J&J could face further regulatory action if intent of GMP violation proven – attorneys

Sep 03, 2010   

by Kirsty Barnes

Intelligence Details

Johnson & Johnson (NYSE:JNJ) may face future regulatory action if the result of an internal investigation over its well-publicized good manufacturing practice (GMP) issues uncover evidence of intent to violate FDA rules, attorneys said. The situation could take months to unravel, they noted.

J&J said it would not comment on speculation.

Since September 2009, J&J subsidiary McNeil Consumer Healthcare has undertaken eight drug recalls due to potential contamination of big name drugs including Tylenol, Motrin, Zyrtec and Benadryl and serious problems at a number of its manufacturing sites have been publicized.

After the situation did not resolve satisfactorily, the FDA held a meeting in February with McNeil and J&J executives. Media reports have raised questions over the firms’ handling of the GMP issues and recalls and a Congressional hearing was held in May. Investigations remain ongoing with the FDA, and J&J also recently announced it is now being investigated by several state attorneys general and has received a subpoena from a federal grand jury in Pennsylvania.

There are "real problems" at J&J and it is in a lot of trouble, said David Goldsmith, president and senior consultant at Goldsmith Pharmacovigilance and Systems in New York. Chad Landmon, a partner at Axinn Veltrop and Harkrider, questioned how this will end for J&J, adding: "The FDA is very serious and concerned about the recall and the allegations being made against the firm."

Mitchell Fuerst, managing partner of Fuerst Ittleman in Florida, said: "I’d expect some type of enforcement action on J&J," adding that the FDA is exceedingly more aggressive in the last 18 months in its enforcement.

Edward Allera, former attorney to the FDA, said the situation may not be as "black and white" as the media has portrayed it, and noted that there are a lot of people, including third party contractors, involved. "It will take a while to sort out what happened, and the facts will need to be reviewed as they evolve," he said.
The sources said the FDA has a variety of options in how to deal with the situation.

The FDA is talking to J&J’s lawyers, and whatever the investigation finds the agency will probably want some kind of court order to monitor the situation going forward, Landmon said.

Fuerst agreed that, in theory, a resolution can be reached with a memorandum of understanding but he questioned whether politically the FDA can do this. "Congress is furious" and it may not be politically possible for FDA to accept this option, so it may want a more legally binding agreement, Fuerst said. Landmon agreed that the J&J situation is a big news story, so Congress feels responsibility to get involved.

Fuerst said he expects a cease and desist order may be issued unless the company has done a lot to respond to the FDA and implement proper controls and practices. A consent decree is another option and it will likely follow a cease and desist order, said Fuerst.

One pharmacovigilence consultant said this would involve the introduction of mandatory control processes and inspections by third party inspectors to make sure the company is in compliance. "I expect in this situation to see within the next few months a consent decree or something similar," said Landmon. Allera said a consent decree is possible because of the publicity this case has generated.

Landmon said that that J&J could also be subject to a fine. Such a penalty would usually be tied to the benefit a company gained through its actions but in this case it’s difficult, said Landmon. Because the FDA is taking this so seriously, J&J could be fined a sizeable sum, in the double or triple digit millions, Landmon suggested. A potential fine USD 200-300m would not be unrealistic, agreed Goldsmith.

Allera and Fuerst said that financial penalties are possible but Fuerst noted that it would require proof of malfeasance from the internal investigation rather than a mistake that led to risky and inappropriate decisions.

It remains to be seen whether or not J&J will be prosecuted over the situation, and it depends on whether the company displayed intent to violate GMP, the sources said. Intent is hard to uncover but can be identified via emails and memos, they noted.

A prosecution decision is distinguished by whether or not actions were taken on purpose or the firm was aware of it and did nothing about it – if so, there are grounds to prosecute, Goldsmith said.

Landmon said the worst action that could be taken is a criminal action against J&J management, but this would require the FDA finding intent to commit fraud against the agency and the public. Allera said he did not think it would come to this.

The firm will be subject to more regulatory scrutiny of clinical trial manufacturing and CGP which will inadvertently slow down future new drug applications, said Goldsmith. Landmon agreed that this possibility was likely, but Allera disagreed, stating that it would not affect future approvals unless the new drugs were being made in the plants in question. Whether it filters across to other parts of the business depends on how high up the decisions were made across the business, said Fuerst.

The board may now apply pressure to remove certain senior J&J executives, the sources noted. The company has allowed its brands to deteriorate in the public eye and this affects the value of the company, which is what the Sarbanes-Oxley Act – implemented after Enron – was designed to prevent, said Fuerst.

It was announced this week that Ajit Shetty has been appointed by J&J to oversee its quality, manufacturing and compliance operations and he will report directly to CEO William Weldon.

The FDA is getting much more aggressive with big pharma which has not been the case for many years, said Fuerst.

Sources noted the example of KV Pharmaceutical’s (NYSE:KV.A) run-in with the FDA. According to SEC filings, the firm encountered recalls, seizures, manufacturing suspensions and management changes in a one year period, followed by a consent decree. It later agreed to a USD 25.8m fine to resolve a US Justice Department investigation of its troubled drug unit Ethex, which also plead guilty to two felony counts over the matter earlier this year.

"If the FDA gets more funding and more powers we will see more of this," Fuerst said.