Grand jury investigating McNeil plant problems

A federal grand jury is investigating problems at the now-shuttered McNeil Consumer Healthcare plant in Fort Washington that triggered the recall of children's Tylenol and other popular pediatric medicines, according to the company.

The existence of the investigation was made public Tuesday by Louise Mehrotra, vice president for investor relations for Johnson & Johnson, McNeil's parent company.

During a conference call with financial analysts to outline the company's second quarter earnings, Mehrotra noted that the company had recently been subject to a number of lawsuits as a result of the recalls and it had "received a grand jury subpoena from the U.S. Attorney for the Eastern District."

That was the first reference to a federal grand jury in connection with the troubled Fort Washington plant. The Food and Drug Administration in May reported that it had turned the issue of the McNeil plant over to its criminal investigative unit.

Asked when the subpoena was received and what it sought, Bonnie Jacobs, a spokesperson for McNeil, said the company had no further comment.

Patricia Hartman, spokeswoman for the U.S. Attorney's Office, said her office's policy was neither to confirm nor deny the existence of an investigation.

The grand jury investigation is the latest and possibly most serious public consequence to a series of failures that were identified at the Fort Washington plant during a FDA inspection at the facility in April.

Among the problems highlighted by inspectors were shortcomings in training, improperly maintained equipment, lack of adequate controls governing product quality and strength, and failure to follow up on complaints.

Following the inspectors' report, McNeil shut down the Fort Washington plant and ordered the recall of 146 million bottles children's medication made at the facility, including liquid Tylenol, Motrin and Benadryl. It was the company's sixth medication recall since September.

McNeil last week announced it was eliminating 300 jobs at the plant as it revamps the facility in anticipation of restarting it some time next year. On Monday, many of those who are losing their jobs reported to the plant for information "on exit strategies, pensions and other options," according to one employee who attended the session. The employee said he did not want to be identified because the company had told those in attendance not to speak to the news media.

Company officials Tuesday put a financial price to the debacle, saying the plant's closure and the recall will cost J&J $600 million this year.

That figure is dwarfed by the health care giant's overall sales, however. Johnson & Johnson reported a 7.5 percent increase in second-quarter earnings on flat sales of $15.3 billion. The company lowered its sales forecast for 2010 to $62.5 billion from a previous projection of $63 billion to $64 billion.

Those figures were provided by J&J chief financial officer Dominic Caruso. Caruso was less forthcoming when pressed by analysts about the impact and aftermath of the recalls and plant closing.

Caruso declined to discuss company plans for the Fort Washington plant, what if any management changes had been made as a result of the scandal or how much the recall might impact next year's sales.

He also declined to provide details of a FDA inspection that had been recently conducted at a McNeil-operated plant in Lancaster. J&J, which jointly owns the plant with Merck & Co., reported Monday it was addressing problems the FDA had identified at the plant. It did not identify what the problems were.

The report of problems at the Lancaster plant means McNeil is now dealing with FDA issues at three drug-making facilities, including one in Las Piedras, Puerto Rico.

Problems at the Las Piedras plant last year set in motion the investigation at Fort Washington.

At Las Piedras, FDA inspectors were chiefly concerned as to why it took McNeil more than a year to respond to consumer complaints of a musty smell associated with Tylenol caplets produced at the plant. The smell was eventually traced to a chemical used to treat wooden pallets at the plant.

Caruso, in defending J&J's practices during the conference call Tuesday, said all of its plants are subjected to numerous internal inspections as well as reviews by the FDA.

Asked to identify any plants that had been given an unqualified clean bill of health by the FDA, Caruso declined to do so.

Company shares closed at $58.58, down 99 cents, or 1.66 percent.