J&J cited by FDA for deficiencies in Lancaster plant, issued subpoena over drug recalls

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The Lancaster plant also failed to check the quality of some Mylanta products after various equipment failed during manufacturing of the antacid, the report said.

In some cases, medicine batches made during equipment failures were not checked for quality, it added.

The FDA also reported that records related to drug production "were not made readily available for authorized inspection." The federal agency said it had to request information on specific topics as many as 10 times before receiving full information.

The inspection took place June 22 to July 9, according to the report. J&J runs the plant jointly with Merck & Co.

J&J refused to elaborate on what the FDA plans to do next. The company, however, said it is cooperating with the federal agency. "McNeil Consumer Healthcare responded as quickly as possible to the needs of the FDA during the inspections, and provided a large volume of material to the agency," J&J spokeswoman Bonnie Jacobs said.

Market analysts said the grand jury subpoena and the FDA's report spell trouble for J&J, which has already been hit by a string of product recalls that have sparked a congressional investigation.

Standard & Poors analyst Herman Saftlas said the subpoena is a "concern for sure" for J&J, which has already been hit by a string of recalls.

"Once the government starts digging into you, they find all kinds of stuff," Saftlas said.

According to Morningstar analyst Damien Conover, the FDA citation makes J&J's situation a "little more hairy."

Agrees Noble Financial Capital Markets analyst Jan Wald. "How do you get mint into berry if you're controlling your manufacturing process?" Wald said.

However, Wald said the recent FDA observations focus more on record keeping than on issues of contaminated products - a more serious problem that has affected J&J's other plants.

In April, the FDA cited J&J's Fort Washington, Pennsylvania-based plant for failure to investigate and fix problems that led consumers to complain about "foreign materials, black or dark specks" in medicine bottles from June 2009 to April 2010.

The plant was shut down amid reports that some J&J products could have more active ingredients than stated while others could contain tiny metallic particles. A FDA probe has also found that some drugs contained bacteria.

J&J was accused of selling substandard drugs as early as November 2009 when the company recalled five lots of its Tylenol Arthritis Pain 100 count with the EZ-open cap product after receiving complaints of an unusual musty odor that caused nausea, stomach ache, vomiting and diarrhea. It also recalled products such as Rolaids, Simply Sleep and St. Joseph aspirin.

In December 2009, the recall was expanded to include all available product lots of the same drug.

In January this year, the company recalled an undisclosed number of containers of Tylenol, Motrin and other OTC drugs while in April, it said it was recalling 40 types of drugs for children and infants, including 136 million bottles of Benadryl, Motrin, Tylenol, Zyrtec and other OTC drugs, after consumers complained of nausea and vomiting caused by an "unusual" odor.

In May, the company announced that it was taking further "corrective steps" at its plants.

Earlier this month, a J&J plant in Las Piedras, Puerto Rico expanded a recall of OTC medicines, including several types of Tylenol, Motrin and Benadryl, after discovering that the recalled products were stored on the same type of wooden pallet that contained trace amounts of a chemical that has been linked to the musty odor in the January recall.

McNeil Consumer Healthcare, a division of Johnson & Johnson, said 21 lots of the drugs were being recalled but did not say how many bottles and boxes were involved in the recall.

The recalls have prompted the FDA to mull whether it can slap criminal charges against McNeil, which it has accused to knowing about the problems as early as 2008 but had failed to take corrective action quickly.

The recalls also lowered J&J's second quarter sales by $200 million and the company said, Tuesday, the recalls will cost the company an estimated $600 million in lost sales for the full year.

J&J said it "takes the issues raised by the agency seriously and is fully committed to addressing their concerns as rapidly as possible."

"We will provide a detailed response to the FDA and work diligently to address all observations," the company said. It also said it will refit the Fort Washington plant and revamp its operations before reopening it.

Shares of the New Brunswick, New Jersey-based company, whose second quarter revenue failed to beat Street estimates, closed down 2.49 percent at $57.12.