SAN FRANCISCO Johnson & Johnson (JNJ.N) said on Monday it believed that some of its foreign units had made improper payments related to the sale of medical devices in two unspecified small-market countries, spurring a top executive to retire immediately.
The U.S. drugs and consumer products maker -- known for its credo requiring managers to act justly and ethically -- said the actions were contrary to its policies and that the payments may fall within the jurisdiction of the Foreign Corrupt Practices Act.
Morgan Stanley analyst Glenn Reicin said the company's bold admission was likely an attempt to contain the damage, since a company found guilty of a felony could be barred from Medicare, the U.S. federal insurance program for the elderly.
"We suspect that J&J management probably had to find a way to make it clear to authorities that this matter is being taken seriously, potentially pre-empting federal enforcement action," Reicin said in a note to clients.
Johnson & Johnson, whose consumer brands include Listerine mouthwash and the Sudafed allergy drug, said in a statement that it would provide additional information to both the U.S. Department of Justice and the U.S. Securities & Exchange Commission, and pledged to cooperate with the reviews.
Michael Dormer, worldwide chairman of the company's Medical Devices & Diagnostic unit, retired, citing the internal review and saying in a letter to the company that he had "ultimate responsibility" for the units under investigation.
J&J's medical devices business, which had $20.3 billion in sales last year, includes a wide array of products ranging from joint replacements, contact lenses and diabetes monitors to its lucrative Cypher drug-eluting stent, a tiny tube used to keep blood flowing through diseased heart arteries.
Nicholas Valeriani, a 30-year J&J veteran, will take over Dormer's former duties effective immediately.
The New Brunswick, New Jersey-based company, which was lauded more than 20 years ago for the way it handled a recall of Tylenol following the deaths of seven people in the Chicago area who took cyanide-laced capsules, has a reputation for giving its far-flung managers independence to make decisions.
J&J said it believes the improper payments were related to the sale of medical devices in two small-market countries, which it did not name. Company spokesman Jeffrey Leebaw declined to comment further beyond the company's news release.
The company's shares were largely unchanged in extended trade after falling 14 cents, or 0.2 percent, to $65.46 on the New York Stock Exchange.
(Additional reporting by Julie Steenhuysen in Chicago)