Johnson & Johnson to Submit Plan to Fix Tylenol Quality Problems

Johnson & Johnson is expected to outline for U.S. regulators on Thursday a strategy to fix quality-control problems that have led to repeated recalls of Tylenol and other consumer medicines since last year.

Analysts say the so-called action plan could give clues to whether J&J can resume full production by early 2011 of its vast array of affected consumer products, as Wall Street now expects, or whether it might take significantly longer.

The document, which J&J promised in late May to provide the U.S. Food and Drug Administration, could also shed greater light on the magnitude of its problems.

J&J has issued four major product recalls in the past year, and a number of smaller recalls related to them that have bewildered the public, tarnished the company's reputation and allowed rival brands to fill the vacuum. They have also sparked a congressional investigation and intense FDA scrutiny.

In one of the biggest recalls, on April 30, J&J took 40 widely used children's medications off the market, saying some may have a higher concentration of their active ingredients, while others were contaminated. They included painkillers Tylenol and Motrin and allergy treatments Benadryl and Zyrtec.

In a damning FDA report, inspectors said they found thick dust, grime and contaminated ingredients at the J&J plant in Fort Washington, Pennsylvania that produces the medicines.

J&J shut the plant and has said it is unlikely to reopen before the end of the year, as company executives and consultants attempt to fix the problems.

"It is possible for it to reopen in early 2011, but that could be pushed back to mid-2011 if the FDA needs that long to conduct a full inspection and approve changes" at the factory, said Jeff Jonas, an analyst with Gabelli & Co.

He said products sold at the plant have annual sales of about $650 million, only about 1 percent of total annual company sales, and therefore pose a far bigger ongoing risk to J&J's reputation than to its earnings.

J&J is well along in implementing some of the measures that will appear in its action plan, Jonas said.

"They're somewhere in the middle of the process and will need to go back to the FDA toward the end of the year and request an inspection," Jonas said.

It behooves J&J to include sweeping changes in the action plan that will satisfy FDA concerns, although the agency and drugmaker may need to negotiate and fine-tune the terms in coming months, said Mayank Gandhi, an analyst with Cowen and Co.

"But in these situations companies have very little negotiating power — the FDA gets what it wants," said Gandhi. "J&J needs to convince the FDA this is a top priority for the firm and that senior management are on top of it — and that they have the appropriate controls and organizational structure to resolve these issues and prevent them from happening in the future."

Gandhi predicted J&J will keep most terms of the action plan confidential, although it might reveal broad terms to industry analysts when the company reports second-quarter earnings on July 20.

J&J spokeswoman Bonnie Jacobs declined Reuters' requests to comment on the action plan.

The most recent J&J recalls, on July 8 and June 15, involved a total of 3 million bottles of products — including Tylenol for children and adults and several forms of Benadryl and Motrin. The actions, small in relation to others in the past year, were related to J&J's recall on January 15 of 53 million bottles of widely used products due to musty or moldy odors.

Shares of J&J have fallen 6.8 percent since the January 15 recall, less than a 9.7 percent decline for the ARCA Pharmaceutical Index of large U.S. and European drugmakers.