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Magic Number: Tylenol Recall Cost J&J $665M in Lost Sales

Johnson & Johnson (JNJ)'s recalls of Tylenol and its other drugstore remedies have cost the company about $665 million in lost revenue so far, if you read between the lines of the company's Q3 2010 earnings report. The word "Tylenol" was not to be found in the company's press statement, even though J&J launched a ninth recall of Tylenol last night.

Although the company often does not call out its big consumer brands by name in its earnings statements, the Tylenol situation is the major cloud of uncertainty hanging over the company right now. Investors and customers want to know: When will J&J gets its supply back online, and how much money will the company lose in doing so? CEO William Weldon said recently that the plant will not reopen until he's satisfied that's it's perfect, but gave no date.

We don't know how much it will cost J&J to close its Fort Washington, Pa., plant, fire a bunch of executives, replace them with new ones, and then rebuild the plant from scratch. Clearly, tens of millions.

But we do know the difference the recalls have made on J&J's over-the-counter, non-prescription drug business. As the recalls started in earnest in January, and continued all the way through Q3, they coincide exactly with the first three quarters of J&J's financial year. In those nine months, sales of J&J's OTC brands declined 31.1 percent from $2.1 billion to $1.5 billion in the U.S.: A loss of $665 million from brands such as Tylenol, Motrin and Benadryl. (International sales stayed steady, up 3.4 percent to $1.9 billion; which rather proves the case that the $665 million cliff-dive in the U.S. was triggered by Tylenol). That's $65 million more in vanished revenues than previously thought.

It may get worse. Pfizer (PFE) just started a "kick Tylenol while it's down" campaign for rival Advil and some analysts believe generic acetaminophen makers may be able to retain market share even when Tylenol returns.


Image by Flickr user woodleywonderworks, CC.
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