J&J set to reopen McNeil plant amid consumer biz overhaul

Sandra Peterson--image courtesy of Bayer

Johnson & Johnson ($JNJ) has worked hard the last 5 years to revamp its consumer healthcare business after serious quality issues at some of its plants marred its once-stellar reputation, forcing it to issue a series of recalls and pull products from retailers' shelves. But the company is moving closer to resolving its consumer healthcare woes, preparing to reopen a Philadelphia-area factory that was once at the center of the drama.

J&J recently had a positive FDA inspection at its Fort Washington, PA-based McNeil Consumer Healthcare plant and is waiting for final word from the agency, Sandra Peterson, head of the company's consumer healthcare business, said in J&J's Q2 earnings call. The company closed the facility in 2010 after recalling more than 135 million medicine products when customers found tiny metal particles in children's Tylenol and other problems. Instead of laying out an action plan to address the issues when they surfaced, officials turned a blind eye and did not take required actions until regulators came to investigate.

As a result, J&J was forced to implement a series of changes, including signing an FDA consent decree over its McNeil plant in 2011, shelling out more than $100 million to upgrade the facility and pulling a number of its consumer products--a move that cost the company billions in sales. Earlier this year it pleaded guilty to a federal misdemeanor charge that sprang from the troubles and paid $25 million in penalties.

But J&J has "made a lot of progress," since then, CEO Alex Gorsky told investors in the company's Q2 earnings call. The FDA has already signed off on two other manufacturing plants in Las Piedras, Puerto Rico, and Lancaster, PA, that were once scrutinized by the agency. And about 80% of recalled brands are back on the market, Peterson added.

Gorsky brought on Peterson in 2012 to retool J&J's consumer healthcare business, and she has not wasted any time cleaning up shop since then. The company has relaunched its U.S. OTC business, Peterson noted in the company's Q2 earnings call, and is rolling out new products to ramp up sales. J&J's hard work seems to be paying off, as consumer sales grew 4% during the first half.

"Our consumer expertise and insight are highly valuable to payers and providers, which differentiates us from our competitors," Peterson said. "We view a healthy consumer business as a growth annuity for J&J with less volatility than other markets."

And the company could use the extra boost from its consumer unit as it counters less-than-stellar Q2 results for its pharma business. J&J's second quarter pharma sales fell by 7.9%, and its top line only increased by 1.7%. Increased competition to its hep C drug Olysio is partly to blame, the company said, as products from Gilead Sciences ($GILD) and AbbVie ($ABBV) gobble up market share.

- here's the Seeking Alpha transcript
- read the WSJ story (sub. req.)

Special Reports: Top 15 pharma companies by 2014 revenue - J&J | Top 20 highest-paid biopharma CEOs - Alex Gorsky, J&J

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