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Drug Maker to Pay $500 Million Fine ForFactory Lapses
By MELODY PETERSENMAY 18, 2002 The Schering-Plough Corporation announcedyesterday that it had agreed to pay $500 million to the federal governmentbecause of its repeated failure over the years to fix problems in manufacturingdozens of drugs at four of its factories.
If approved by the United States DistrictCourt in Newark, the agreement would impose by far the highest financialpenalty on a pharmaceutical company for failing to comply with federalmanufacturing guidelines. In 1999, Abbott Laboratories paid $100 million tosettle accusations about manufacturing problems.
The agreement with Schering-Plough coversviolations, dating back as far as 1998, that government inspectors found in thecompany's factories in New Jersey and Puerto Rico. Some of the problems relateto the lack of controls that would identify faulty medicines, while others stemfrom outdated equipment. They involve some 200 medicines, including Claritin,the allergy medicine that is Schering's top-selling product. The manufacturingproblems have caused shortages of several drugs, including Celestone, which isused to speed the development of the lungs of premature infants.
In March 2000, Schering-Plough recalledmillions of asthma inhalers, saying there was a remote possibility that somedid not contain a key ingredient. Many of those inhalers were manufactured andshipped long before the recall.
Under the proposed agreement,Schering-Plough must submit a plan to the Food and Drug Administration forbringing its factories into compliance with federal rules. The company mustalso station specially trained personnel at each factory to oversee operations,and hire outside consultants to conduct annual inspections. Federal regulatorswill also inspect the factories.
''This action is another clear sign thatF.D.A. will continue to enforce the rules and regulations requiring companiesto carefully control and monitor their processes,'' said Dr. Lester M.Crawford, the F.D.A.'s deputy commissioner, in a statement. ''Manufacturers whochoose to wait until F.D.A. investigators find violations rather than policingthemselves will find that they have made a poor and costly decision.''
In addition to Schering-Plough and Abbott,several other large drug makers have recently been criticized by federalregulators, who have found numerous problems with how they make prescriptiondrugs and other medical products. The reasons for the growing number ofproblems are hotly debated. The industry has tended to attribute the rise towhat executives describe as overly aggressive regulators, while the F.D.A. hassaid that drug companies have failed to keep their factories up to date.
If Schering-Plough fails to meet the termsof the agreement, which is known as a consent decree, the government couldimpose even greater financial penalties.
In a statement yesterday, Richard JayKogan, the chairman and chief executive, said the company believed that all ofits pharmaceutical products were safe and effective.
''We are confident of our ability to moveforward under the agreement and complete our improvement programssuccessfully,'' he said.
But Schering-Plough also said the proposedagreement did not resolve a continuing investigation by the F.D.A.'s Office of CriminalInvestigation in Puerto Rico, where the company has two factories.
The company has said it does not know whatproducts may be involved in that investigation, which is at a preliminarystage, and the F.D.A. has declined to comment on the inquiry.
There has been speculation on Wall Streetthat the inquiry might center on whether products were manufactured withinsufficient amounts of active drug ingredients.
In the 2000 recall, the company was forcedto take millions of inhalers off the shelf after determining that some of themmight not have been properly filled with albuterol, a drug that helps asthmasufferers breathe. Those inhalers were made in New Jersey.
Government inspectors found similarproblems last year at the company's factory in Manati, P.R., according toinspection reports. For example, hundreds of consumers have complained that thecompany's Nasonex nasal spray, which is made at that factory, did not work, thereports said.
Last year, Public Citizen, theWashington-based consumer group, called for a criminal investigation ofSchering-Plough after finding that some asthma patients had died while usinginhalers that were later recalled.
Dr. Sidney Wolfe, the director of PublicCitizen's health research group, said that a lawyer from the United Statesattorney's office in New Jersey and an official from the F.D.A.'s Office ofCriminal Investigation had interviewed him last fall about the information hehad obtained about the inhalers and the patients who died.
Robert J. Consalvo, a spokesman forSchering-Plough, said yesterday that the company had no indication that theinvestigation might center on the asthma inhalers.
Under the consent decree announcedyesterday, Schering-Plough agreed to recall two drugs used to treat asthma --Proventil Repetabs and theophylline -- because tests showed they mightdeteriorate before their expiration date.
The company said it had also decided thatit would no longer manufacture dozens of other older products. AndSchering-Plough said it was temporarily suspending production of certain animalhealth products -- including Nuflor, a medicine for foot rot in cattle -- thatare made at the plant in Manati.
Schering-Plough said late last year that itmight have to pay as much as $500 million to the government. The company hasalready reserved for such a payment in its financial statements.Schering-Plough said yesterday that it was lowering its expected earningsgrowth rate for this year to a ''mid-single-digit'' percentage from the ''lowdouble-digit'' figure it had projected previously.
Despite that change, the stock price roseyesterday by more than 5 percent, or $1.37, to $26.12, although it is down 27percent for the year.
Timothy M. Anderson, an analyst withPrudential Securities, said the company's announcement of the agreement hadhelped clear up some of Wall Street's uncertainty about Schering-Plough.
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