Returning Tylenol, Motrin and other OTC products to retail and restoring their status as market leaders is the “clear number one priority” for Johnson & Johnsonthis year, CEO Alex Gorsky told analysts Feb. 25.

Identifying the smallest of J&J’s three business divisions as the focus of the firm’s near-term top priority is notable coming from Gorsky, now nearly a year into his CEO tenure after working previously in medical devices and pharmaceuticals. He said the second priority is continuing to integrate orthopedic device maker Synthes Inc., acquired in 2012, followed by building on momentum of the pharmaceuticals business, which has struggled against generic competition in recent years.

The company also passed a recent milestone under the consent decree with FDA that covers manufacturing of its McNeil Consumer Healthcaresubsidiary. The decree has limited McNeil product output since taking effect in March 2011; a company spokeswoman said J&J now is on track to satisfy all remediation responsibilities under the decree by the end of 2014.

At the Citi Global Health Care Conference in New York, Gorsky said J&J already is working with CVS, Walgreens, Walmart and other retailers “to make sure that we have comprehensive programs in terms of marketing, sales and partnership areas with them, to be able to regain our appropriate place in the marketplace.”

J&J expects to satisfy all milestones under McNeil’s manufacturing consent decree with FDA by the end of 2014, but the decree cannot be vacated until 2019 at the earliest.

The CEO is hopeful Tylenol, Motrin and other recalled McNeil OTC drugs will be in position to regain consumer acceptance. Gorsky said market research shows consumer ratings of those brands have remained relatively stable despite the 2009 and 2010 recalls and subsequent absence of many stock-keeping units from store shelves.

New Brunswick, N.J.-based J&J will ramp up marketing as it relaunches about 75% of the recalled OTCs throughout 2013, Gorsky said in January Also see "J&J Will Boost OTC Marketing Once Reliable Production Returns" - Pink Sheet, 28 January, 2013..

Morningstar analyst Damien Conover said in a Feb. 25 research note he expects the majority of J&J’s OTC manufacturing capacity back online by summer 2014 and projects the return of consumer products to add nearly $650 million to the firm’s annual revenues.

Worldwide sales of J&J consumer products reached $14.45 billion in fiscal 2012, down a reported 2.9% year-over-year, but 0.5% higher on a constant currency basis.

Consent Decree Could End In 2019

Though the McNeil consent decree – covering plants in Fort Washington and Lancaster, Pa., and Las Piedras, Puerto Rico – remains a long-term commitment for J&J, the company sees light at the end of the tunnel Also see "FDA Enforces Consent Decree Over J&J/McNeil's OTC Manufacturing" - Pink Sheet, 14 March, 2011..

In October, FDA approved J&J’s work plan submitted under the decree to implement a unified quality system across McNeil’s sites. Gorsky said the work plan was accepted with “remarkably few comments” from the agency.

The currently offline Fort Washington facility is slated to be ready for FDA certification by the end of 2013, then return to commercial production in 2014. J&J expects the Lancaster and Las Piedras sites, now running at reduced capacity, to be certified by third-party auditors – as specified in the decree – after remediation wraps up at the end of next year, the spokeswoman said.

Finally, all three McNeil plants will host inspections evaluating compliance with good manufacturing practices through 2019. Once the company has shown itself to be compliant for 60 months, J&J can apply to have the consent decree vacated.

“We’ve learned a lot over the past several years,” Gorsky said. “We are gaining confidence in the steps that we’ve taken in our manufacturing facilities, that our quality programs are on the right track.”

J&J Spreads China Skin Care Presence

At the Citi event, Gorsky also publicized a recent J&J consumer products acquisition in China – ShanghaiElsker Mother & Baby Co. Ltd., maker of natural baby skin care products.

He said the Elsker deal is expected to complement J&J’s natural skin care offerings, which include Neutrogena Naturals. All in all, J&J tallied sales of nearly $2.5 billion in China during 2012, thanks to a mix of global and local brands across its consumer, device and pharma businesses.

According to a Jan. 26 release from investment banking firm Business Development Asia LLC, which advised Elsker on the deal, Elsker had grown to become China’s market leader in branded baby skin care since its founding in 2006.

“We see Johnson & Johnson as the best partner to bring in more resources to further develop the brand. Elsker will benefit from J&J’s expertise,” said Moling Chen, managing director at Edmond de Rothschild Private Equity China Fund, an Elsker shareholder, according to the release. Terms of the acquisition by Johnson & Johnson (China) Investment Co. Ltd. were not disclosed.

J&J Prioritizes OTC Return With McNeil Remediation End In Sight

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