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Shares Plunge On J&J Plant Probe

Sep 5, 2002 | FT.Com Shares in Johnson & Johnson plunged yesterday as the company said the Puerto Rico plant that makes its blockbuster drug Eprex was the subject of a US regulatory investigation.

The US medical products and drug group said the Food and Drug Administration was likely to investigate litigation claims by a former plant employee. A fired maintenance worker claimed in a lawsuit that the company falsified records hiding manufacturing problems.

The FDA investigation concerned investors because the plant makes Eprex, an important drug for J&J and a target of intensified medical scrutiny because of its links to 141 deaths internationally.

J&J shares fell almost 13 per cent on the news, to $43.20 in lunchtime trading.

The news came as second-quarter earnings at Merck summed up one of the current woes of the US drug industry. The US group reported a decline in profits as core pharmaceuticals growth could not offset sales declines from drugs with expired patents.

In addition, the US healthcare industry has seen a crackdown on manufacturing quality standards by the FDA. The agency has taken note of problems at Eli Lilly and has fined Schering-Plough and Abbott Laboratories.

The J&J FDA probe raises the possibility that manufacturing problems could have played a part in the drug's links to deaths.

Eprex is designed to boost red bloodcell production to fight anaemia: however, sometimes it causes pure red cell aspalsia, which inhibits bone marrow from making red bloodcells.

On Tuesday J&J said it was sending more warning letters to European doctors and stressed that only seven cases had been reported this year. It said the rare side-effect mainly arose with patients suffering chronic kidney failure.

The company sells Eprex outside the US only. Eprex and Procrit, the US version, are some of J&J's most profitable products and had $3.8bn sales last year.

The FDA and the Justice Department declined to comment. Some analysts said it was likely the probe would amount to nothing. A New York Times report yesterday said the two agencies were conducting an investigation into the plant because of a lawsuit filed by boiler room employee Hector Arce, who was fired in 1999.

Merck reiterated that it expected no year-on-year earnings increase in 2002. It said this year was a transition year to get through the patent expiry damage. It expected at least 10 per cent sales growth in pharmaceuticals next year.

Merck has lost patent protection for a number of drugs, including Pepcid for ulcers. It had planned for Vioxx, a pain medication, to cover the gap. But sales have disappointed because of concerns over the drug's safety and price.

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