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UPDATE 3-FDA to oversee J&J plants after flood of recalls
March 10, 2011 / 8:54 PM / 7 years ago

UPDATE 3-FDA to oversee J&J plants after flood of recalls

* FDA names two company executives as defendants

* Consent decree seen in place for at least 5 yrs

* No upfront fee for J&J, violations could cost $10 mln/yr

* J&J shares down 1.3 pct (Adds details on recalls, byline)

By Ransdell Pierson

NEW YORK, March 10 (Reuters) - U.S. health authorities will take over supervision of three Johnson & Johnson (JNJ.N) manufacturing plants after the healthcare giant failed to stem a flood of recalls for consumer medicines like its Tylenol painkiller.

J&J’s McNeil unit has recalled more than 300 million bottles and packages of Tylenol, Motrin, Rolaids, Benadryl and other products in the past year over faulty manufacturing.

The U.S. Food and Drug Administration said the action, called a consent decree, prevents McNeil from making consumer medicines at a large plant in Fort Washington, Pennsylvania, until the agency certifies that quality lapses there have been corrected.

It also sets a strict timetable to rectify manufacturing problems at McNeil’s plants that are still operating in Lancaster, Pennsylvania and Las Piedras, Puerto Rico.

J&J said two company executives were named as defendants in the consent decree. They are Veronica Cruz, vice president of quality at J&J’s McNeil Consumer Healthcare unit, and Hakan Erdemir, vice president of operations at McNeil.

“This is a strong, but necessary, step to ensure that the products manufactured by this company meet federal standards for quality, safety and purity,” Deborah Autor, head of compliance in the FDA’s drug division, said in a statement.

Some of the lapses led to metal particles entering liquid medicines, and also included mislabeling and moldy odors.

While the medicines recalled have not proven harmful to any consumers, they have tarnished J&J’s reputation, which was built on a pledge to serve its patients first and deserve their trust.

As recently as late February, the company recalled Sudafed allergy tablets for incorrectly repeating the word “not” on its label to say “do not not divide, crush, chew or dissolve the tablet.”

For a Factbox on the recalls, see: [ID:nN10142407]

J&J shares fell 1.3 percent after the news.

NO UPFRONT PENALTY

The seemingly endless chain of recalls has lost the company $900 million in consumer product sales last year and hurt earnings. Consumer products account for about one-quarter of J&J’s total annual sales of $62 billion.

Wall Street analysts initially downplayed the potential financial costs of the escalating number of recalls, which were partly to blame for a 7.5 percent decline in J&J shares since the end of 2009, compared with a 16 percent rise in the Standard & Poor's 500 Index .SPX in the same time.

J&J said the decree does not require it to pay an upfront penalty to the government. By contrast, Schering-Plough Corp in 2002 had to pay the federal government $500 million as part of its consent decree to fix a slew of quality control problems.

If McNeil violates the agreement, the FDA can order a manufacturing halt, product recalls or fines of up to $10 million annually.

McNeil said it expects the consent decree will govern its operation of the facilities for at least five years once a plan to rectify its problems is completed.

“Being monitored for five years tends to be very expensive with a lot of lawyers and outside consultants,” said Jeff Jonas, analyst at Gabelli and Co. “For a company of J&J’s size it’s not going to move the numbers. It’s just another step in the process.”

“There’s one thing that’s positive and that is now they have an actual road map for what they have to do to get back in compliance,” Jonas said.

J&J shut down the Fort Washington plant almost a year ago after recalling scores of products made there, including a wide variety of children’s formulations of Tylenol. It plans to reopen the plant after costly installation of new equipment and better quality-assurance procedures. (Additional reporting by Michele Gershberg, Lisa Richwine and Bill Berkrot; editing by Matthew Lewis, Gary Hill)

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