The largest OTC company, Johnson & Johnson’s McNeil Consumer Healthcare, has been plagued by a series of product recalls recently and this has widespread repercussions to the OTC industry. The problems have ranged from moldy odors and contaminated shipping palettes, to concerns about levels of active ingredients in products, and concerns about product safety and manufacturing quality controls at the firm’s Fort Washington, PA site. The recalls have prompted Congressional hearings and have affected several major brands across multiple categories including both adult and children’s medications in the Tylenol, Motrin, Benadryl, and Zyrtec lines.
Johnson & Johnson expects to incur costs of $500-$600 million in 2010 as a direct result of the recalls and hundreds of jobs will be lost as a result of the prolonged closure of its Ft. Washington, PA plant. The company does not expect to reopen the PA plant until mid-2011 or later.
Johnson & Johnson is not the only company impacted by OTC recalls as Procter & Gamble, Bayer, and Perrigo have also recently issued voluntary product recalls on specific lots of their OTC medicines. However, these recalls were all much more isolated cases than Johnson & Johnson’s widespread recalls.
The recalls and the related media coverage have understandably shaken consumer confidence in OTC products and in the coming months could end up being a boon to private-label or store brand OTCs. In the case of the pediatric OTC recall by Johnson & Johnson for Children’s Tylenol, Children’s Motrin, Children’s Benadryl, and Children’s Zyrtec, many confused parents were instructed by their pediatricians to throw away these branded OTCs and rather than substitute with other branded OTCs to use store brands instead. This endorsement by physicians for private-label OTCs coupled with private-label’s lower price point and retailers’ aggressive promotions will drive many consumers away from national brands and towards store brands. Novartis has tried to take advantage of the market absence of Children’s Tylenol products by launching children’s acetaminophen liquids under its Triaminic brand name recently.
Since the Johnson & Johnson recalls the major drug chain Walgreen’s is running advertisements noting that all of Walgreen’s store brand OTCs are FDA approved and made with strict quality standards that consumers can trust. This marks a large role reversal as private-labels are typically not advertised at all and Johnson & Johnson has spent millions of dollars over the years building Tylenol’s image as the “Brand you can trust.”
Since the widespread OTC recalls from Johnson & Johnson there have been multiple other products made by the company that have been questioned by the FDA and the company itself and subsequently recalled. These products include DePuy hip replacement systems and AccuVue contact lenses.
The safety concerns for major OTC brands caused by the recalls together with physicians’ recommendations for private-label OTCs and the lower price point of private-labels is likely to lead to aggressive sales growth of private-label OTCs at strong rates in the coming months in such categories as general pain relievers, allergy relief products, and cold medications.
Johnson & Johnson has a long road ahead of damage control, public relations, and media campaigns to help restore public trust in their brands and their company. The company should consider specific campaigns with similar but varied messages communicating the improvements that have been made in their quality standards for physicians, pharmacists, consumers and retail partners. In a way most major branded OTC companies can use Johnson & Johnson’s recalls as an opportunity to run advertising and media campaigns to differentiate their OTC brands, ingredients, and quality and safety controls. Simultaneously, major branded OTC companies should also reinforce with their retail customers and healthcare professionals including physicians and pharmacists, the quality and safety standards for their respective OTC brands.