The US Food and Drug Administration (FDA) recently imposed a consent decree on a subsidiary of Johnson & Johnson (JNJ). The decree is yet to be approved by the US District Court for the Eastern District of Pennsylvania.
The agency has imposed restrictions on the manufacturing facilities of the McNeil Consumer Healthcare Division of McNeil-PPC, Inc. Three manufacturing facilities will be affected by the decree. The affected facilities include the Las Piedras facility in Puerto Rico and the Fort Washington and Lancaster facilities in Pennsylvania.
The consent decree does not come as a major surprise considering the deluge of product recalls at Johnson & Johnson in the past several quarters. Recalled products include Tylenol, Benadryl, Motrin, Rolaids, Invega Sustenna, Simponi, and Sudafed Pe among others.
Frequent product recalls adversely affected sales of Johnson & Johnson’s Consumer Healthcare segment in 2010. In fact, Consumer segment sales declined 7.7% in 2010 to $14.6 billion with OTC/nutritional sales declining 19.2%. The product recall and the suspension of manufacturing at McNeil’s Fort Washington plant resulted in a $900 million negative impact on 2010 revenues.
Johnson & Johnson had submitted a Comprehensive Action Plan (CAP) in July 2010 to the FDA for the improvement of quality systems at its US manufacturing facilities.
Terms of the Decree
Per the terms of the decree, Johnson & Johnson will continue operating its manufacturing facilities in Las Piedras and Lancaster. Once these facilities are inspected by an independent expert, remediation plans will be formulated to address issues raised by the expert. The plans will have to be approved by the FDA before being implemented.
Besides this, an independent expert will review certain manufacturing records at the two sites during the remediation process so as to ensure that products released from these facilities meet quality standards.
The consent decree will be in place for at least five years following the completion of the remediation plan.
Meanwhile, the Fort Washington plant, which was shut down by Johnson & Johnson in April 2010, will not re-open until the planned remediation efforts are completed. Once the remediation efforts are completed, an independent expert will issue a certificate of compliance. The plant will re-open once it gains approval from the FDA. Failure to comply with the terms of the decree could result in the company incurring charges in the form of penalties and fines.
Neutral on Johnson & Johnson
We currently have a Neutral recommendation on Johnson & Johnson, which is supported by a Zacks #3 Rank (short-term “Hold” rating).
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