J&J Bit Off More Than McNeil Could Chew In 2006 Pfizer OTC Acquisition

McNeil scaled up its manufacturing “volume and complexity substantially” following J&J’s acquisition of Pfizer’s consumer business in 2006, says McNeil Consumer VP Shane Freedman. “Just a few years later, we had the recalls” that led eventually to a consent decree with FDA,” he says.

The consumer products businessJohnson & Johnson acquired in 2006 from Pfizer Inc. proved too big for the quality control capacity of its over-the-counter drug manufacturing facilities, according to executives with J&J’s McNeil Consumer Healthcare subsidiary.

The $16 billion deal “was the largest acquisition in Johnson & Johnson’s history” at the time. “We scaled up our [manufacturing] volume and complexity substantially as a result of that acquisition,” said Shane Freedman, McNeil’s VP for law, on Oct. 28 at an American Conference Institute regulatory discussion in New York.

“And then just a few years later, we had the recalls,” Freedman added.

J&J/McNeil in March 2011 entered a consent decree with the Department of Justice following an FDA investigation prompted by a string of recalls of OTC products in the Tylenol, Motrin, Zyrtec and Benadryl lines in 2009 and 2010 (Also see "FDA Enforces Consent Decree Over J&J/McNeil's OTC Manufacturing" - Pink Sheet, 14 Mar, 2011.).

The decree, which was FDA’s first for OTC manufacturing facilities, requires independent audits for five years at three McNeil plants, and authorizes FDA to extend the requirement.

Asked what caused the problems, Freedman offered other OTC manufacturers advice on ensuring good manufacturing practices compliance.

“What I would say in terms of what you should be looking for at your business … are your manufacturing facilities capable of producing the volume and complexity that they’re currently manufacturing?” said Freedman, who moved to McNeil in February 2012 from a similar post at another J&J business, Ethicon Inc.

Freedman said other OTC firms with manufacturing facilities in multiple locations in the U.S. or internationally should emphasize frequent and accurate communication throughout their dispersed quality-control staffs, so “all the right players have visibility of what’s happening.”

“We scaled up our [manufacturing] volume and complexity substantially as a result” of the Pfizer acquisition. “And then just a few years later, we had the recalls.” – Shane Freedman, McNeil Consumer Healthcare VP for law

“I think one thing to watch for is, are your sites capable from a volume standpoint of producing that level of volume? That level of complexity? Is there visibility at all the right levels of what’s happening from a quality standpoint at that plant?” he said.

A lack of visibility for J&J/McNeil manufacturing executives into production metrics at different sites was a factor in sub-standard or violative OTC drugs reaching the market and in the chain of events that led to the firm operating at three sites under a consent decree.

“That would be a gap that effectively could lead to a consent decree like this,” Freedman said.

“Deep, Deep Dive” With Consultants

The GMP problems cut into J&J’s consumer health care product sales before the consent decree was imposed and the firm has targeted regaining OTC market share since beginning to operate with FDA oversight at McNeil's plants in Las Piedras, Puerto Rico, and Lancaster, Pa., and as it remediates its voluntarily closed Fort Washington, Pa., facility (Also see "J&J Looks To Expand Consumer Business After Consent Decree Obligations End" - Pink Sheet, 11 Sep, 2014.).

Freedman and Bobette Williams, McNeil’s VP for quality control, did not mention scaling up production to meet market demand, but described working under the consent decree, which requires monitoring by third-party experts at the three sites in addition to FDA oversight.

Williams, who started in her post in May 2013, said independent consultants J&J/McNeil hired have “oversight for essentially everything that we do” at the facilities subject to the decree.

The process at the Lancaster and Las Piedras plants, which produce solid OTCs, began “with a deep, deep dive into every aspect of our products and our processes, coming away with thousands of observations with a number of consultants that we were working with us on the baseline audit,” she said.

The audit produced a 214-step work plan, with each step including sub-steps, for correcting problems at the two plants. The firm is required to advise FDA when each step is complete after receiving independent experts’ verification.

Williams said J&J/McNeil has received verification on 200 steps at the Lancaster and Las Piedras plants and will complete the work plan before the end of 2014. Next will be independent experts’ review to certify the entire process.

“FDA is recommending that companies engage with a third-party consultant and to put in appropriate [current] GMP practices. …This is not typically what the agency has being doing. This is really unprecedented with them challenging the company’s culture.” – Bobette Williams, McNeil Consumer Healthcare VP for quality control

“Our third-party GMP expert will say that McNeil is ready to operate independently without third-party oversight. The certification, we’ve been challenged in establishing what does that look like” without a precedent for consent decrees for remediating OTC facilities, Williams said.

“The certification is essentially how we are going to maintain and sustain our compliance,” she added.

Compliance Evaluated For Long Run

Maintaining and sustaining compliance is not the same as achieving compliance. Approval for sustaining compliance will come only with 16 months of compliant operations after receiving the consultants’ certification, Freedman noted.

