McNeil woes contribute to lower earnings at J&J

McNeil plant in Fort Washington, part of Johnson & Johnson's consumer division, has had dozens of product recalls in recent years. A source said J&J may be exploring its sale. MICHAEL S. WIRTZ / Staff
McNeil plant in Fort Washington, part of Johnson & Johnson's consumer division, has had dozens of product recalls in recent years. A source said J&J may be exploring its sale. MICHAEL S. WIRTZ / Staff
Posted: July 18, 2012

After Johnson & Johnson reported lower overall sales and profit for the second quarter Tuesday, in part because of continuing problems at its McNeil Consumer Healthcare facility in Fort Washington, new chief executive officer Alex Gorsky was asked why he was not considering selling pieces of the health-care giant.

Goldman Sachs pharmaceutical analyst Jami Rubin wrote in May that J&J should follow the example of Pfizer Inc. and Abbott Laboratories Inc. and separate its three divisions — consumer products, pharmaceuticals, and devices — because it couldn't manage them all in a way to get full value.

"When you have a large portfolio with depth and breadth, that will be a competitive advantage," Gorsky said Tuesday when Rubin asked about the difference in strategy on a conference call with Wall Street analysts, after having earlier said that resuming quality production at McNeil was one of his highest priorities.

"We also realize," he said, "we are going to have to be more selective and more decisive in what areas we're going to be in and what areas we're not going to be in."

McNeil, which is part of the consumer division in the J&J organization chart, has had dozens of product recalls in recent years. The Fort Washington plant stopped making medicine in April 2010. Repairs are under way, but production won't resume until the U.S. Food and Drug Administration and a federal judge say so, perhaps sometime in 2013. Maybe.

On Tuesday afternoon, the company said it was laying off 200 employees from the McNeil facility in Puerto Rico.

An industry source said J&J might be exploring the possibility of selling McNeil or some of its products, including the pain-reliever Tylenol.

Reporters are not allowed to ask questions during the conference calls with Wall Street analysts. A spokesman at J&J headquarters in New Brunswick said Gorsky was unavailable for an interview. The spokesman, Al Wasilewski, was asked if J&J has given any consideration to selling the McNeil unit or its key brands such as Tylenol or Motrin.

"I think you heard Alex talk about our broad-based approach as one of our fundamental strengths and what positions us best for the future," Wasilewski said via e-mail. "We wouldn't comment on speculation and rumors in the marketplace."

McNeil employs about 900 people in Fort Washington, which also is the unit's headquarters, 200 in Lancaster, and after the cuts, about 600 in Las Piedras, Puerto Rico. Lancaster and Las Piedras are operating under greater scrutiny and will focus on a few key products in coming months: versions of Tylenol, Motrin, Zyrtec, and Benadryl.

McNeil is one of several J&J operations in the Philadelphia area. Indeed, while Gorsky said he was "extremely" happy with the pharmaceutical division's recent efforts, he was proud to talk about West Chester medical-device-maker Synthes. J&J closed that $19.7?billion acquisition — engineered by Gorsky — on June 14, and in the 11 days before the quarter ended, Synthes accounted for 1.2 percent of quarterly sales.

But that wasn't enough to overcome other issues.

J&J's domestic sales dropped 1.9 percent. The overall second-quarter sales were $16.5?billion, a decrease of 0.7 percent over a year earlier, though currency rates were a big factor.

J&J profit was $1.4?billion for the second quarter, down 49.3 percent from the $2.8 billion of the second quarter in 2011. The difference was attributed mainly to currency rates and one-time charges of $2.2?billion related to accounting rules and litigation around several products.

Contact David Sell at 215-854-4506 or dsell@phillynews.com, or follow on Twitter @PhillyPharma. Read his "PhillyPharma" blog on philly.com.

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