Johnson & Johnson Gets a Slap on the Wrist

You could see this one coming from a mile away. As soon as Johnson & Johnson's (NYSE: JNJ) recalls became so numerous that reporters stopped mentioning the number of recalls that the company had issued, it was inevitable that J&J would end up with a consent decree with the Food and Drug Administration.

Yesterday, the two parties reached an agreement on what the company needs to do to fix its myriad manufacturing problems. The consent decree covers two plants in Pennsylvania and one in Puerto Rico. One of the plants manufactures over-the-counter drugs for Johnson & Johnson's joint venture with Merck (NYSE: MRK).

A consent decree isn't the end of the world. Genzyme (Nasdaq: GENZ) and Schering-Plough both got one and turned things around enough to be purchased by sanofi-aventis (NYSE: SNY) and Merck, respectively.

And Johnson & Johnson's agreement looks like little more than a slap on the wrist. There's no up-front penalty; Genzyme, by contrast, had to pay a $175 million fine. J&J could face fines of $15,000 a day for violating the decree, which could cost the company up to $10 million a year. But somehow, I doubt J&J will make the same mistake twice.

Johnson & Johnson will have to pay for third-party oversight to ensure that things get up to snuff, but that's a drop in the bucket, considering that its manufacturing issues cost the company $900 million in lost sales last year. No one wants these issues fixed more than J&J.

While the consent decree isn't a major issue, it is another blemish on J&J's tarnished reputation. The company will be able to turn things around, but it may take a while to get customers back. I'm guessing the person that said, "There's no such thing as bad press," never had a consent decree with the FDA.