Friday, November 2, 2012

JNJ Gets “Nailed”, Again


Near As I can tell, everyone loves 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.






 Most of the apartments in lower Manhattan rely on big tanks on the roof to supply pressurized water. Normally, water is pumped up on a steady basis. These tanks are now all running dry.


A friend who lives near Spring Street, has been without power for days. Yesterday he lost water. NYC’s fire department has been leaving hydrants open at various spots. People who need water have been lining up.


Think of this. Folks are carrying two five gallon buckets up twelve flights of stairs, just so they can take a crap. I would not have thought this was possible anywhere in the Big Apple. Go figure.



  1. Jim,MtnViewCA,USA says:

    Regarding the situation in NYC, what is B’berg thinking?
    Power To The One Percent! “As hundreds of thousands of Big Apple residents suffer in homes left without power by Hurricane Sandy, two massive generators are being run 24/7 in Central Park — to juice a media tent for Sunday’s New York City Marathon. And a third ‘backup’ unit sits idle, in case one of the generators fails. The three diesel-powered generators crank out 800 kilowatts — enough to power 400 homes in ravaged areas like Staten Island, the Rockaways and downtown Manhattan.”

    Meanwhile: Nonunion Power Crews Turned Away From Sandy Recovery Effort.

      • I’m not sure what accounts for the conendfit projections of civilization collapse among the commenters here. There are are other possible vectors including viral outbreaks that wipe out a huge percentage of the global population or breakthroughs in chemistry/physics which lead to new fuel technologies (aka cold fusion). Enough of a population loss via disease vectors would have the effect of making the civilization systems impossible to run due to staffing issues. If you lost say 80% of the population randomly, that means 80% of the trained workers running a Nuke Plant would not make it to work, being dead of course. You would lose 80% of your truckers, and 80% of the staff running the railroads, 80% of the heavy equipment operators strip mining the coal, etc. This would accelerate rather than decelerate a civilization collapse.Revolutionary breakthroughs in Cold Fusion, Battery technology or some other techno fix besides being unlikely, simply would take too long to implement to make any difference in the collapse of a civilization based on Carz and the internal combustion engine.The only way to maintain all the systems would be through a controlled descent , which would entail a controlled population reduction, not so fast as to render the systems inoperative due to staffing issues; nor so slow as to not effectively reduce the total consumption of resources. Such a controlled descent demands that you control the Death Rate, which obviously runs into some serious moral dilemmas. I do not believe you could accelerate the Death Rate globally sufficiently without that itself destroying the civilization.It is also not true that civilization collapse is unprecedented and we have no models, since we have both the Babylonian collapse and the Roman one to work with. True, these collapses were not on such a scale as this one, but for their time they were global . Certainly, based on what we know of the Roman banking system and the progressive dilution and devaluation of the currency provides a good model for what we see occurring in the current global financial system. The fracturing of their military machine also provides a good model for what is likely to occur in this collapse as well.All in all, the weight of evidence of history, along with very good mathematical models produced by M. King Hubbert and Richard Duncan, along with evidence from biological ecosystems experiencing Overshoot make the case for a Civilization Collapse. While it remains possible that we will manage or even avoid such a collapse altogether, its not the most likely outcome based on the best evidence and analysis available at the moment. That is why I come out strongly convinced of the Full Doom scenarios as the most likely outcome.RE

  2. carrying water up 5 flights etc is karmic revenge for 2 illegal presidential wars @ 3+ $$$T dollars and counting so we got no money for anything else – like big time disaster relief

    • I love how this went from a story on JNJ to blaming W. for your failures and shortcomings in life

      • Thank you, Mary, for this great synopis and alert about the cheagns in whistle-blower lawsuits. Having just completed the 2nd-year training curriculum of a 5-year CIA Requirement at a vendor site, I see the look of astonishment on employees’ faces when they realize the magnitude of these settlements. Although it’s good to know that overall the violations are decreasing, it certainly won’t appear that way until the backlog subsides.

      • BiRJ7M fgujgkkzmwet

    • Muchas gracias, Cristina (para queneis no la conozcan: es mi directora, que siempre me ayuda y me apoya en mi trabajo).Le ensef1are9 tu comentario a los autores/as de los programas: no quiero que se les escape pues estoy seguro de que les hare1 mucha ilusif3n.

  3. Why wouldn’t someone think this sort of thing is possible, i.e. BYOW(ater). I doubt Mother Nature considers NYC to big to fail.

  4. As I recall, the water tanks on NY roofs result from a building code that is probably about a century old. This kind of anachronistic, sclerotic government mindset in NY was a factor encouraging me to leave. The city (subways, especially) was dysfunctional even without a hurricane.

    • a1FELICIDADES! Massimo, es increedble cf3mo motivas al amadnulo. Tambie9n felicitar a los chicos y chicas que han realizado este trabajo, realmente parecen profesionales. Se nota que se ha realizado con esfuerzo, empef1o y sobre todo ilusif3n. Enhorabuena de todos/as los implicados.

  5. Dude, shoddy reporting. You always get your info from Cafepharna?

    • I think a total cycle of twenty years also fits with the idea that a new gaireetnon has to take control to flush the bad habits from the previous gaireetnon. That’s a two-phase process. First, managers, bureaucrats, media, and politicians all have the usual high percentage of people who simply can’t learn and adjust when their preferred way of doing things goes wrong. Things have to get bad enough to replace them with the next gaireetnon down, which isn’t tied to the old ways and willing to think about things in new ways. Then that gaireetnon has to figure out what works and what doesn’t, which also takes time.I’d say twenty years is not a bad estimate for that process.

  6. Consider analyzing a pottaeinl dividend growth investment in terms of its pottaeinl “Yield on Cost” (YOC) at various future dates.Case 1: Stock A is currently yielding 4%, but has grown its dividend by 7% a year for the past ten or more years. If you believe this dividend growth rate will continue for the next ten years, the dividend will double in ten years. Ten years from now, in other words, your YOC will be 8%.Example: You buy $10K of stock A and it yields 4%, or $400, in year 0. Ten years from now, the dividend has doubled to $800, which is an 8% YOC.Case 2: Stock B is currently yielding 2%, but has grown its dividend by 14% a year for the past ten or more years. If you believe this dividend growth rate will continue for the next ten years, the dividend will double in five years and then double again at the ten-year point. Five years from now, your YOC will be 4% and ten years from now, your YOC will be 8%.Example: You buy $10K of stock B and it yields 2%, or $200, in year 0. Five years from now, the dividend will have doubled to $400, which is a 4% YOC. Ten years from now, the dividend will have doubled again to $800, which is an 8% YOC.Ten years from now, both stocks will be yielding the same annual dividend payment ($800), which is the same yield (8%) on the original cost of $10K.Upside: If you believe these dividend growth rates will continue beyond ten years, stock B will continue to yield a higher YOC because its dividend growth rate is higher than stock A’s dividend growth rate.Downside: The higher the dividend growth rate, the greater the chance it might slow down in future years because higher dividend growth rates are harder to sustain. But if a business is exceptional (i.e., great MOAT, well managed, great opportunities to expand), it might be able to sustain a high dividend growth rate for a long time.