U.S. Regulators and J.&J. Unit Reach a Deal on Plant Oversight

By REED ABELSON and NATASHA SINGER

Federal regulators reached an agreement on Thursday with a unit of Johnson & Johnson that would impose greater federal oversight at three manufacturing plants responsible for recalls of children’s Tylenol and many other popular over-the-counter medicines.

The regulators say that the manufacturing practices failed to comply with federal law.

The proposed consent decree with the Food and Drug Administration stems from recurring problems for over a year with products made by Johnson & Johnson’s McNeil Consumer Healthcare division at sites in Pennsylvania and Puerto Rico. Lawmakers and regulators have repeatedly criticized the company for its inability to manage production at these plants.

“We’ve had a long engagement with McNeil over the last year with regard to their quality system,” Douglas Stearn, an F.D.A. official who helps oversee compliance by drug makers, said in an interview on Thursday. “We think this represents necessary important steps to assuring quality across the board.”

Under the agreement, which needs approval from a federal judge, Johnson & Johnson would be required to hire an independent expert to determine whether operations at all three plants met federal standards and to ensure that quality systems were in place.

The agreement covers a plant in Fort Washington, Pa., that the company closed last year for an overhaul amid a nationwide recall of children’s medicines; a plant in Las Piedras, P.R., that was the subject of an agency warning letter last year; and a plant in Lancaster, Pa., that makes products like Pepcid for a joint venture with Merck. McNeil cannot reopen the Fort Washington plant until an independent expert determines that the plant meets all federal standards and passes an agency inspection, according to the agreement.

The agreement would also give the F.D.A. the authority to require McNeil to stop manufacturing or to institute recalls. While the agency did not levy a fine in this case, McNeil could face fines of $15,000 a day for violating the decree, up to $10 million a year.

While the proposed consent decree covers a civil complaint, the F.D.A. would not comment on the status of any related criminal investigations. Last year, an F.D.A. official testified at a Congressional hearing that the agency had referred the McNeil case to its Office of Criminal Investigations. A spokeswoman for McNeil confirmed that other federal investigations were under way.

Last July, McNeil filed a plan with the F.D.A. that detailed how it expected to upgrade its manufacturing and quality processes. But the terms of the proposed decree indicate that federal regulators thought the company needed outside oversight, said Erik Gordon, an assistant professor at the Ross School of Business at the University of Michigan. He likened the consent decree to a trusteeship or a receivership.

Professor Gordon estimated that the agreement could be costly because of the need to hire independent consultants, who would have to inspect and certify the company’s corrective actions. “It’s a big embarrassment, and it is going to be expensive,” he said.

In a statement issued on Thursday to the company’s employees, William C. Weldon, Johnson & Johnson’s chief executive, said executives were committed to addressing the manufacturing problems at the plants. While he emphasized that the company “has made important progress toward improving quality and compliance,” he said the agreement “requires additional quality assurance measures, and is a reminder that important work remains to be done.”

A McNeil spokeswoman said she could not comment on how much the agreement might cost the company to put in place.

Other units of Johnson & Johnson have also been experiencing problems, leading some industry analysts to raise broader questions about oversight. Last year, the company’s DePuy unit recalled two different hip implants, affecting tens of thousands of patients worldwide. Its Animas unit recalled tens of thousands of insulin pump cartridges last month because they had the potential to leak and deliver too little insulin, the company said.

Also last month, the F.D.A. sent a letter to Cordis, a company device unit, warning about problems at a plant in Puerto Rico that makes heart stents.

A spokeswoman for Cordis said the company was working to address the agency’s concerns. “We do not believe this issue impacts product safety and efficacy and we are confident our product remains safe and effective for use,” she said.

Les Funtleyder, a fund manager at Miller Tabak & Company, which owns shares of Johnson & Johnson, said the agreement underscored concerns about the company’s ability to resolve persistent manufacturing problems.

“We’re having a hard time reconciling how Johnson & Johnson got to this point,” he said. “The board has to be asking questions. If not, investors will be.”