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J&J Recall Woes Infect Pharma ETF

By Eric Dutram of ETFdb

NEW YORK (TheStreet) -- Through almost six months, 2010 has not been kind to many of the world's largest companies, as a choppy market has given investors plenty of reasons to stay on the sidelines; debt issues threaten to drag down bank profits and a massive oil spill in the Gulf has sliced BP's shares nearly in half since the spill began almost six weeks ago (weighing on the entire sector in the process).

Meanwhile, an often overlooked situation is brewing at pharma giant Johnson & Johnson (JNJ), as the firm was recently forced to recall several children's pain and cold medicines over manufacturing issues which may have put metal particles into the products. Since hitting its 2010 high of just more than $66/share, J&J has plummeted more than 11.2% to its current share price of roughly $58.6/share, and some believe that the worst could still be ahead for the pharmaceutical giant.

The formal recall, announced on April 30, involved more than 136 million bottles of medicine, had metallic molecules and more active ingredients than approved. Moreover, the FDA found bacteria in some raw materials as well. This issue is likely to be dealt with easily by the gigantic firm but it could have long-term repercussions in terms of J&J's brand name power which is likely to suffer greatly from the incident. In addition to outrage from the public, many government officials are furious at the company for allegedly hiring a contractor to pose as consumers to buy the medicines in question rather than issue a formal recall.

The FDA is now looking into criminal penalties against J&J with Joshua Sharfstein, the FDA's principal deputy commissioner, telling lawmakers at a hearing that J&J's McNeil Consumer Healthcare unit had a "pattern of noncompliance" and that regulators were considering "seizure, injunction or criminal penalties" in order to punish the firm. More recently, the House Committee on Oversight and Government Reform said that J&J had not met its 4 p.m. deadline for handing over the recall related documents and that the committee is mulling its next steps in order to get J&J to hand over the documents including subpoenaing them.

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