Johnson & Johnson will not “shortchange” its commitment to returning its recalled consumer brands to the marketplace, Chief Financial Officer Dominic Caruso says.

Caruso explained J&J’s expectations for sustaining growth in its divisions during a Morgan Stanley investment conference Sept. 13. He said analysts probably are overlooking the eventual return of McNeil Consumer Healthcare products that were pulled from the market in widespread recalls, including Tylenol, Motrin, Benadryl and Zyrtec stock-keeping units.

“The only thing that the Street probably is unaware of is to what extent will we be investing in the return of” McNeil brands, the executive said.

J&J CFO Dominic Caruso

Caruso said analysts likely are not able to gauge the firm’s spending on returning the McNeil products to market. He would not disclose the amount, but said, “We won’t shortchange that investment at all.”

Caruso told analysts that J&J continues to invest in its consumer product businesses.

He said emerging markets are “robust” growth drivers, “particularly for consumer businesses,” and noted the firm’s expansion of its OTC presence this year in Russia and other Eastern European markets (Also see "J&J Expands Russian OTC Foothold Via J.B. Chemicals Portfolio Acquisition" - Pink Sheet, 30 May, 2011.).

McNeil Remediation Continues

Caruso acknowledged the “much publicized” quality-control problems at McNeil manufacturing sites, but added that those facilities are in remediation under a consent decree with FDA and McNeil is working toward again distributing the recalled products.

“The McNeil issues are behind us,” he said.

“The path is pretty clear and transparent with the FDA as to what we need to do. That’s working well. The business is recovering.”

J&J in July reported the first period of growth for its consumer unit in more than a year as consumer sales grew 4% to $3.79 billion, including positive effects of currency exchange, in its fiscal 2011 second quarter. The unit had not grown since the first quarter of 2010 (Also see "J&J Consumer Recaptures Growth, Plans To Restore Most OTCs By Mid-2012" - Pink Sheet, 25 July, 2011.).

The quality-control problems led to product recalls linked to contaminated, musty-smelling packaging, liquid pediatric products with particulate matter in suspension and a so-called "phantom recall" of Motrin products (Also see "Under Consent Decree, J&J Delays Full Return Of Recalled OTCs Until 2012" - Pink Sheet, 25 April, 2011.).

The decree entered in March covers McNeil's operations at Las Piedras, Puerto Rico, and in Lancaster and Fort Washington, Pa.

The Fort Washington facility will remain closed until an independent expert audits it and FDA determines the site complies with good manufacturing practices regulations. McNeil does not expect to restart operations there this year.

The Las Piedras and Lancaster plants continue to operate as they are audited.

“Dilemma” Of Revenue Impediments

The firm said shifting production of some McNeil products to other facilities will allow limited quantities of certain SKUs to reach market toward the end of 2011, but the majority will be back on store shelves in 2012.

A July report by a J&J special committee, responding to shareholder demands and a shareholder lawsuit against the firm and members of the board of directors, found organizational and middle management changes at the firm were the root causes of the OTC drug manufacturing and quality-control lapses (Also see "J&J Directors Find Root Causes But Little Blame For OTC Quality Issues" - Pink Sheet, 25 July, 2011.).

The complaint, filed in the U.S. District Court for the District of New Jersey, alleges breaches of fiduciary duty by the directors.

The product recalls and the McNeil remediation are factors in the “current dilemma of having several impacts hit us at the same time,” Caruso said.

An incremental pharmaceutical fee required under the health care reform law that takes effect this year and pricing concerns stemming from austerity measures in European markets also are “key reasons” J&J will consider in calculating its earnings guidance for fiscal 2012, he added.

“I think we’re well positioned for future growth, and we’re managing through the current economic cycle the best we can.”

By Malcolm Spicer

J&J’s Caruso Pitches OTC Comeback To Analysts

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