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Schering-Plough Stock Plunges
5/15/2002 6:28:00 PM
NEW YORK, May 15, 2002 (AP Online via COMTEX) -- Schering-Plough Corp. stock plunged more than 12 percent on Wednesday after the company disclosed in a regulatory filing it was the subject of a criminal investigation by the Puerto Rico office of the Food and Drug Administration.
The maker of allergy blockbuster Claritin said in a 10-Q filing that the investigation, which is at a preliminary stage, "may focus on one or more company products."
Schering-Plough said it doesn't have any further information about the investigation. The stock tumbled $3.49 or 12.25 percent to $25 a share on the New York Stock Exchange.
A slew of problems have plagued Shering-Plough's two facilities in Puerto Rico, where analysts say the company manufactures the allergy drug Clarinex and the Hepatitis drug Rebetol.
Last year, Schering-Plough set aside $500 million to resolve issues over its manufacturing practices at facilities in New Jersey and Puerto Rico. Those issues caused the FDA to delay the approval of Clarinex, Schering-Plough's successor to Claritin.
Clarinex was approved late last year but the company and the FDA are still addressing compliance issues at the plants. The nature of the problems has never been fully disclosed.
Like other drug companies, Schering-Plough is the subject of numerous lawsuits and investigations over issues such as pricing by entities ranging from state attorneys general to consumer groups to the Justice Department.
But the criminal nature of the investigation spooked Wall Street. "The criminal nature of this is very unusual," said Tim Anderson, a pharmaceutical analyst at Prudential Securities. "I really don't know what that could mean."
The FDA regularly oversees companies' testing, labeling and manufacturing efforts and works with them to fix deficiencies. Industry experts said the criminal nature of the investigation indicates that the FDA suspects Schering-Plough deliberately strayed from FDA policy.
Activities that would constitute criminal behavior include falsifying expiration dates on labels or intentionally ignoring good manufacturing practices.
The FDA can't prosecute cases and would refer them to the Justice Department.
Last year, The Washington D.C.-based consumer group Public Citizen called for a criminal investigation of Schering-Plough, charging the company knowingly distributed albuterol asthma inhalers even though the units didn't contain the active ingredient. Public Citizen based its claim on a confidential audit it says it obtained.
Schering-Plough did recall inhalers in 1999 and 2000 but denied that anyone died because of an inhaler lacking active ingredients.
Sid Wolfe, director of Public Citizen's Health Research Group, said he was contacted by the U.S. Attorney's office about his request for an investigation. However, the inhalers were manufactured in a plant in Kenilworth, N.J. Schering-Plough's home base.
But in a letter Public Citizen sent to Health and Human Services Secretary Tommy Thompson seeking the investigation it noted that the FDA had sent Schering-Plough warning letters about in plants in Puerto Rico in 1998 and 2000.
Anderson said Shering-Plough produces Clarinex and Rebetol in Puerto Rico, but the company would not confirm that.
The revelation of the investigation is just the latest in a string of bad news at Schering-Plough. The filing reiterated that inventory problems associated with switching Claritin to over-the-counter from prescription status would cut profits by up to $250 million this year.
Last year, Claritin had worldwide sales of $3.1 billion but analysts said that could sink to $400 million next year when the switch is finally approved because over-the-counter medicines are cheaper than prescription brands.
Schering-Plough made the decision about the switch under pressure. Last May, an FDA advisory panel said Claritin and two competing products - Pfizer's Zyrtec and Aventis' Allegra - were safe enough to be sold over the counter.
Claritin was expected to lose its patent protection in December and numerous generic firms were seeking to bring a version of the drug to market. Moreover, Johnson & Johnson and American Home Products had filed to bring generic over-the counter version of the drug to the market.