J&J subsidiary shuts down plant in wake of children’s medicine recall

Recall is a blow to public image for McNeil and J&J, but unlikely to do much to J&J earnings

Jeffrey Bouley
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FORT WASHINGTON, Pa.—While April 30 marked the day that Johnson & Johnson subsidiary McNeil Consumer Healthcare announced a massive recall of more than 40 versions of Tylenol, Motrin, Benadryl and Zyrtec brand liquids and drops designed for infants and children, May 5 saw the voluntarily shutdown a Pennsylvania plant where it produces the medications.

All this after a report by the U.S. Food and Drug Administration that said raw ingredients contaminated with bacteria had been used in some of the infants' and children's products. The FDA has so far found no evidence of bacteria in any finished products it tested, and at a news conference May 4, agency officials said they considered harm to children unlikely from the microorganisms or from previously identified problems with the medications, including inconsistencies in product potency and other contaminants.

"We think at this point that the risk to consumers is remote," said Deborah M. Autor, director of the Office of Compliance in the FDA's Center for Drug Evaluation and Research. However, Autor said the inspection found "numerous deficiencies in the ways in which McNeil products were manufactured."

J&J, has issued four major product recalls in the last year, and has said that the contamination and oversight problems at the plant "are unacceptable to us." McNeil itself has announced it "will not restart operations until we have taken the necessary corrective actions and can assure the quality of products made there." They have said they would continue to work closely with the FDA to fix the problems.

McNeil also announced it had recently identified many of the same problems found by the FDA "in our own quality reviews."

Overall, investors don't seem to see the recall as any kind of big financial concern for parent company J&J, as the Tylenol brand—despite its ties to the company's public image—represents a tiny fraction of J&J's more than $60 billion in annual sales.

"The latest recalls of children's Tylenol probably means there's just less upside to J&J's earnings estimates," says RBC Capital Markets analyst Glenn Novarro. "They can manage the expense side to make up for this."

Jeffrey Bouley

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