Thursday, May 27, 2010

Put a Cap on It

Toyota. Massey Energy. British Petroleum. Johnson & Johnson?

That is not a list J&J wants to see. But, as the company testifies today about a series of recalls affecting its consumer product line, J&J's corporate brand is very much at stake.

Sometimes, it isn't so much what you do but when you do it that matters. For pharmaceutical manufacturers, quality control problems are an unfortunate fact of life. Even the best run companies run into problems. Manufacturing is complex, QC standards evolve, and global multinational management structures invariably mean pockets of underperformance. No one is perfect.

Unfortunately for J&J, there may not be a worse time for a company to have problems like it is having. A massive recall of well known consumer product brands like Tylenol would be a black eye any time. A recall at a time when FDA is moving back towards a tougher enforcement posture is even worse. When the newly installed FDA deputy commissioner (Josh Sharfstein) has made his public health bona fides by focusing on the risks of OTC medicines, including Tylenol, it is a double whammy.

But to face all that at a time when Congress is investigating industrial disasters in multiple sectors means moving from a major FDA issue to a potential life-and-death moment for the corporation. We're talking Enron here.

What can J&J do?

Well, like BP, they need to stop the gusher. The analogy to the oil pouring into the Gulf of Mexico is a stretch, but for J&J there is a distinct sense that the bad news keeps coming. Just this year, there was an FDA warning letter for failing to follow-up with alacrity on complaints about a "musty smell" associated with some bottles of Tylenol. That was followed by the shut down of its Fort Washington, PA facility and the recall of much of the company's OTC product line.

Heading into a Congressional hearing, J&J faced two more untimely developments: the final resolution of an investigation into off-label promotion of Topamax (including a guilty plea by the division responsible), and another FDA warning letter focused on its medical device manufacturing. (Read more here.)

Today's hearing (and a likely follow-up in the Senate) will bring more negative headlines and unflattering attention. The key for J&J is to make it stop.

There is hope: as Genzyme seems to have proven, a company can indeed put a cap on a seemingly out of control compliance issue. Cynics would say it took awhile, but once Genzyme brought in outside managers to take over its manufacturing QC, the company seems to have regained control of the situation. The company moved into a consent decree negotiation, achieved a resolution along the lines it predicted, and received approval for an important new product as a result. Genzyme has a lot of work ahead of it, but the gusher of bad news has been capped, for now at least.

We don't think J&J will have the same period of time to get its house in order that Genzyme had: progress from here better be fast and sure. But it can be done.

Then there is the uncontrollable element of luck. The hearing today coincides with what might be BP's last chance to seal the Gulf Oil leak. Whether that effort succeeds or fails, that will be the lead story tonight--and J&J's issues will get a bit less attention than they might have otherwise.

Of course, if BP succeeds in capping that gusher, it means even more pressure on J&J to stop the flow of bad news about its brand.

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