Alex Gorsky, in his first earnings call since taking the CEO spot at Johnson & Johnson ($JNJ), listed a lot of priorities--there is a lot to be fixed at the pharmaceutical and consumer products company--but getting over-the-counter products like Tylenol and Motrin back into the hands of consumers remains his number one "short term priority."
"One of my highest priorities is to restore reliable supply of high quality over-the-counter products to the marketplace and to do what it takes to continue to build trust in our products and brand," Gorsky told analysts Tuesday. That means doing what the FDA wants at three OTC plants operating under a consent decree, and "second, meeting our commitment to return OTC products to consumers as quickly as possible."
Worldwide, sales of the over-the-counter (OTC) products and nutritionals were down 4.7% to $1.03 billion, compared to last year's second quarter, with a slight uptick of sales in the U.S. buffering that decline.
As a reminder, the company had to pull and destroy tens of millions of OTC products during a series of more than two dozen recalls starting in 2009, when it became clear J&J had serious issues with quality control in its McNeil Consumer Healthcare division. For example, a moldy smell in some Tylenol products that even made some consumers nauseous was tracked to a pesticide used to treat pallets at plant in Puerto Rico where packaging was stored, the Sacramento Bee reminds. The recalls and lost market share have reportedly cost the company $1.5 billion and it has to invest more than $100 million to retool its Fort Washington, PA, plant.
Gorsky is anxious to get consumers all of the products they want and start the process of repairing its once close relationship with them, but when exactly the company will be able to get back up to full production and "relaunch" its once highly trusted brands is not entirely sure. Executives say they expect remediation efforts to continue through this year and much of next and that production levels will be increased as those efforts permit. They said the company is looking for alternatives to expand production of its OTC products.
The ramp up of production, however, will actually mean fewer jobs at some plants. Barbara Montresor, vice president of communications for J&J, tells the Associated Press that automation upgrades at the plant in Las Piedras, Puerto Rico, where Extra Strength and regular Tylenol is made, will result in about 200 job cuts. That is about a quarter of the workforce there.
Of course, the OTC problems are just one of many that dog J&J. While there was some good news on the drug-sales front, its bottom line was off nearly 50%, dragged down by $2.2 billion in one-time costs. That included setting aside additional funds for the settlement it is negotiating with federal authorities over marketing misbehavior.
Analyst Erik Gordon, tells the Minneapolis Star Tribune that what J&J needs to do is pretty straight forward.
"The challenge for [J&J] is to get new products out to the market, fix their manufacturing operations, and to change their culture so that it doesn't all go for waste because of quality control and illegal practices drains."
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