Just when we began believing that Johnson and Johnson was on the road toward more responsive quality and production management, it has happened again, yet another major product recall.

J&J is voluntarily recalling 32 million packages of the birth control pill Cilest, which is primarily distributed to patients in Europe, Asia and Latin America. This product is produced and distributed by business unit Janssen Pharmaceuticals Inc..  The recall was initiated because one active ingredient did not lead to a “defined specification” in a designated quality check.  In other words, there is a problem with the consistency or composition of a batch of active ingredient. The recall involves 179 lots or batches of product that were manufactured in or after 2011.  Each lot contains 180,000 packages.

That, in our view, it a rather long cycle of production exposure. 

J&J has been quick to note that the product remains safe and effective but apparently has not elected to issue a formal press release announcing this recall.  Cilest is not sold in the United States.

This latest recall was initiated higher in the supply chain, at the wholesaler and pharmacy level, and requires supply chain channel partners to return all unsold product. Thus, J&J is trying to avoid a direct consumer-facing recall campaign that further

Frequent readers of this blog will be all too familiar with the history of quality and production snafus originating across multiple J&J business units.  A long series of past product recalls in over-the counter (OTC) medicines involving Tylenol, Benadryl, Motrin and Zyrtec date back to 2009 and resulted in the outright temporary closing of a manufacturing facility in Pennsylvania. In July of 2011 there were revelations of an internal investigation led by Johnson & Johnson’s independent directors which points to a direct connection from certain headcount reductions, along with “periodic headcount freezes’ as contributing factors related to product quality breakdowns at the company’s McNeill Consumer Healthcare unit. In May of 2012, there was yet another product recall involving the McNeill OTC unit. Efforts to resolve these issues and re-dedicate efforts toward insuring various past supply chain and product quality issues were permanently addressed in various company-wide performance improvement initiatives were launched.  Unfortunately, in now appears that more process issues remain to be addressed. A posting on Domain-b.com makes note that the recall of Cilest comes a month after J&J recalled children’s Tylenol products in South Korea for containing an overdose of medicine while India based health officials revoked a license to manufacture cosmetics at a facility in Mumbai after determining that an unauthorized process was utilized to sterilize a baby powder product.

In our last Supply Chain Matters January commentary regarding J&J, we applauded the company for its continued renewed initiatives in addressing quality and supply chain production conformance issues.

It would now appear that more work, concentrated leadership and dedicated efforts remain.

Bob Ferrari

Supply Chain Matters notes yet another installment in the continued risk of counterfeit drugs and goods within supply chains.

The Financial Times reported that leading generics drug producer Teva Pharmaceutical is stepping-up quality inspections of its products across Europe after discovering a sophisticated counterfeiting operation involving a popular off-patent heartburn treatment medicine.  The fake versions of the drug Omeprazole were discovered by Ratiopharm, a subsidiary of Teva after being alerted from a patient in Germany, who noticed spelling mistakes on the label of the packaged drug. Apparently, the drug contained genuine ingredients but was not produced by the manufacturer stated on the label. While the counterfeit version of this drug does not appear to pose a health risk, it has exposed weaknesses in government drug discount reimbursement programs based on the volume of drugs sold. A spokesperson for Teva was quoted as noting that this company was somewhat surprised to discover this counterfeiting scheme involving one of its products. Stepped-up efforts now include random testing of the company’s products that are in distribution, along with other products.

The alert has now triggered other manufacturers of Omeprazole to make further discoveries of fake versions of both the 20 milligram and 40 milligram packs of this drug.  One other manufacturer mentioned included Hexal, a subsidiary of Sandoz.  Here again, it is noted that while the unit cost of this drug is relatively low, thieves have been able to generate substantial profits through volume distribution of the counterfeit version.

Bob Ferrari

There was significant news this week related to generic pharmaceutical drug distribution, one directly related to further consolidation of the distribution side of pharmaceutical supply chains.

Three pharmaceutical firms, Alliance Boots GmbH, AmerisourceBergen and Walgreen Co., are forming a 10 year distribution partnership to sell and distribute prescription drugs globally. The implication is an entity with considerable buying and influence power and perhaps, a change in the competitive dynamics of generic drug distribution.

According to a published report in The Wall Street Journal, this deal could provide Walgreen with a significant advantage over drug chain rivals. The deal can enhance the capability for both Walgreen and Alliance Boots to expand their presence in Europe, Asia and African markets. Walgreen had already taken a $6.7 billion stake in Alliance Boots in June of last year. It provides an added $28 billion in revenues to thrust global drugs distributor AmerisourceBergen from the third largest to the second largest national distributor, behind industry leader McKesson.  Over time, the distributor will increasingly assume the distribution of generic drugs that Walgreens has self-distributed. In this deal, both Walgreen and Alliance Boots have the right to purchase up to 23 percent of AmerisourceBergen.

