The cost of a consent decree with the FDA is not only in the tens or hundreds of millions it costs a company to upgrade plants. It also is seen in top line numbers from the loss of sales. And Johnson & Johnson ($JNJ), whose McNeil Consumer Healthcare is operating under just such an order, is seeing that play out this flu season as consumers go to some pharmacies and find few or no Tylenol products on the shelves.
CVS tells Reuters that because of supply issues it cannot get enough Tylenol products to stock all of its 7,400 stores. As a result, it will offer them in only specific stores in each market. A CVS spokesman told Chain Drug Review that the two companies have a long relationship and are working to get the most out of the products that are available.
McNeil in 2011 signed the FDA consent decree after two years in which it recalled tens of millions of consumer products that were manufactured at three plants that were cited for a laundry list of problems. It closed and is gutting its key OTC plant in Fort Washington, PA, and has said it will invest more than $100 million to retool it.
J&J CEO Alex Gorsky said last summer that the company was ramping up production of a variety of products as the consent decree permits and looking for contract manufacturers to fill some gaps. The supply issues are not limited to Tylenol products. This month, J&J sold to Sanofi ($SNY) its Rolaids brand, which also was affected by the earlier recalls. Sanofi has promised to restore the luster of the once vaunted consumer brand.
The ongoing problems mean ongoing sales losses. In the first 9 months of 2012, consumer health sales were down $70 million, or 2.2%, to $3.2 billion. Gorsky said he expects the consent decree to remain in place this year but he also expects the Fort Washington plant to reopen sometime in 2013.