Sunday, February 26, 2012

J&J's Alex Gorsky takes on consumer trust. By David Sell

"The transition to new management will hopefully help J&J focus on rectifying its manufacturing problems," said George Sillup, professor of pharmaceutical marketing at St. Joseph's University and a former J&J executive. But, Sillup notes, J&J is a huge operation with $65 billion in revenue, and reputations - good or bad - don't change quickly. "The concern with that is, once you start going wrong, you can't turn the battleship. That is very difficult to recoup."

The challenge is not only in the more well-known consumer divisions. J&J has issues in pharmaceuticals and medical devices.

One example is the antipsychotic drug Risperdal, J&J's third-best-selling prescription medication, which had sales of $1.6 billion in fiscal 2011.

J&J's subsidiary Janssen makes Risperdal. Gorsky, who started as a Janssen sales rep, was leading the company in the early 2000s when problems with the drug first came to light.

In January, the company paid $158 million to settle allegations - first made in Pennsylvania by whistle-blower Allen Jones - that the company illegally promoted Risperdal for unapproved use in children and adolescents, in part by paying Texas Medicaid officials to give it preferential treatment.

Such episodes would run counter to J&J's official credo that says the company's "first responsibility is to the doctors, nurses, and patients, to mothers and fathers and all others who use our products and services." After mentioning employees and communities, "our final responsibility" is to shareholders.

"After settlement was announced in the Austin courtroom, I had a brief, congenial conversation with J&J's corporate representative," Jones said last week when asked about the CEO change. "I asked him to please go back to his company and fix things - to try to make the J&J Credo mean something again. I sincerely hope that J&J has the same desire and that this is a step in that direction."

The litigation is not over, not by a long shot. J&J said last week in a filing with the Securities and Exchange Commission that the company started 2012 with 10,415 lawsuits pending, including 420 involving Risperdal. Besides other state battles, J&J said in the SEC filing, it is negotiating with the federal government to settle civil and criminal allegations of improper marketing. That bill might run beyond $1 billion. Then there are individual suits, 63 of which are being argued by Philadelphia lawyer Stephen Sheller's firm.

In court filings, Sheller has argued - unsuccessfully so far - that evidence of negative clinical data provided by J&J in discovery should be forwarded to the FDA with the idea that Risperdal would be pulled from the market because of negative side effects.

"I hope they've had an epiphany and will do the right thing," Sheller said of paying the plaintiffs, some of whom rely on taxpayer-funded Medicaid to provide health care, including for diabetes and gynecomastia (enlarged breasts in boys), which are some of the possible side effects of Risperdal.

Gorsky got the job in part because he was in charge of J&J's DePuy medical-device unit and was intimately involved in J&J's pending $21.3 billion acquisition of Synthes Inc., another device-maker, with several facilities in Chester County. Before J&J made the largest purchase in its history, Gorsky met several times with Synthes chairman Hansjorg Wyss in 2010 when Wyss was looking to sell his company. At the same time, Synthes was preparing to settle criminal and civil charges involving illegal human testing of one of its products, a bone cement.

DePuy is facing lawsuits over recalled replacement hips. Now, integrating Synthes with DePuy will not be easy, and the device market has been hurt by the recession in the United States and Europe.

J&J's challenges were the subject of a recent article in the online periodical Knowledge@Wharton from the Wharton School of the University of Pennsylvania. The article's title: "Patients Versus Profits at Johnson & Johnson: Has the Company Lost Its Way?"

Gorsky holds an M.B.A. from Wharton.

In the article, a Wharton professor of legal studies and business ethics, Thomas Donaldson, gave J&J credit for taking steps to fix manufacturing plants, but said J&J managers were having to juggle a lot of balls.

Posted via email from Jack's posterous

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