It is further reported that Walgreen will most likely not renew its existing brand name drug supply contract with Cardinal Health which expires in August of this year. The Walgreen contract represented over 20 percent of Cardinal’s revenues.

The WSJ indicates that the implication of the shifting landscape of this deal could motivate companies like Cardinal Health and Rite Aid Corp. to partner. It further provides Walgreen the leverage to become less dependent on pharmacy-benefit management firms and bypass insurance co-pays.

Supply Chain Matters adds another implication related to this deal, which is added pricing pressure on both generic and branded pharmaceutical producers. While some would argue that there is little room for bargaining with generic manufacturers, aggregated purchasing and volume power is always a compelling influence, especially if health insurance providers join in that influence.

Obviously, existing pharmaceutical drug distribution players can anticipate more changes and announcements in the months to come as industry balance has now shifted.

Bob Ferrari

Prediction Nine of our 2013 Predictions for Global Supply Chains (research report available for free download within our Research Center) noted that higher and more expensive incidents of counterfeit products within and across supply chains will finally motivate industry to step-up mitigation efforts.

Last year, one of the more visible aspects of this problem were incidents of counterfeit versions of the cancer life-saving drug Avastin making their way across global supply chains. In a July 2012 commentary, Supply Chain Matters highlighted The Wall Street Journal’s investigative report that traced how fake versions of Avastin were procured and distributed through a network of international distributors. The global distribution scheme opened the door to sourcing of the drug from countries where regulatory controls are not as strict, and where introduction of fake medicines into the supply chain are more easily accomplished.

On Wednesday of this week, The Wall Street Journal once again reported that the U.S. Food and Drug Administration (FDA) had to once again alert physicians and healthcare providers to yet another counterfeit batch of Avastin. This latest warning involves distributor Pharmalogical, which also does business as Medical Device King and Taranis Medical, which shipped two batches of Altuzan, the Turkish branded version of Avastin, to U.S. based healthcare providers. It was reported that at least one batch contained no active ingredient.  According to the WSJ, the FDA was unable to identify which doctors purchased this batch of medicine. The article also makes note that U.S. law-enforcement agencies and drug manufacturers are aggressively pursuing drug distributors that sell unapproved foreign drugs, and that two new guilty pleas have come forward in recent weeks.  One was the case of a San Diego based oncologist who pleaded guilty to buying an unapproved foreign version of the cancer drug Rituxan from an overseas distributor, and then bill Medicare for the full price of the drug. In another case, a Florida based distributor pleaded guilty to conspiracy and mail fraud in the importation of $7 million worth of the cancer drugs Taxotere and Eloxatin.

In 2012, we called for all members of pharmaceutical and drug supply chains, industry regulators to bring serious attention on processes related to the sourcing, supplier monitoring and product authenticity of drug supplies. We neglected to specifically mention unscrupulous distributors’ healthcare providers who are pursuing business self-interests over the safety of patients.

The good news is that some progress is being made.  In 2012, U.S. enforcement efforts directed at suspected illegal drug trafficking involving prescription drug abuse, ensnarled supply chain players such as major distributor Cardinal Health, drug retailers CVS and Walgreens.  In the remaining months of 2013 we hope to be featuring more commentaries noting progress in these areas.

Bob Ferrari

The Supply Chain Matters blog has featured many previous commentaries related to Johnson & Johnson and the supply chain, manufacturing and quality management challenges related to certain of its consumer brands. A long series of past product recalls in over-the counter (OTC) medicines involving Tylenol, Benadryl, Motrin and Zyrtec date back to 2009 and resulted in the outright temporary closing of a manufacturing facility in Pennsylvania. In July of 2011 there were revelations of an internal investigation led by Johnson & Johnson’s independent directors which points to a direct connection from certain headcount reductions, along with “periodic headcount freezes’ as contributing factors related to product quality breakdowns at the company’s McNeill Consumer Healthcare unit. In May of 2012, there was yet another product recall involving the McNeill OTC unit. Our commentary at the time noted that we did not necessarily want to ‘pile-on’ not so flattering commentary regarding any one specific company, but alas, J&J  seemed to continue go out of the way in accumulating not so flattering headlines. Supply chain issues were not just confined to its OTC products. A pharmaceutical drug division that initiated a sole sourced contract manufacturing facility which later encountered a significant quality problem severely impacted the supply of the ovarian cancer treating drug Doxil, causing global wide concern among treatment physicians.

