May 27, 2002
Volume 80, Number 21
CENEAR 80 21 p. 15
ISSN 0009-2347

ENFORCEMENT

SCHERING-PLOUGH PAYS RECORD FINE

FDA finds spate of manufacturing violations at drug firms

ANN THAYER

8021notw4Schering-Plough will pay a $500 million fine--the largest penalty ever--to the Food & Drug Administration for violating current Good Manufacturing Practice (cGMP) regulations. The company has signed a consent decree, still subject to court approval, that outlines the steps it must take to improve operations and includes future payments that could total up to $175 million, if the agreed-upon actions are not completed.

FDA says Schering-Plough has a history of failing to comply with cGMP requirements at its four New Jersey and Puerto Rico plants, which produce about 90% of the company's products. The agency has conducted 13 inspections since 1998, finding violations related to manufacturing, quality assurance, equipment, laboratories, packaging, and labeling.

Schering-Plough "has worked closely and cooperatively with FDA throughout this process," says Chairman and CEO Richard Jay Kogan. And, he emphasizes, "the company is confident that all of its pharmaceutical products currently in the marketplace are safe and effective." The decree relates to about 125 prescription and over-the-counter drugs and suspends production of 73 others.

Schering-Plough has been negotiating with FDA for several months and took a $500 million fourth-quarter 2001 charge in anticipation of a possible fine. The company's stock value has fallen about 30% since its problems began surfacing in late 2001.

In part because of the manufacturing issues, Schering-Plough had no sales growth in 2001 and an 8% decline in earnings. The firm just lowered its 2002 projections to "a mid single-digit percentage increase in earnings per share rather than the low double-digit percentage" previously anticipated.

The fine is the latest in a spate of FDA actions involving the drug industry. FDA recently informed Abbott Laboratories that its Lake County, Ill., diagnostics facility does not meet quality standards. FDA inspected the site in January under the stipulations of a $100 million consent decree set up in late 1999. Abbott says the consequences won't be clear until it sees FDA's formal report, but that it may face additional charges.

And Schering-Plough disclosed in a regulatory filing about a week ago that FDA's Office of Criminal Investigation in Puerto Rico is scrutinizing one or more of its products. The investigation is preliminary, so its outcome is uncertain.

In recent years, FDA's oversight has been criticized, especially over its recalls of several products soon after they were approved. The Schering-Plough action, FDA Deputy Commissioner Lester M. Crawford Jr. says, is "another clear sign that FDA will continue to enforce the rules and regulations requiring companies to carefully control and monitor their processes."

He cautions, "Manufacturers who choose to wait until FDA investigators find violations rather than policing themselves will find that they have made a poor and costly decision."

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