J&J: The next target of anger over America’s opioid crisis?
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When Alex Gorsky, chief executive of Johnson & Johnson, spoke to a room full of business leaders last year, he described the company’s 75-year old “credo” as its “special sauce”. It was this statement of corporate social responsibility — crafted decades before the term became overused PR — which he said had guided the world’s largest healthcare company to become a solid, long-term investment.
He told the group that the document was so important that it rated employees with a “credo score” linked to their performance.
But J&J’s prized reputation as a trusted consumer and pharmaceutical brand is now under threat, after a judge in Oklahoma found late last month that the company had played an important role in the biggest public health crisis in the US: the opioid epidemic that killed close to 50,000 people in 2017 alone, according to the US Centers for Disease Control and Prevention.
The verdict — and the $572m it has been ordered to pay in recompense — is just the beginning of what could be years of lawsuits examining how the company sold its opioid products and manufactured raw ingredients which it sold to larger opioid makers including Purdue Pharma. The family-friendly J&J brand risks being scarred by the accusation, levelled at it in the Oklahoma trial, that it has behaved as a “drug kingpin”.
Patrick Trucchio, an analyst at Berenberg, says that even though J&J was a smaller player in the sale of opioids, the Oklahoma case shows there is so much “anger” about the crisis that you can get “wild” verdicts. He believes J&J’s solid business will weather the storm — but warns that investors are “terrified” such a safe bet now looks more risky.
“They want to make sure it’s a sleepy, boring bond-like equity, not something that will turn into Bayer with Monsanto,” he says, referring to the German chemical company’s legal battles over whether its Roundup herbicide causes cancer.
The opioid lawsuits come as J&J is fighting on several legal fronts. It is fighting a string of lawsuits from parties who claim that its trademark talcum powder contained asbestos and caused cancer, with the US Department of Justice also probing the allegations. The group has faced other suits that claim it failed to warn that its blood-thinner Xarelto increased the risk of internal bleeding, which J&J and Bayer settled in March for $775m, and that it did not adequately list the risks of its vaginal mesh implant.
J&J denies these charges and has already won appeals in some of the cases — but the allegations could linger in the minds of Americans who are already critical of the wider pharmaceutical industry. Pharma companies have a “public responsibility”, says Lewis Nelson, chair of the department of emergency medicine at Rutgers New Jersey Medical School.
“Unfortunately, pharma companies aren’t like other companies. Just like doctors aren’t like other people, we take an oath and are bound by it,” says Dr Nelson. “The opioid epidemic is a great example of how everything can go wrong. They all got on the gravy train behind Purdue and, unfortunately, they are suffering for being part of the problem.”
J&J was never a large part of the opioid market in the US — it had less than 1 per cent of the market in Oklahoma — but the judge in the case did find that it followed a similar marketing plan to other larger manufacturers.
The state showed the court a presentation developed by McKinsey in 2002 for a series of workshops with J&J. The consulting company suggested that J&J target “high abuse-risk patients (eg males under 40)” with its drug Duragesic, a patch based on fentanyl, an opioid that is 50-100 times more potent than morphine. According to the plaintiffs. J&J explored questions such as: “are certain physician specialitiesmore or less likely to prescribe long-acting opioids?”; and “can we influence flows to take advantage of this difference?”.
In 2015, J&J started to move away from its opioid businesses. It sold the US rights to Nucynta, opioid-based pills and an oral solution, to California-based Depomed for just over $1bn. It stopped marketing Duragesic in 2008, though it still sells it.
A year later, it divested its assets in the manufacture of the raw material for opioids — Tasmanian Alkaloids and Noramco — to SK Capital, a private investment firm. In a 1998 letter exhibited at the trial, an executive from Noramco wrote to Purdue Pharma — then known as Purdue Frederick — to say that “gaining access to raw materials on a worldwide basis . . . simply cannot be provided by any other company”.
Sabrina Strong, outside counsel for J&J, said consultants present many ideas that go unused but that the products were marketed responsibly within a strictly regulated environment. She added that Noramco’s sales of raw materials were authorised by the US Drug Enforcement Agency, there was no evidence that it broke any rules and it was never Purdue’s sole supplier.
Shares in J&J initially rose after the Oklahoma judgment as analysts wrote that the $572m abatement plan was lower than some had expected — and far less than the $17bn the state had requested. J&J also plans to appeal.
But the judgment opened the way for far more uncertainty. The company is already named in a mass litigation brought by 2,000 municipalities, set for trial in October. Legal experts believe the verdict could incite the interest of more plaintiffs, including state attorneys-general who have so far focused on Purdue Pharma, the maker of the OxyContin opioid, owned by members of the billionaire Sackler family. While Purdue — which has offered between $10bn and $12bn to settle outstanding opioid legal actions according to people familiar with the matter — is considering bankruptcy, J&J and its deep pockets are a more attractive target for litigants.
“When I look at the share price going up, I think that’s a sign that people aren’t fully comprehending just how many more lawsuits are to go before the end of the road,” says Harry Nelson, a lawyer and author of The United States of Opioids.
J&J is likely to be able to shoulder the immediate financial costs of more cases — it had $14.4bn in cash and equivalents at the end of the last quarter. But it also faces much greater reputational damage.
The lawyers in the Oklahoma case — the first against J&J to go to trial — saw exposing the group’s role in the opioid market as crucial. “In this case, justice included showing the world in broad daylight exactly how J&J created the crisis in Oklahoma and profited hugely from doing so,” says Brad Beckworth, a partner at Nix Patterson and one of the lead trial lawyers for the state. “Very few people were even aware of J&J’s dominant role in the opioid epidemic.”
