

The timing for this is terrible. The article on the glue was widely read. Now they have another problem.