Johnston & Johnston adds to Wall Street's woes

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Wall Street's woes were led yesterday by a tumble in the shares of Johnson & Johnson, the giant US drug maker, which announced that a criminal inquiry had been launched at a plant that makes one of its anaemia products.

Shares in J&J, America's fourth-largest drug maker, fell 16 per cent as it emerged the US Food and Drug Administration's Office of Criminal Investigations was looking into allegations from a former factory employee who has alleged in a lawsuit that he was pressured to falsify records at a factory in Puerto Rico. J&J said "the integrity of our product has never been compromised" but this was not enough to stop its shares falling $7.88 to $41.85, the biggest loss since the 1987 stock market crash.

J&J, whose shares had been among the industry's best performers, joins its rivals Schering-Plough, Eli Lilly & Co, Abbott Laboratories and Wyeth whose factories have come under regulatory scrutiny, contributing to a 36 per cent drop in the S&P's pharmaceutical index this year.

"Up until now, Johnson & Johnson has been viewed as beyond reproach," said Charles Lemonides, who manages $100m at Valueworks and sold his J&J shares about a year ago. "Investors are quick to sell a company when there's any indication of bad news."

Eprex, the anaemia treatment made in the Puerto Rico plant, was linked last month to 124 cases of a rare blood disorder and at least one death. J&J said it was not aware of any link between the inquiry and the blood disorder, called pure red-cell aplasia, in which patients are unable to make red blood cells.