“Once we demonstrate those to the GMP expert’s satisfaction, we also have to prove sustainable compliance,” Freedman said.

“It’s not just enough that you prove it” once. “We have to show that if we maintain these systems, they will remain in a state of system compliance forever,” he added.

J&J/McNeil currently is not sure how the independent experts or FDA officials will evaluate sustained compliance.

“It’s a tough bar … are you demonstrating sustainable compliance? Maybe, maybe not,” Freedman said.

“It depends on a lot different factors. It’s really subjective when it comes to sustainable control. Who’s definition of sustainable compliance are we using?”

Novartis Consumer Health Inc. also voluntarily closed an OTC plant after FDA inspectors found persistent quality control shortcomings. Although the Novartis AG business’s February 2012 decision to take its Lincoln, Neb., site off line was not ordered, multiple product recalls were ongoing and a form 483 from FDA’s Office of Regulatory Affairs indicated a follow-up inspection was under way when the decision was made (Also see "FDA Pressure Likely In Novartis OTC Plant Shutdown, Recalls" - Pink Sheet, 6 Feb, 2012.).

Novartis struggled regaining market share for Excedrin and other OTC drugs even after FDA cleared the Lincoln plant for production in October 2013 and the firm in April 2014 agreed with GlaxoSmithKline PLC to form an OTC joint venture in a deal expected to close in the first half of 2015. GSK will have 63.5% control of JV and will take over manufacturing of Novartis OTC brands; Novartis has a 20-year put option allows it to sell its share after three years (Also see "Glaxo And Novartis Scratch Each Other’s Back With Consumer Product JV" - Pink Sheet, 23 Apr, 2014.).

Pfizer has been free of GMP problems since re-entering the consumer health care products space with its 2009 acquisition of Wyeth, though whether Pfizer will divest its consumer assets has been a topic of investors’ and analysts’ interest since the deal closed (Also see "Pfizer Likes Consumer Business Fit As Segment Grows 8%" - Pink Sheet, 6 Feb, 2012.).

Warnings Suggest Independent Views

Williams pointed out employing independent experts on GMP compliance could be ahead for other pharma firms, notwithstanding a consent decree.

Noting warning letters for Rx drug firms, she said, “FDA is recommending that companies engage with a third-party consultant and to put in appropriate [current] GMP practices and address the issues that they’ve had.”

“This is not typically what the agency has being doing. This is really unprecedented with them challenging the company’s culture, challenging the decision-making that’s happening at their facilities and within the company by having a third-party oversight.”

Although a warning letter does not have the enforcement strength of a consent decree, working with an independent expert exacts costs beyond their fees.

“It’s an extremely challenging environment to be in,” said Williams, who worked for Warner-Lambert Co., now a Pfizer business, as it remediated its GMP compliance under a 1993 consent decree that ultimately cost more than $1 billion and led to criminal charges against a quality assurance executive.

“It creates a significant impact on the culture within the organization. Obviously you try to hire the best people, from the best experiences, but when you have a third party, their authority is constantly questioned. It’s very challenging for them in terms of what they know and what they can utilize as far as their experience,” she added.

And for J&J/McNeil, the consent decree magnifies the challenge.

“Not only do we at McNeil have a third party, we also have our own internal as well as our corporate oversight. We have three levels of oversight, which results in three levels of audits,” Williams said.

Freedman also noted the novelty of FDA’s suggestion to use third-party experts for GMP compliance.

“FDA is saying, ‘We’re not going to inspect your facilities into compliance, so … hire a consultant and pay for it and do it yourself. We’re going to come out and verify, but it’s not our job to ensure that you are compliant with the GMPs.’ This to me expresses some frustration on the part of FDA,” he said.

FDA Challenges Firms’ Cultures

Another novel action from FDA, Freedman added, is its interest in whether manufacturers staff their operations and pay their employees appropriately.

In addition to manufacturers’ GMP policies, FDA and DoJ want to know about whether they have the “right people,” he said.

The agencies are interested because they want an idea of whether pharma firms’ employees are encouraged to report problems to the firms and, if not satisfied with the response, to contact authorities as whistleblowers.

“It’s about people … the government is asking, ‘Are your people satisfied and engaged?’ Think about that – the Justice Department cares about whether our quality professionals, our operations professionals are satisfied and engaged. Are we paying them enough? Are they interested in their work?” Freedman said.

“It’s a really interesting place for the government to be, but it really relates to culture.”

Pharma manufacturing facilities’ culture, Williams observed, should give quality-control decision-makers independent authority so they “make the appropriate decisions and [are] not being pressured by business elements, and we all face that very day in our companies.”

Those employees need “the opportunity to speak up and say, ‘This isn’t appropriate and this isn’t the way we should be managing the business.’ What I’ve seen in a lot of warning letters is really about the quality authority making the right decisions and being able to escalate issues that come up,” she added.

[Editor’s note: This article first appeared Oct. 31 in “The Tan Sheet.”]