NEW YORK – Shares of Johnson & Johnson (JNJ) tumbled to a 16-month low on Friday after federal regulators began probing allegations of fraudulent record-keeping at a plant that makes one of the healthcare giant's best-selling medicines.
J&J spokesman Jeffrey Leebaw said a U.S. Food and Drug Administration probe of the company was underway and that it apparently involves allegations by a former worker at the plant that the company falsified records.
The plant, in Puerto Rico, makes Eprex, the firm's anemia drug, which has been linked to 141 cases in Europe and Canada of a rare but potentially fatal blood disorder called pure red blood cell aplasia. The medicine has annual sales of about $1.3 billion, or about 4 percent of company revenues.
The company later denied there was any link between the probe and the suspected drug side-effects.
"Our investigation of the employee's allegations confirm that the integrity of our product has never been compromised and there is no connection between the allegations and the occurrence of pure red blood cell aplasia," J&J said in a statement Friday afternoon.
J&J said the employee was a maintenance worker with no responsibility for manufacturing who was fired in 1999 for failing to properly complete equipment records.
It added that the FDA inspected the plant last October, while French regulators conducted their own investigation in June. They found no major problems, J&J said.
FDA spokesman Brad Stone declined to confirm or deny whether the agency's Office of Criminal Investigation was investigating J&J.
"Just because an investigation is undertaken doesn't mean there has been any determination of criminal activity," Stone said. "Very often we find there isn't a reason to proceed or that allegations may not be true."
But investors fled J&J shares as it became the latest drug company to come under the FDA's microscope for possible quality-control problems.
The agency is already investigating Schering-Plough Corp. , Ely Lilly and Co. and Abbott Laboratories Inc. . for record-keeping and other manufacturing lapses. Earlier this year Schering-Plough paid the FDA an unprecedented $500 million fine related to problems at plants in Puerto Rico and New Jersey.
Shares of J&J, a component of the Dow Jones Industrial Average, lost $7.88, or 15.8 percent, to close at $41.85 in heavy trading on the New York Stock Exchange. The shares have not been that low since March 2001.
LAWSUIT ALLEGES COVER-UP
The New York Times reported on Friday that the FDA and the Justice Department were conducting a criminal investigation tied to a lawsuit against J&J filed by a former boiler operator at the plant named Hector Arce.
In the suit, filed in U.S. District Court in Puerto Rico, Arce alleged he was pressed to falsify data to cover up manufacturing lapses and was suspended from his job shortly before a planned interview with FDA inspectors, the article said.
Leebaw said he had no details about Justice Department involvement in the probe, but that J&J would cooperate with all investigators. He added that J&J would "vigorously defend itself" against the private lawsuit.
The Justice Department declined to comment.
"... I don't believe the investigation should be a big deal for shareholders," said Morgan Stanley analyst Glenn Reicin. The FDA criminal arm routinely investigates drugmakers but rarely verifies serious wrongdoing, he said.
Merrill Lynch analyst Daniel Lemaitre said he believed "little, if anything, will stem from this investigation." But he cut his rating on J&J shares to "buy" from "strong buy," saying they were vulnerable because they are priced at a significant premium to those of rival firms.
MYSTERY SURROUNDS DISORDER
Eprex, designed to stimulate production of red blood cells, is made by J&J and sold only outside the United States. In people with pure red blood cell aplasia, however, the bone marrow actually fails to produce red blood cells.
Eprex is similar to Procrit, an anemia drug made by biotechnology company Amgen Inc. , which J&J sells in the United States for cancer patients who develop anemia as a result of chemotherapy.
Combined global sales of Eprex and Procrit were $3.8 billion last year, making them among J&J's best selling products.
J&J has said it was not certain why some Eprex patients developed red blood cell aplasia but that a number of factors may be involved.