$500 million fine for Schering-Plough

Posted: May 18, 2002

TRENTON — Schering-Plough Corp. will pay a $500 million fine to settle federal regulators' complaints about quality-control problems at the company's New Jersey and Puerto Rico manufacturing plants.

The pharmaceutical company said yesterday that it had accepted "rigorous controls" at four New Jersey and Puerto Rico sites that make its best-selling drug - the Claritin anti-allergy pill - and some inhaled allergy drugs, and that it would drop some older products.

The agreement requires court approval and leaves unresolved a separate probe in Puerto Rico by U.S. Food and Drug Administration criminal investigators.

The plants failed FDA inspections twice last year, delaying for 10 months approval of Schering-Plough's new allergy drug, Clarinex, and slashing more than $30 billion from the company's market value. Shareholders have been demanding that Richard Kogan, Schering-Plough's chief executive officer, complete the settlement so he can focus on rebuilding the Kenilworth, N.J., company's product pipeline.

The FDA held up Clarinex's approval until the end of 2001 to force the company to install new equipment and make other improvements at affected plants. Schering-Plough originally had made plans for an early 2001 introduction of Clarinex, which the company needs to maintain dominance in the allergy-drug market after Claritin loses patent protection late next year.

FDA inspectors cited problems keeping production areas clean and substandard company criteria for assessing drug potency, according to the consumer-advocacy group Public Citizen. The FDA has not disclosed details publicly.

Under the agreement the company signed Thursday, the manufacturing plants will operate under tighter scrutiny by the FDA, with extra reviews and reports required, through the end of 2005, an unusually long period. Schering also agreed to have outside experts ensure that manufacturing methods, procedures and controls at the plants meet FDA quality standards.

Schering-Plough also lowered its 2002 earnings forecast yesterday. But analysts said the agreement removed the cloud hanging over the company since regulators spotted problems at the four plants in February 2001.

Investors responded positively, pushing Schering stock up $1.37, or 5.5 percent, to $26.12.

"It's a big issue that was looming out there, and now it's out of the way, so that's good," said Stephen Scala, pharmaceutical analyst at SG Cowen Securities Inc. "They still have way more to do, [but] they're orchestrating a reasonable course out of this."

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