McNeil consent decree quarantine helps J&J's bottom line

Last week's Johnson & Johnson/McNeil recall of musty smelling Tylenol and J&J's quarantine of the McNeil unit offer a fresh perspective on the interwoven nature of manufacturing, quality and business.

"Manufacturing failures emerge from the line; quality failures emerge from the boardroom," Donald Riker writes.

The consent decree was issued to McNeil specifically, not J&J. He postulates that during the months of recalls leading up to the consent decree announcement, J&J was negotiating with the FDA and ultimately struck a deal to limit the decree to McNeil. 

The decree transfers control of McNeil QA to a third-party and the court, says Riker. "As a practical matter J&J would seek to isolate its loss of control over McNeil plants."

Another reason for the quarantine: it lets J&J "rationalize McNeil's impact on corporate financial statements and attempt to isolate its legal exposure," including that of executives, Riker says. And it allows McNeil and its products to be valued independent of J&J, in case of a divestiture or brand spinoff.

- read analysis of the impact on J&J and the OTC market
- here's coverage of the reorganization
- see the recall announcement

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