This week, J&J formally reported its fourth quarter-2012 financial results reporting a surge in quarterly earnings but lighter than expected quarterly sales.  Supply Chain Matters made a special effort to review the earnings transcript to note what progress has been made in addressing the various past supply chain and product quality issues, and we were pleased to note the senior management is openly addressing its initiatives and performance to date. Thus, we felt it important to note such progress in this posting.

In the financial analyst and investor briefing, J&J Chairmen and CEO, Alex Gorsky, noted the following:

“One, and something that we’ve been extremely consistent about over the past several years, is returning and repairing some of the quality and supply issues that we’ve had in our OTC, particularly in the McNeil U.S. division. I’m very pleased with the progress that we’re making in that. We mentioned to you that the consent decree that we had designed in conjunction with the FDA was approved and reviewed in October, with very few comments. And given the breadth and scale of that agreement, we felt very good about that. We’ve had teams working hard since then. We’ve achieved all of our major milestones since we’ve submitted that agreement.”

Mr. Gorsky went on to note that the McNeill unit continues to operate in accordance with the consent decree issued by the U.S. Food and Drug Administration (FDA) and has achieved its commitments to date.  The company has now taken a much more prudent approach to re-starting full production with the initial reentry of products like Children’s Tylenol and Children’s Motrin. Over the course of the remainder 2013, J&J has plans to return about 75% of its OTC consumer brands to the marketplace.

Regarding the chronic supply issues related to the drugs Doxil and Caelyx, it was noted that significant progress to restore reliable supply. An alternate manufacturing approach consisting of collaboration between the current third-party manufacturer and another supplier to complete end-to-end production was approved in the E.U. and Japan late in 2012 and in Canada earlier this month.  In the U.S., the Janssen division announced in October 2012 that full access to Doxil has been restored. While Janssen continues to work with the FDA to seek approval of an alternate manufacturing source, the agency is exercising its regulatory discretion to release Doxil manufactured through this approach to the U.S. market to ensure continued full access for healthcare providers and their patients.

Other noteworthy comments from Mr. Gorsky were the following:

“Excellence in execution is extremely important. Across our enterprise, we have built greater accountability for quality into the requirements of all of our leaders. It has strengthened quality and compliance at the enterprise level by taking specific steps to reduce variation and increase governance. We’ve also redefined standards and processes in the Johnson and Johnson supply chain to, most importantly, improve the level of execution and to deliver efficiencies that can free resources up for investment.”

For the chairmen and CEO of any large global company to openly address quality governance and supply chain execution consistency with such candor is certainly a sign of top-level commitment for change, accountability and more positive outcomes.

Supply Chain Matters applauds J&J for its continued renewed quality and supply chain efforts and we certainly trust that the company’s efforts will continue to foster positive outcomes in the months to come.

Bob Ferrari

In conjunction with our unveiling of our Supply Chain Matters 2013 prediction #3 of a continued renaissance in U. S. based manufacturing, we call reader attention to a very articulate and well written commentary published on the Xconomy web portal; Build it in the Back Yard, Why We need American Manufacturing.

The commentary is jointly authored by five individuals of Boston area based, Vertex Pharmaceuticals. They jointly provide powerful insightful arguments that while offshore manufacturing options may offer a lower price, that considerations for rigorous regulatory compliance, concerns for intellectual property protection, and the critical aspects of co-innovation among product development and manufacturing are often offsetting factors.  In the pharmaceutical and perhaps other innovation focused industries, manufacturing presence and capability is often a high-precision, highly skilled process.  The authors provide a powerful argument for concentrating research and development in the shadow of manufacturing, and for viewing a diversified supply chain as a strategic advantage. The provide an example of how Vertex was compelled to move from a traditional industry “batch processing” to a more innovative “continuous processing” production process by co-locating its manufacturing facility close to corporate research in the Boston area.

At the same time, these authors recognize realities that today, perhaps the bulk of high volume pharmaceutical manufacturing is sourced in lower cost regions. However, an argument for locating pilot manufacturing close to U.S. based product innovation is articulated.

We found the most important takeaway from this commentary was a reminder as to the real economic benefits that accrue from a vibrant manufacturing, and might we add, supply chain capability.  To quote: “Real economic and wealth creation, accrue during the scale-up, commercialization, and manufacture of products that emerge from research and development.” That the authors argue, is the real benefit that legislators and private industry need to fully understand.