|FDA Indictment of J&J Product Quality Suggests Gross, Cavalier Incompetence|
|Written by Donald Riker, PhD|
|Wednesday, 05 May 2010 00:00|
J&J, pressured by a two-week FDA audit at its Fort Washington, PA plant announced a store-wide recall of its children's liquid products under its Tylenol, Motrin, Zyrtec and Benadryl brands [http://www.fda.gov/Safety/Recalls/ucm210443.htm ]. The FDA issued a damning 17-page, 20-point 483 on May 4, 2010. The cited deficiencies are gross, systemic and widespread and suggest a "screw-the-consumer" insouciance. This recall of 44 sku's and 1,500 production lots is the fourth recall in seven months involving their key OTC brands. The fact that these are products targeting infants makes it even more reprehensible. J&J admits the impact of the recall will dent 2Q10 earnings. On May 2nd The NY Times recognized damage to J&J brand equities [http://www.nytimes.com/2010/05/03/business/03drug.html?fta=y] reported months earlier by OTC Product News in January, 2010 [Safety of Brand Name Products Badly Damaged b...]. OTC/PN was prescient in calling out J&J's disregard for its brands and consumers early on.
While Barron's was touting J&J stock in its May 3rd edition [http://online.barrons.com/article/SB127266729323884927.html] J&J was managing its fourth recall of key OTC brands in seven months. We first reported on this cascade of failures in Dec 2009 [Tylenol's Safety Halo Tarnished By Plant Cont...] and predicted the extent to which this failure would result in erosion of consumer confidence as early as January 2010 [Safety of Brand Name Products Badly Damaged b... ]. The extent of the contagion is still not entirely evident and troubling to say the least.
The FDA 483 cites J&J with 20 observations. These include failures in: manufacturing process, laboratory testing, consumer complaint handling, follow up investigation of problems, training, labeling, raw material handling, stability, bacterial contamination, levels of active ingredients, test procedures, calibration, sampling, storage, and equipment maintenance. A breathtaking track record of failure.
Important to note is that these recalls appear to be a result of widespread gross systemic failures in their quality control system, not a series of isolated events. The release of so many tainted products with varying levels of active ingredients, raw material problems, and particulate contaminants reflects complete failure of basic QA/GMP procedures designed to prevent adulterated product release. Note too that this latest FDA plant audit, undertaken in the wake of its Puerto Rico plant contamination, reveals that these failures occurred across at least two plants and many product forms. There now is a real threat of an FDA-initiated consent decree---as there should be.
The level of systemic failure of the quality system at J&J suggests firing of senior managers, reorganization, and total review of its SOP's, GMP's, complaint handling and manufacturing systems to be in compliance. A consent decree may still be in the offing. A pregnant question remaining is whether these failures extend to its prescription drug or medical device products. Medical device regulations are newer and differ enough that they may exist somewhat insulated from these events. However, there is every reason to suspect that the rot at J&J may extend across bureaucratic lines. If so, the rosy portrait of J&J's prescription drug business and its Rx pipeline may be diminished if quality issues result in future prescription recalls.
The fact that the FDA report cites higher levels of acetaminophen than labeled in infants' products and acetaminophen is a known cause of fulminant liver failure is concerning particularly when J&J's corporate spin machine tells mothers not to worry.
As of 1Q10 J&J's consumer focused segments accounted for 24% of sales at a 16% margin compared to higher margin Rx businesses. The US accounts for 40% of its total business. Nevertheless US consumer recalls will tilt their 2Q10 earnings to the downside. The effect of J&J OTC mishandling may have already contributed to slide in 1Q10 earnings as they declined 3.7%. The positive control to consider may be the 4.6% lift gained in their cosmetic skin care segment in the same quarter.
Previous stories on the J&J Recall:
[Dr. Riker, President & Founder, On Point Advisors, LLC, is a former Associate Director, Personal Healthcare at Procter & Gamble, and the last Vice President of R&D/QA & Chief Scientific Officer at Chattem]
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