Our Terms of Service and Privacy Policy have changed.

By continuing to use this site, you are agreeing to the new Privacy Policy and Terms of Service.

FDA takeover: Cost to Tylenol maker

By Parija Kavilanz, senior writer


NEW YORK (CNNMoney) -- The government takeover of Johnson & Johnson's Tylenol-making factories is a serious step that could further hurt sales of the company's well-known over-the-counter medicines.

On Thursday, the Food and Drug Administration and the Justice Department announced an agreement with J&J (JNJ, Fortune 500)'s McNeil PPC division that put its plants -- one in Las Piedras, Puerto Rico, one in Fort Washington, Pa., and one in Lancaster, Pa. -- under FDA supervision.

The agreement, known as a consent decree, is a very serious development for J&J.

How serious? Industry watchers said the recalls -- and now the government's intervention -- have dented J&J's reputation and credibility with consumers and its bottom line.

Larry Biegelsen, senior analyst with Wells Fargo Securities, wrote in a note Thursday that he estimates the cost could be in the $50 million to $100 million range during the remediation plan.

That's on top of the $900 million J&J has already lost in sales last year because it yanked drugs off store shelves and hasn't been able to replace them.

McNeil recalled more than 130 million units of Tylenol, Motrin and other OTC drugs for quality concerns and small metal particles in 2010.

Given that the FDA's agreement with J&J could be in place for five years, Biegelsen said the total magnitude of the financial hit on the company's business "is hard to quantify."

Regardless, the hit represents a more serious reputational blow than a financial one. Financially, the impact is a drop in the bucket of J&J's sales last year of $64 billion.

Biegelsen said that while the agreement is an "onerous remediation plan" that could slow down production of McNeil's non-prescription drugs it could also be an opportunity for the company to finally put the recall mess behind it.

With the FDA's supervision, McNeil may be able to fix its problems on a specific timetable.

"The consent decree removes much of the uncertainty regarding next steps for McNeil's recovery plan, without paying any upfront fine," Biegelsen said.

"In our view, it also significantly reduces, but does not eliminate entirely, the risk of a worst-case scenario of plant shut down in Puerto Rico." To top of page

Index Last Change % Change
Dow 17,689.86 -56.12 -0.32%
Nasdaq 5,128.28 -0.50 -0.01%
S&P 500 2,103.84 -4.79 -0.23%
Treasuries 2.20 -0.06 -2.78%
Data as of 4:30pm ET
Company Price Change % Change
Bank of America Corp... 17.88 -0.25 -1.38%
Micron Technology In... 18.51 -1.39 -6.98%
Facebook Inc 94.01 -1.20 -1.26%
Apple Inc 121.30 -1.07 -0.87%
Frontier Communicati... 4.72 0.09 1.94%
Data as of Jul 31
Sponsors

Sections

Some families are outraged at the sums they've been offered by Lufthansa as compensation for the Germanwings plane crash in March which killed 150 people. More

The U.S. economy has had pretty ho-hum start to 2015. But the stage is set for a strong second half of the year. More

Fast-food chains that operate in more than 30 locations nationwide are the sole target of a new rule in New York to hike their minimum wage to $15. But consumers and small business owners, as well as some employees, may be the ones to pay the price. More

You can't blame it on the economy anymore. More Millennials now have jobs, but are still living at home. More