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http://www.nytimes.com/2002/07/20/business/20JOHN.html

U.S. Inquiry and Lawsuit Draw Reaction of Drug Maker

By ANDREW POLLACK

ohnson & Johnson said yesterday that accusations made by a former worker at a factory in Puerto Rico have "no connection" to a recent spate of illnesses in patients using the drug produced at that factory. It also said that the factory had been inspected twice in the last year by health authorities, who found only minor problems.

The statements came a day after a report in The New York Times said that the Puerto Rico plant had become the subject of a federal criminal investigation. Shares of Johnson & Johnson plunged $7.88, or 16 percent, to $41.85.

The Puerto Rico factory makes Eprex, an anemia drug that is sold only outside the United States. In recent months, health authorities in Europe and Canada have been concerned by a rise among Eprex users of pure red cell aplasia, a condition in which the body can no longer produce red blood cells, often leaving a patient dependent on transfusions.

It is still unclear whether the criminal investigation is related to the health problems in Europe. The inquiry is connected to a whistle-blower lawsuit filed against Johnson & Johnson by Hector Arce, a former worker at the factory. Mr. Arce, who was fired in 1999, contends he was pressed to falsify documents, in some cases to cover up manufacturing lapses.

Johnson & Johnson said yesterday that it thoroughly investigated Mr. Arce's accusations and could not corroborate them. It said Mr. Arce worked on the factory's utilities, not directly in manufacturing, and was fired for failing to properly complete equipment records.

The company said in a statement yesterday that it became aware of the investigation in April because the government, which has the option of intervening in whistle-blower lawsuits, asked for a stay so it could conduct an investigation. But Jeffrey Leebaw, a spokesman, said that the company did not know the precise nature of the investigation and that the company had not been asked for any documents or information.

Asked why Johnson & Johnson had not disclosed the criminal investigation, he said it was because the company considered it immaterial. "We had a disgruntled ex-employee making these allegations," he said. "The company looked into them thoroughly and concluded they were baseless. And there was never any conceivable connection between the allegations he was making and product integrity." He also said that just because there was an investigation did not mean anything would result from it.

In a request for a second stay made in late June, Justice Department lawyers submitted, under seal, an affidavit from an agent of the Office of Criminal Investigations at the Food and Drug Administration. But the affidavit was not shown to either Mr. Arce or to Johnson & Johnson because it contained "confidential details of the United States' investigation," the Justice Department filing said.

Jaime Pieras Jr. of Federal District Court in Puerto Rico, who is presiding over the case, granted a two-month delay but said it would be the last one. He said if the government was not ready for the whistle-blower lawsuit to proceed by late August, that lawsuit would be dismissed.

Johnson & Johnson said the factory was inspected by the F.D.A. for two weeks last October and then for four days by French authorities in June in connection with the illnesses in Eprex users. In both cases, they found only minor problems, it said.

Brad Stone, a spokesman for the F.D.A., confirmed that. "We did do an inspection last year and they came out pretty well," Mr. Stone said. "There was nothing we would consider a serious or major violation." He would not confirm or deny, however, the existence of the criminal investigation.

Authorities are frantically trying to determine the cause of the red cell aplasia, and there is some speculation it could be related to the manufacture of the drug. There have been 141 suspected cases among Eprex users but only a handful among users of the equivalent drug in the United States, which is made in a different plant. That drug, which is made by Amgen, is sold as Procrit by Johnson & Johnson and Epogen by Amgen.

But several factors could account for the Eprex illnesses that have nothing to do with the Puerto Rico plant. The incidence of aplasia started to rise around 1999 after Johnson & Johnson stopped using a blood protein, human serum albumin, as a stabilizer, because European authorities were worried about risks of mad cow disease in blood products. The American product still uses the stabilizer.

And almost all of the Eprex cases have been kidney dialysis patients who injected the drug under the skin. In the United States, three-quarters of dialysis patients take the drug intravenously. The company has now advised doctors to give Eprex intravenously.

The problem could damage sales of Eprex, and there has been speculation the drug could be taken off the market. Sales of Eprex were $1.1 billion last year. Total sales of Eprex and Procrit combined were $3.4 billion, making it the company's best-selling product.

Glenn Reicin, an analyst at Morgan Stanley, said Johnson & Johnson had "contained the problem" by urging doctors to stop using injections under the skin. He said he thought the F.D.A. investigation might be looking at individuals rather than overall factory operations and that F.D.A. investigations often do not result in charges. "I think the market's reaction was extreme, because in reality this is probably not going to be material," he said.

Daniel Lemaitre, an analyst at Merrill Lynch, downgraded the stock to buy from strong buy.

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