Just a few weeks after recalling Tylenol 8 Hour Extended Release Caplets 150 count bottles, Johnson & Johnson (JNJ) recently announced yet another product recall. This time round, the company recalled two lots of its epilepsy drug, Topamax.
The recalled lots were shipped between Oct 19, 2010 and Dec 28, 2010 in the US and Puerto Rico. The product recall, which was conducted following complaints regarding an uncharacteristic odor, involved 57,000 bottles of Topamax.
Product recalls remain a frequent occurrence at Johnson & Johnson. Earlier in March, Johnson & Johnson had recalled several lots of Blake Silicone Drains, Blake Silicone Drain Kits, Blake Cardio Connectors, J-VAC Reservoirs and J-VAC Drain Adapters. In February, the company had announced the voluntary recall of certain lots of its schizophrenia product, Invega Sustenna (234 mg).
Other products that were recalled over the past few quarters include Tylenol, Benadryl, Motrin, Rolaids, Invega Sustenna, Simponi and Sudafed Pe among others.
Frequent product recalls adversely affected the performance 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 recalls 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 US Food and Drug Administration (FDA) for the improvement of quality systems at its US manufacturing plants.
In March 2011, the FDA imposed a consent decree on a subsidiary of Johnson & Johnson. The agency imposed restrictions on the manufacturing facilities of the Consumer Healthcare Division of McNeil-PPC, Inc. Three manufacturing plants will be affected by the decree. The affected plants include the Las Piedras facility in Puerto Rico, the Fort Washington and Lancaster facilities in Pennsylvania.
The consent decree did not come as a major surprise considering the deluge of product recalls at Johnson & Johnson in the past several quarters. Another company that recently announced a product recall is Pfizer (PFE).
Our Take & Recommendation
Johnson & Johnson currently carries a Zacks #4 Rank (Sell rating) in the short-run highlighting near-term pressure on the stock due to the series of OTC product recalls, pricing austerity in the European Union and generic competition.
Our long-term Neutral recommendation on the stock is based on the belief that Johnson and Johnson’s diversified business model, lack of cyclicality and strong financial position will help it in tough situations.
JOHNSON & JOHNS (JNJ): Free Stock Analysis Report
PFIZER INC (PFE): Free Stock Analysis Report
Zacks Investment Research
