UPDATE 3-J&J admits misleading U.S. Motrin recall

Thu Sep 30, 2010 4:59pm EDT

* FDA says was misled in Motrin recall, DOJ probing

* J&J officials say company was not straightforward

* A version of Children's Tylenol back next week

* Analysts see little impact on J&J leadership

* Shares close down 0.6 percent (New throughout)

By Susan Heavey

WASHINGTON, Sept 30 (Reuters) - Already battered by a wave of product recalls, Johnson & Johnson (JNJ.N) acknowledged on Thursday it had misled consumers and U.S. regulators as it quietly removed its Motrin painkiller from the market.

Company officials underwent another grilling in Congress with the consumer giant facing a widening criminal probe and struggling to move beyond a damaging series of recalls that has pulled nearly 200 million bottles of its medicine from U.S. shelves this year, including top-selling children's medicines.

Lawmakers angrily accused the company of placing profits over the welfare of its customers, and J&J officials said their McNeil unit should have alerted stores and the Food & Drug Administration to the 2009 Motrin recall, rather than buying back the stock through contractors posing as customers.

"I believe McNeil should have handled things in a more straightforward manner," said Colleen Goggins, head of J&J's McNeil consumer unit.

The Motrin case came to light earlier this year as lawmakers probed other recalls that have eroded consumer trust and spawned lawsuits against J&J, one of the United States' most iconic companies and in business since 1886.

Some adult Motrin packages were pulled from more than 200 stores before the company alerted the FDA to its actions, according to internal company e-mails released by the House of Representatives Oversight and Government Reform Committee.

The FDA was told of the Motrin recall in April of 2009, but was not alerted to its breadth or how it would be conducted until three months later, an agency official said. It then called on McNeil to conduct a formal recall.

"There were contractors going out, telling people to act like regular customers and (to) not really tell the truth about what they were doing in the stores," said FDA Deputy Commissioner Joshua Sharfstein.

Sharfstein told lawmakers the Department of Justice had launched a criminal probe into the Motrin case. The department declined to comment.

The U.S. attorney's office in Philadelphia is already probing J&J over this April's recall of more than 40 potentially contaminated children's medicines such as Children's Tylenol and Benadryl. [ID:nN28273080]

Johnson & Johnson's chief executive sought to assure angry lawmakers and the public that the drugmaker had changed its ways in the wake of the recalls.

"This was not one of our finer moments," J&J CEO William Weldon told the panel.

The committee called the hearing after a session in May that lawmakers said cast doubts on the company's earlier testimony and the extent of the Motrin case.

An email released by the committee shows a worker for one contractor knew the buyback could be viewed negatively.

Pulling specific faulty lots "will take time and may draw suspicion to what we are doing," an employee for Inmar Inc [INMAI.UL] told McNeil managers. "Some stores will not care, others will ask specifically what we are doing."

GETTING BUYERS BACK

This year's recall of children's medicines was prompted by an FDA inspection that found filthy equipment and contaminated ingredients at a Pennsylvania factory. Problems with a Puerto Rico plant triggered other recalls.

Company and FDA officials say there have been no reported injuries from the recalled medicines.

Weldon said the company is spending $100 million to improve McNeil's manufacturing and said at least one product -- grape-flavored Liquid Children's Tylenol -- would be back on the market next week.

The company has also fired some McNeil employees, said Goggins, who is due to retire March 1.

The withdrawals have left many store shelves bare of liquid children's medicines with cheaper, store brands trying to fill the gap. That's been a potential boon for companies like Perrigo Co PRGO.O, which makes generic alternatives.

Experts have said J&J will have to work hard to convince buyers to come back to its pricier, brand-name alternatives once production resumes.

Weldon has not announced any plans to retire, but the recalls have marred his largely successful eight years at the helm. Analysts say he is secure in his job.

"This may create a bigger black eye for J&J, but I'd be pretty surprised if it will push Weldon out of his position," said Morningstar analyst Damien Conover.

Despite the recalls, shares of J&J, a huge diversified healthcare company, have largely tracked the broader market. J&J's stock ended Thursday down 0.6 percent at $61.96 on the New York Stock Exchange, while the S&P 500 index .SPX was down 0.3 percent.

J&J told investors in July that the recalls cut quarterly sales by $200 million, or about 5 cents per share.

NEXT STEPS

Republicans on the committee said some of the blames lies with the FDA, which could have acted sooner.

"It looks like there was much too much of a cozy relationship," said Republican Representative Jason Chaffetz.

FDA's Sharfstein said the Motrin incident highlights the agency's reliance on voluntary company actions and the need for greater agency power to demand recalls.

Committee Chairman Edolphus Towns hopes to pass legislation giving the agency that authority, but Congress is unlikely to act in the few weeks it will be in session after the November congressional elections.

Towns said that even if the FDA was technically aware of the Motrin recall, it did not excuse what J&J did. "Johnson & Johnson had both the legal and the moral obligation to do the right thing, and they did not," he said. (Additional reporting by Ransdell Pierson in New York and Jeremy Pelofsky in Washington; Writing by Andy Sullivan; Editing by Lisa Von Ahn, Matthew Lewis and Tim Dobbyn)

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