Although his 10-year tenure at the helm of Johnson & Johnson (NYSE:JNJ) is likely to be remembered for the spate of recalls that have bedeviled the healthcare giant for the past few years, William Weldon should also be remembered for something he didn’t do: Spend billions on a buyout of pacemaker company Guidant Corp.
The health care giant announced yesterday that vice chairman Alex Gorsky, 51, will move into the corner office in April. The long-planned succession pitted Gorsky, who leads J&J’s medical device & diagnostics unit, its global supply chain, government affairs and policy and J&J’s venture-capital arm, against vice chairwoman Sherilyn McCoy, 53, head of J&J’s pharma business, its consumer unit, the corporate office of science and technology and corporate affairs.
Weldon, who is 63, made the New York Times‘ DealBook blog’s list of the 10 worst CEOs last year, largely on the strength of that long list of recalls (insulin pumps, syringes, ASR hip implants, sutures, contact lenses, Tylenol, Benadryl, Rolaids, to name a few). But his decision to abandon the chase for Guidant, ceding to rival Boston Scientific (NYSE:BSX), might be the best move he never made.
J&J had a $25 billion deal to purchase the Indianapolis-based firm in late 2004. But a series of product recalls prompted the New Brunswick, N.J.-based medical devices giant to pull out. Guidant sued J&J and the companies settled on a $21 billion price tag. Boston Scientific swooped in shortly after with a $25 billion opening salvo in December 2005, eventually winning the dubious prize of paying $80 per share for Guidant ($42 in cash and $38 in stock). The $27 billion buyout marked a victory over one of its arch rivals, but the bidding war helped drive up the cost significantly, including a $705 million break-up fee to J&J for killing the initial deal.
Despite its promise, the deal quickly soured. After its May 2006 closing, BSC was forced to issue recalls or warnings on about 50,000 Guidant defibrillators, reporting that it might take two years to clean up the mess in Indianapolis. Fortune magazine called it the “second-worst” merger of all time, trailing only the ill-fated Time Warner-AOL merger.
And although some of his other moves created controversy – the DealBook piece called him “the most complacent chief executive in America" – Weldon deserves some praise for keeping J&J on top of the pharmaceutical pile, writes Forbes magazine’s Matthew Herper.
"Here’s something you can’t take away from him: over his 10-year reign, J&J shares outperformed Pfizer (NYSE:PFE), Merck (NYSE:MRK), GlaxoSmithKline (NYSE:GSK), and even Abbott Laboratories (NYSE:ABT)," according to Herper. "Something else: The company also launched more drugs than its rivals – 11 during his term as chief executive and 3 more during his time as head of the pharmaceuticals business, between 1998 and 2002, according to data compiled by the Innothink Center For Research In Biomedical Innovation. Only Novartis has brought more new medicines to market."
Most of those wins came via acquisitions, Herper notes, meaning more credit is due to Weldon for making the deals than would be if the drugs had been developed in-house.
"Purchases of companies like Alza (maker of pain-relief patches), Tibotec (HIV drugs) and Cougar (the prostate cancer drug Zytiga) have helped keep J&J’s earnings growing. Buying future growth is probably a J&J chief’s main job, and Weldon did it fairly well," he wrote.
Weldon also spearheaded J&J’s move into the coronary stent business. J&J launched the first drug-eluting stent, the Cypher, in 2002 – only to abandon the market last year. And the ASR hip implant debacle has devolved into a recall that’s arguably harmed more people than any of the high-profile over-the-counter medicine recalls, Herper notes.
In naming the 50-year-old Gorsky to replace Weldon, J&J bypassed McCoy after both served year-long stints on the executive committee in an apparent succession race. Gorsky is a former Army Ranger, marathoner and triathlete with a Wharton School MBA and deep roots in New Brunswick, where he rose through the ranks from a starting sales job in 1988. He’s been at J&J ever since, with the exception of a 4-year stint running the North American pharma business at Novartis (NYSE:NVS). He rejoined the JNJ fold in 2008 to lead its Ethicon medical device business, becoming chairman of the medical device and diagnostics division a year later.
Johnson & Johnson still wants to keep McCoy on board, according to the Wall Street Journal. Like Gorsky, she has deep roots with the company and has experience in its 3 major divisions, consumer, pharma and med-tech. A chemical engineer by training, McCoy has an MBA from Rutgers University. She joined J&J in 1982 as an R&D scientist for its consumer women’s health business, eventually rising to chairwoman of the worldwide pharmaceuticals business after several high-level stints in Johnson & Johnson’s medical device business.