J&J Dogged by Safety Issues, Kickback Allegations

McNeil Consumer Healthcare Issues Another, Larger Scale Product Recall

Johnson & Johnson (J&J; U.S.) announced on 15 January that its subsidiary, McNeil Consumer Healthcare, has initiated another, larger scale round of product recalls in the Americas, the United Arab Emirates (UAE), and Fiji following discussion with the U.S. FDA. The company noted that it has investigated the consumers' reports on gastrointestinal events and unusual moldy, musty, or mildew-like odour associated with the recalled products, and determined that the reported uncharacteristic smell has come from the presence of trace amounts of a chemical called 2,4,6-tribromoanisole (TBA). The chemical exists in the packaging material used in the transportation and storage of the products, and there have been no relevant serious adverse events reported so far, according to the company in its announcement. The products under this round of recall include the leading over-the-counter (OTC) medicine Tylenol (paracetamol/acetaminophen), Motrin (ibuprofen), and Benadryl (diphenyldramine). A full list of the recalled products can be found here.

However, on the same day of J&J's announcement, U.S. law firm Hagens Berman Sobol Shapiro announced that it is investigating claims that J&J defrauded investors by not disclosing that some of its products had been contaminated. The investigation is being conducted at the request of some investors, and followed claims that J&J was aware of the product contamination since 2008 but failed to fully disclose it earlier than 15 January.

Justice Department Accuses J&J of Illegal Kickbacks

Separately, the Justice Department has filed a civil False Claims Act complaint in federal court in Boston on the same day, accusing J&J of paying illegal rebates to Omnicare, the largest nursing home pharmacy in the United States, to promote the sales of its drugs. Prosecutors alleged that the illegal practice of offering kickbacks occurred between 1999 and 2004, and during this time Omnicare's annual purchases of J&J products, including antipsychotic drug Risperdal (risperidone), nearly tripled to more than US$280 million. The prosecutors allege that J&J failed to disclose the rebates and tried to disguise them under other formats, such as physician-prescriber data payments, added the Justice Department in its announcement.

The related Justice Department press release can be seen here.

Outlook and Implications

The new round of recalls has intensified concerns over safety issues related to McNeil's OTC products, having been expanded from Tylenol to include more products, and from the United States to other markets. Previously, J&J had initiated two rounds of Tylenol recalls in November and December 2009 (see United States: 2 December 2009: McNeil Expands Tylenol Recall Scope in U.S.). With a broadened scope, the new wave of recalls are likely to generate a corresponding larger negative impact on the company's profile and on sales of the respective products. In the third quarter of 2009, J&J registered a 2.7% year-on-year drop in its consumer product sector, and safety concerns linked to the said products will not help the company remedy this trend. In addition, some investors' claims that the company failed to disclose safety issues related to its products may also worsen the situation in coming quarters.

Concurrently, the illegal rebates allegation comes as one more blow for the beleaguered company. During recent years, Omnicare has been at the centre of several investigations related to alleged illegal kickbacks. In November 2009, Omnicare and Israeli generic major Teva's subsidiary Ivax Pharmaceuticals agreed to make a combined payment of US$114 million in a settlement deal over kickback allegations (see United States: 4 November 2009: Drug Makers Settle with U.S. Justice Department over Kickback Charges). It still remains to be seen whether J&J can successfully defend its own practices, however, the company will undoubtedly face a sizeable settlement or fine should the allegation be proved. In addition, it may also see restricted sales through nursing home pharmacies, an important marketing channel for pharmaceutical companies, as a result of the government's tightened monitoring.