Johnson & Johnson is looking for opportunities to expand its consumer business after it satisfies an FDA consent decree and fully restores distribution of all of its OTC brands affected by manufacturing quality control problems.

“We are very excited about the possibility of consumer becoming a bigger part of our business,” J&J Chief Financial Officer Dominic Caruso said Sept. 10 at the Morgan Stanley Healthcare Conference.

Caruso said the firm expects consumer product sales’ growth to accelerate as more people respond to changes from the Affordable Care Act and rising health care costs by taking a more active role in their health.

This ongoing shift in the public’s perception of health care toward wellness and prevention and using less expensive OTCs to treat ailments when possible is predicted to help grow the industry as a whole.

J&J hopes to capitalize on this trend by focusing on specific “need states,” such as pain, allergy and oral care, and growing them organically through innovation and through acquisitions of new brands, most likely in emerging markets, Caruso said.

A recent example of organic growth through innovation was the firm’s March launch of Zyrtec Dissolve Tabs. The expansion of the allergy-relief portfolio targets children, who sometimes struggle to swallow pills, and adults caught off guard by allergies who need a formulation they can take on-the-go without water, the firm explained in a press release announcing the launch ([A#05140317004]).

Caruso also said J&J is interested in building scale in emerging markets through deals such as its acquisition in 2008 of Beijing Dabao Cosmetics Co. Ltd. in China or its 2006 acquisition of French adult and baby skin care product firm Groupe Vendome, which included the brand Le Petit Marseillais. More recently, the firm acquired rival baby care company Shanghai Elsker Mother & Baby Co. in China ([A#28130428005]).

Caruso said J&J has the same criteria for consumer market acquisitions that it has for deals across its business sections.

“Acquisitions have been a major component of our growth strategy, but what makes them attractive to us is whether we’re going to have a return on the capital employed that is sufficient to compensate shareholders for the use of their capital. That’s the key criteria in an acquisition we do, whether it is big or small.”

He added he prefers undervalued acquisition targets at reasonable premium and that are “going to be better in our hands than it was in the hands of the previous owner.” This usually means smaller deals, he said.

First Things First: Restoring OTCs

But before J&J can fully employ this strategy, Caruso said it is taking a “first things first strategy” in the consumer business that focuses on restoring the OTC business to its revenue level before quality control problems forced the firm’s McNeil Consumer Healthcare business to shutter one manufacturing facility and slow production at two others, cutting off sales of several iconic self-care brands.

He said the firm is in “the tail end of” addressing manufacturing quality concerns that led to FDA warning letters and a consent decree in March 2011 Also see "J&J Prioritizes OTC Return With McNeil Remediation End In Sight" - Pink Sheet, 4 March, 2013..

“We needed to get the over-the-counter business back in shape, quite frankly,” he said, adding, “By the end of this year, we will have completed almost all the work required under the FDA consent decree.”

McNeil and FDA agreed to the decree following an investigation prompted by a string of recalls of OTC products in the Tylenol, Motrin, Zyrtec and Benadryl lines in 2009 and 2010.

McNeil's Fort Washington, Pa., manufacturing facility will remain closed until after an independent expert conducts an audit and FDA determines the site is compliant with good manufacturing practices regulations, according to the decree. The firm's Las Piedras, Puerto Rico, and Lancaster, Pa., plants also must be audited, but were allowed to continue operating Also see "FDA Enforces Consent Decree Over J&J/McNeil's OTC Manufacturing" - Pink Sheet, 14 March, 2011..

The decree also requires McNeil, after FDA clears the plants, to pay for annual audits for five years, with two required in the first year at Fort Washington. If an audit finds problems, FDA may extend the requirement for another five years.

Caruso said the firm is supporting the return to market of products affected by the manufacturing closures “with the right kind of promotional activity.”

For example, in late 2013 the firm returned its Tylenol pain reliever to stores with an ad campaign that recalled classic ads for the product and reminded consumers that the brand long has provided relief Also see "Tylenol Relaunch Ads Harken To “Trusted” History" - Pink Sheet, 14 November, 2013.).

More recently, the firm launched the “Stories of Strength program” to encourage people to honor others who are a source of strength in their lives. For each story shared, Extra Strength Tylenol donated $1 to DoSomething.org, a group of young volunteers that conduct campaigns on causes including eliminating poverty and violence and protecting the environment.

To support the return of another classic product, Pepcid, J&J teamed with culinary expert Ted Allen and Eater.com, guide and rating website, to host exclusive dining events. Pepcid products were provided so participants could enjoy the food without suffering heartburn, the firm said.

J&J Looks To Expand Consumer Business After Consent Decree Obligations End

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