Headline: Schering - Plough: FDA Finds Plant Problems

Source: Reuters via New York Times, 22 June 2001

URL: http://www.nytimes.com/reuters/business/business-health-scher.html

[Comment: a follow-up news item to previous posts here on GICC. Once again, we learn almost nothing as to the actual problem. –Andre]

Schering-Plough Corp. on Friday said U.S. regulators have found new manufacturing deficiencies at some of its drug plants, increasing fears the launch of a successor to the pharmaceutical firm's blockbuster allergy drug Claritin will be further delayed.

The Kenilworth, New Jersey company said the U.S. Food and Drug Administration issued new inspection reports that cite ``some continuing and some additional deficiencies concerning compliance with current Good Manufacturing Practices,'' a catch-all term for FDA quality control guidelines.

Schering-Plough said that it is in the process of responding to the reports and is in contact with the FDA. The company said it cannot predict the outcome or the timing of any resolution to the FDA's concerns.

``These are FDA warnings and what worries me is that Schering-Plough can't predict an outcome or when the company might resolve these problems,'' said Mario Corso, a pharmaceuticals analyst for Leerink Swann & Co.

The new FDA citations sent shares of Schering-Plough plunging on the New York Stock Exchange. The stock closed down $2.65 to $37.90, near the bottom of its 52-week trading range of between $33.90 and $60.

Since the start of 2001, the stock has tumbled 33 percent, triple the 11 percent decline of the American Stock Exchange Pharmaceutical Index (.DRG) of big drugmakers.

Problems at the company's plants in Puerto Rico and New Jersey first surfaced in February, when the company disclosed the FDA had found quality-control problems. What startled Wall Street was Schering-Plough's revelation that the FDA would not approve the company's key experimental allergy drug, Clarinex, until the manufacturing problems were fixed.

SON OF CLARITIN HANGS IN BALANCE

Clarinex is the successor to Claritin, the company's best-selling product with an expected $3.2 billion in global sales this year. But the flagship medicine loses its U.S. patent protection in late 2002, making the timing of Clarinex's launch key to the company's future earnings.

Once Claritin's U.S. patent expires, cheaper generic versions of the drug, whose chemical name is loratadine, could hit the market and chip away at sales.

Schering-Plough's manufacturing problems have already seriously delayed Clarinex, which the company had hoped to be approved by the FDA late last year -- in time for the 2001 spring allergy season that has already come and gone. Now there is a somewhat greater chance that the ``son of Claritin'' also could miss the 2002 season, Corso said.

Fears of such a delay in the new product launch sent the stock tumbling almost 15 percent when the problems were first disclosed in February. The stock has failed to rebound.

The plant woes have provoked speculation that the weakened firm may need to merge with another drugmaker because of declining sales of respiratory products made at the plants, and because Clarinex may not hit the market in time to rescue the company's allergy franchise when Claritin's patent expires.

Merck, which is developing two drugs with Schering-Plough and facing its own patent expirations, has been mentioned most often by analysts as a possible suitor.

Analyst Richard Evans of Sanford Bernstein said the announcements on Friday by both Schering-Plough and Merck, which warned its earnings would miss expectations, could refuel rumors of a merger between the two firms.

``Whenever you have two companies playing defense, the market tends to speculate they'll end up together, especially when there's a good fit,'' said Evans.

ING Barings analyst Sena Lund said the back-to-back announcements have cast a pall on the upcoming second-quarter earnings season for drugmakers.

``A lot of people thought it was a safe bet that pharmaceuticals companies would have good news, but Merck and Schering-Plough are already stumbling. The news is not good for the industry,'' said Lund.

SCHERING-PLOUGH CITES PROGRESS

Schering-Plough did not specify what the latest FDA citations involved, but said it is working to resolve the issues.

``In the months since FDA's initial inspections of the New Jersey and Puerto Rico facilities, Schering-Plough believes it has moved aggressively and deliberately in an effort to resolve these manufacturing issues. The company also believes that progress has been made, but recognizes that additional work remains to be done,'' Schering-Plough said in a release.

Schering-Plough said it submitted to FDA a comprehensive work plan on May 1 ``designed to take a broad, systemic approach to all aspects of manufacturing and serve as a blueprint for quality and compliance initiatives.''

The firm said it believes that the manufacturing issues identified by FDA in its latest citations, on FDA-483 forms, will be addressed in the work plan now being implemented.

-- Andre Weltman (aweltman@state.pa.us), June 22, 2001