Elizabeth Burch, a law professor at the University of Georgia, says that even if the Oklahoma trial does not set precedents, it has exposed evidence that few people were aware of, such as J&J’s previous ownership of two subsidiaries that were major players in the manufacture of raw opioid materials.
The Sackler family had been targeted with protests in galleries, which bear the philanthropists’ name, and Purdue had a giant sculpture of a heroin spoon dropped outside its headquarters, but activists have yet target J&J.
That may be to about to change. Nan Goldin, the photographer who leads the Pain activist group against opioid makers, says the focus of protests is extending beyond Purdue. She has a blunt message for Mr Gorsky: “Pay back the money you’ve made. You’ve deceived the public enormously.”
After a criminal contaminated some Tylenol bottles in Illinois in 1982, J&J pulled the painkiller from shelves across the country. It sacrificed a core product, which made almost 20 per cent of its sales for customer safety, enhancing its reputation and becoming a business school case study in the process.
Taking action to address its current troubles is more complicated. A legal strategy to fight lawsuits that could ultimately save it billions of dollars runs the risk of causing more damage to its reputation.
Morning Consult, a survey company, says it has not yet seen any dent in its reputation — probably because its brands are “deep rooted” in American households. Yet the Reputation Institute, another company that does surveys on behalf of big brands, says J&J’s reputation had fallen from “strong” to “average” as the Oklahoma trial opened in May. In 2016, the company had been in their top 10 most reputable companies in the US. Now it is not even in the top 100.
Rupert Younger, director of Oxford university’s Centre for Corporate Reputation, says J&J faces “heightened expectations” because of its own history and the push to hold companies more accountable to stakeholders. Mr Gorsky was a spokesperson for the Business Roundtable when it announced last month that the purpose of a company was not just to make money for shareholders.
“It is a new world for executives. Pharma is undoubtedly going to have a real transition period,” says Mr Younger.
J&J is running an advertising campaign to defend its talcum powder. “Our talc is safe,” says one ad in major print and online outlets. Alexandra Lahav, a law professor at the University of Connecticut, says the ads imply there is no evidence of bad conduct at the company. But should any evidence come to light about hidden or manipulated evidence, she says, it would be “really bad for their brand” — even if the science was on their side.
David Vinjamuri, an adjunct assistant professor of marketing at NYU and a former J&J employee, says the group’s “halo” came from the consumer side of the business, especially the “careful nurturing of the whole baby franchise” that was crafted to give it a gentle, caring reputation. He says this carried over to the pharmaceutical and medical device business, where executives were able to sell products with “a brand name these people knew when they were children”.
J&J says it has to fight the talcum and opioid cases because it believes it is right. A spokesperson adds that it must “responsibly address litigation . . . This means being willing to go to trial when the science, facts and law are on our side, but also being open to resolving cases through settlement as necessary”.
The company says it must press ahead because it is up against an army of lawyers hunting for “mass torts” to pursue. John Beisner, a partner at Skadden Arps, Slate, Meagher & Flom who works for J&J, says if it paid the claims there would be “no end to the onslaught”.
“Any company like J&J in the US legal system faces this industry out there that generates lawsuits,” he says, adding the plaintiff lawyers know how to find courts that are struggling to keep questionable science away from juries. “The pharma industry is a favourite target.”
Mr Gorsky says that he recognises the “severity of the opioid epidemic” and wants to be part of a “very broad holistic approach” to the crisis. J&J runs programmes that counsel nurses and physicians about pain management, collaborate on research into treatments for opioid use disorder and give expectant parents information on the risks of opioids.
But some experts believe it should be doing more, whether or not it believes it is at fault. About 2m Americans are addicted to opioids and White House economists say the epidemic cost the country $500bn in 2015 alone, including estimates of the value of lives lost.
“J&J should be trying to take some ownership,” says Mr Nelson. “They should be on the frontline of the work that needs to be done now to restore communities, address addiction and repair the damage that has been done.”
Even as strong pharma sales helped it beat expectations for the financial year, J&J’s stock has fallen 6 per cent in the past 12 months. That decline is far less than the wider S&P 500 pharmaceuticals index, which is down 28 per cent.
Mr Younger says reputation is divided into capability and character. J&J is still respected as capable of doing its job — including creating life-saving drugs — but it needs to take action to address questions about its character, he said.
He would have expected J&J to conduct an exercise in self-criticism about its role in the opioid business. “Given the extent of the information now available about opioids and their use, it is entirely reasonable to go back and revisit every form of guidance and advice given to doctors,” he says. “It would be a statement of character more about saying we understand and recognise the extent and scale of opioid use.”
This article has been amended to reflect that J&J has settled the Xarelto case and to correct the date for when it stopped marketing Duragesic.
The Johnson & Johnson credo
Robert Wood Johnson, a member of Johnson & Johnson’s founding family, wrote the company’s “credo” in 1943, just before it became a publicly traded company. Just as Google and Facebook’s founders penned letters at their initial public offering warning they would not always chase the highest returns, J&J was clear that its first priority was not its shareholders.
“We believe our first responsibility is to the patients, doctors and nurses, to mothers and fathers and all others who use our products and services. In meeting their needs everything we do must be of high quality,” he wrote.
At 300 words, the credo is longer than a motto or value statement and includes J&J’s responsibilities to business partners, employees and the “world community”. It ends by saying its “final responsibility” is to its stockholders.
“Business must make a sound profit. We must experiment with new ideas. Research must be carried on, innovative programmes developed, investments made for the future and mistakes paid for,” he wrote.
David Vinjamuri, an adjunct assistant professor of marketing at New York University and a former J&J employee, says that during his time at the company, an employee could stop a meeting by saying they had a “credo issue”.
He remembers a time when an executive said a supplier should be paid more because J&J’s price was so low they could be run out of business. “The nice thing about the credo was it allowed the company to stand above the market,” he said.
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