J&J posted its first annual sales decline since 2002 in the previous fiscal year. But considering the backlash and negative publicity it is receiving from all sides, it may not be the last.
US-based drug company Johnson & Johnson (J&J) is now facing a global backlash on controversies pertaining to its talcum powder and medical devices. But the company is already facing multiple problems in India that have a much longer history.
Recently, a filing by J&J in the Registrar of Companies revealed that it has recorded a drop in sales for the first time in its India operations since 2002. The company’s sales in India dropped by 3% in FY 2017-18 to reach Rs 5,828 crore, even as profits increased by 18%. Its revenue from the consumer business, which includes baby talc, shampoo, ear buds and sanitary pads, dropped to Rs 3,092 crore in FY18.
In fact, J&J is experiencing a slowdown in sales off late, compared to a regular annual growth rate of 10-15% over the previous decade. The company has around 75% share in the Rs 4000-crore baby care market, where it also faces competition from firms like Dabur India and Himalaya Drug Company. HUL has also launched baby care products under the Dove brand name in the lucrative Indian market, which sees around 26 million births annually.
In sanitary products, J&J is losing share to Unicharm and P&G, and its share in soaps and skincare has also dropped to 3% in 2017 from 4.5% in 2014 according to Nielsen data.
The tide turned in 2014, when J&J’s license was cancelled by the drug regulator in Maharashtra after tests showed its baby powder was sterilised with cancer causing ethylene oxide. While J&J won that case, the Reuters report last year alleging that the company deliberately concealed reports on presence of cancer causing asbestos in its talcum powder was like déjà vu for its operations in India.
Regulators in India have initiated inspections of raw talcum powder as well as the finished product from the retail shelves after the Reuters report, to which the company responded, “We stand behind the safety of our talc, which is routinely tested by both suppliers and independent labs to ensure it is free of asbestos.”
J&J’s medical device business is also suffering since India has put a cap on the price of knee implants, cutting the costs to nearly 70%. In fact, the company blamed the price cuts in India for the hit of US$ 10 million on its international knee implant business in the quarter ending September, 2017. It already faces a legal case for faulty hip implants, for which it has challenged the compensation formula proposed by the Government of India for affected patients in the Delhi High Court.
In summation, the Reuters report and subsequent inspections have only worsened the existing problems faced by J&J in India. The company stands to lose even further on sales and market share with all the publicity drawing attention towards its questionable business practices.
As we had DKODED in our analysis on the asbestos controversy, the loss of customer faith in J&J can have huge repercussions for its business, which will be hard to quantify at this juncture.