J&J Tallies Up the Impact of its Compliance and Recall Problems in Quarterly Investor Update

During a July 20 J&J investor’s conference call covering the company’s second quarter results, Investor Relations VP Louise Mehrotra provided an update on J&J/McNeil’s current compliance situation and the significant financial and operational impact of the firm’s compliance and recall problems (IPQ “In the News” May 6, 2010).

Mehrotra explained that McNeil’s Las Piedras facility, where production had been impacted by recall problems and an FDA warning letter, is now operating at normal production levels.  Restocking commenced in the second quarter and will continue to ramp up during the third quarter, she said.

Operations at the Fort Washington facility remain suspended in connection with the recall of children’s liquid OTC products manufactured there and an FDA inspection in April which prompted the voluntary shutdown.

Noting that the suspension of manufacturing also impacted adult OTC products manufactured at that facility, including Tylenol, Motrin, and Zyrtech, Mehrotra commented that “as was previously announced, we do not anticipate having alternate sources of supply before the end of 2010 for most of the products that were produced at this site. Alternate supply of the remainder of these products is projected to start in the first quarter of 2011 and continue to expand throughout the year.”

McNeil submitted a remediation plan to FDA on July 15th. “The plan is comprehensive and encompasses among other items, training, resources and capital investments in quality and manufacturing systems across the McNeil organization,” the J&J exec said.

Mehrotra also commented on the ongoing legal ramifications: “There are a variety of ongoing legal actions in connection with the recall including the initiation of losses against McNeil and the ongoing governmental investigation into circumstances regarding the recall. We continue cooperating with the government’s investigation and request for information, including the receipt of a grand jury subpoena from the U.S. Attorney’s office for the Eastern District of Pennsylvania.”

Another J&J official, Dominic Caruso, provided additional insight during the conference call into the financial impact of the company’s compliance problems.

While the majority of McNeil’s U.S. OTC business has not been impacted by the recalls or suspension of manufacturing at the Fort Washington facility, Caruso reported that the negative effect on the firm’s annual sales from not shipping products produced at this facility is estimated at approximately $600 million. For the first quarter of 2010, U.S. sales of OTC pharmaceuticals and nutritionals were down 27% – attributable almost entirely to the McNeil recall and compliance problems.

[See the “In the News” companion story also posted July 22 for FDA findings at an inspection concluded in July at McNeil’s Lancaster, PA facility.]