J&J Faces More Scrutiny From FDA on McNeil Consent Decree

Johnson & Johnson (JNJ), the world’s biggest health products maker, will face more scrutiny from U.S. regulators after its McNeil unit was charged with violating federal laws following multiple recalls in the past year of over-the-counter drugs such as Tylenol.

The Food and Drug Administration and Justice Department signed a consent decree yesterday with McNeil that requires the company to fix deficiencies at a plant in Fort Washington, Pennsylvania, that has been closed since April 30. McNeil must also address manufacturing violations at facilities in Lancaster, Pennsylvania, and Las Piedras, Puerto Rico, under “a strict timetable,” the agency said in a statement.

The legal agreement intensifies regulatory pressure on J&J to fix manufacturing woes that have led to dozens of recalled products and last year cost the world’s largest health-products company $900 million in sales. The FDA ordered McNeil to hire a quality-control expert and take steps to address the problems. Failure may result in fines of as much as $10 million annually.

“Now that the FDA is there, it’s going to make things worse,” said Les Funtleyder, a health-care portfolio manager at Miller Tabak & Co. in New York, in a telephone interview yesterday. “They are going be a lot more restrictive, a lot more stringent with their regulations.”

Photographer: Daniel Acker/Bloomberg

J&J shut down its Fort Washington plant about a year ago after FDA inspectors found signs of contamination. Close

J&J shut down its Fort Washington plant about a year ago after FDA inspectors found... Read More

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Photographer: Daniel Acker/Bloomberg

J&J shut down its Fort Washington plant about a year ago after FDA inspectors found signs of contamination.

J&J gained 8 cents to $59.69 at 4 p.m. in New York Stock Exchange composite trading. The New Brunswick, New Jersey-based company has fallen 7.1 percent in the past 12 months, compared with a 1.8 percent average gain among 52 stocks in the Standard & Poor’s Health-Care Index.

Children’s Medicines

J&J shut down the Fort Washington plant about a year ago after FDA inspectors found signs of contamination that forced the recalls of more than 40 types of children’s liquid pain and allergy medicines including Tylenol and Benadryl. Since then, the company has withdrawn Rolaids, Sudafed and other products because of unusual texture, improper labeling or insufficiencies in the manufacturing process.

The FDA had “numerous meetings and teleconferences” with McNeil and J&J officials since 2009 to address violations found in inspections of the three plants, the Justice Department said in its complaint.

“Although McNeil has initiated a corrective action plan and made some improvements with respect to personnel and operations as a result of these meetings, recent FDA inspections have confirmed that violations persist and additional work is needed to fully address deficiencies and achieve sustained compliance with the law,” the Justice Department said.

‘Necessary Step’

“This is a strong, but necessary, step to ensure that the products manufactured by this company meet federal standards for quality, safety and purity,” said Deborah Autor, director of the Office of Compliance in the FDA’s Center for Drug Evaluation and Research.

McNeil will operate the facilities in Lancaster and Puerto Rico as it addresses the findings of the independent expert. The company said in a statement that it expects the consent decree will govern the operations of the facilities for at least five years after the remediation plan is in place.

The consent decree “is not a complete surprise” and may decrease J&J’s earnings per-share about 5 cents, or $200 million pretax, said Michael Weinstein, an analyst with JPMorgan Securities in New York, in a note to clients.

Further Inspections

The consent decree “lays out a specific game plan and timeline” for bringing McNeil’s facilities into compliance, Ira Loss, an analyst with Washington Analysis, said yesterday in a telephone interview.

“Most responsible companies have the discipline and desire to meet the targets,” said Loss, who has followed the FDA for more than three decades. “The uncertainty is over for the McNeil division.”

The FDA will charge McNeil for follow-up inspections at a rate of as much as $104.97 per hour for lab analysis. The consent decree also doesn’t preclude future criminal charges, the agency said. J&J has disclosed in filings that the U.S. Attorney’s Office in Philadelphia issued grand jury subpoenas seeking documents relating to the recalls and FDA inspections of the plants in Fort Washington and Lancaster.

“We are a company that strives to do the right thing, and we succeed far more often than not,” J&J Chief Executive Officer William Weldon said yesterday in a note to employees on the company’s blog. “When we don’t succeed, it’s painful. But, consistent with our credo, we take responsibility for our actions, and we learn from our mistakes.”

Previous Recalls

McNeil is among J&J’s units that have drawn scrutiny over product defects. The company’s Cordis unit failed to ensure that heart stents made at a Puerto Rico factory worked properly, the FDA said in a Feb. 16 warning letter released this week. The DePuy Orthopaedics division recalled a hip-replacement system in August, at a cost of $280 million, and faces more than 500 lawsuits by patients who had the implants.

Products recalled last month by J&J and its subsidiaries include Animas insulin cartridges that may leak, possibly cracked syringes of Invega Sustenna for schizophrenia, defective Simponi injectable pens for arthritis and vials of discolored Dermabond skin adhesive.

The consent decree filed yesterday with McNeil, the FDA and the Justice Department must be approved by the U.S. District Court for the Eastern District of Pennsylvania.

To contact the reporter on this story: Catherine Larkin in Washington at clarkin4@bloomberg.net; Molly Peterson in Washington at mpeterson9@bloomberg.net

To contact the editors responsible for this story: Adriel Bettelheim at abettelheim@bloomberg.net; Reg Gale in New York at rgale5@bloomberg.net

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