Friday6 September 2019 ★ FINANCIAL TIMES 7

F T B I G R E A D. HEALTHCARE

Johnson & Johnson prides itself on its reputation as one of America’s most trusted consumer brands. But

after a court ruling in Oklahoma, it risks becoming the focus of public anger over the opioid epidemic.

ByHannahKuchler

paign 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 Con-

necticut, says the adsimply there is no

evidence of bad conduct at the com-

pany. But shouldany 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 pur-

sue. 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 ques-

tionable science away from juries. “The

pharma industry is a favourite target.”

Time for self-criticism

Mr Gorsky saysthat he recognises the

“severity of theopioid epidemic” and

wants to be part of a “very broad holistic

approach” to the crisis. J&J runs pro-

grammes that counsel nurses and physi-

cians about pain management, collabo-

rate on research into treatments for opi-

oid use disorder and give expectant par-

ents 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 2mAmericans are

addicted to opioids nd White Housea

economists say the epidemic cost the

country $500bn in 2015 alone, includ-

ing 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 pharmaceuti-

cals 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 con-

duct 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 state-

ment of character more about saying we

understand and recognise the extent

and scale of opioid use.”

W

hen Alex Gorsky, chief

executive of ohnson &J

Johnson, spoke to a

room full of business

leaders last year, he

described the company’s 75-year-old

“credo” s its “special sauce”. It was thisa

statement of corporate social responsi-

bility — crafted decades before the term

became overused PR — which he said

had guided the world’s largest health-

care company to become a solid, long-

term investment.

He told the group that the document

was so important that it rated employ-

ees 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: he opioid epidemict hat killedt

close to50,000 people in 2017 alone,

according to the US Centers for Disease

Control and Prevention.

Theverdict — and the $572m t hasi

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

manufacturedraw ingredients which it

sold to larger opioid makers including

Purdue Pharma. The family-friendly J&J

brand risks being scarred by the accusa-

tion, levelled atit in the Oklahoma trial,

that it has behaved as a “drug kingpin”.

Patrick Trucchio, an analyst at Beren-

berg, 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 thatinvestors are “terrified” uchs

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 intoBayer with Mon-

santo,” 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

fightingon several legal fronts. It is

fighting a string of lawsuits from parties

who claim that its trademarktalcum

powder contained asbestos and caused

cancer, with the US Department of Jus-

tice also probing the allegations. The

grouphas faced other suits that claim it

failed to warn that its blood-thinner

Xarelto increased the risk of internal

bleeding, which it 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 couldlinger in the

minds of Americans who are already

critical of the wider pharmaceutical

industry. Pharma companies have a

“public responsibility”, saysLewis Nel-

son, chair of the department of emer-

gency 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 Purdueand, unfortunately,are

suffering for being part of the problem.”

The opioid production chain

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 fol-

lowed a similar marketing plan to other

larger manufacturers.

The state showed the court a presen-

tation 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 Durage-

sic, 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 cer-

tain 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

— it had $14.4bn in cash and equivalents

at the end of the last quarter. But itfaces

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 cri-

sis 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 domi-

nant 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 prece-

dents, it has exposed evidence that few

people were aware of, such as J&J’s pre-

vious 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 haveyet target &J.J

That may be to about to change.Nan

Goldin, the photographer who leads the

Pain activist group against opioid mak-

ers, says the focus of protests is extend-

ing beyond Purdue. She has a blunt mes-

sage for Mr Gorsky: “Pay back the

money you’ve made. You’ve deceived

the public enormously.”

A ‘deep rooted’ presence

After a criminal contaminated some

Tylenol bottles in Illinois in 1982, J&J

pulled he painkiller from shelvest

across the country. It sacrificed a core

product, which made almost 20 per cent

of its sales for customer safety, enhanc-

ing its reputationand becoming a busi-

ness school case study in the process.

Taking action to address its current

troubles ismore complicated. A legal

strategy of fighting lawsuits that could

ultimately save it billions of dollars risks

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 Insti-

tute, 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 openedin May. In 2016, the com-

pany had been in the institute’s 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 Repu-

tation, 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

wasnot just to make money for share-

holders.

“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 cam-

opioids — Tasmanian Alkaloids and

Noramco — to SK Capital, a private

investment firm. In a 1998 letter exhib-

ited 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 mate-

rials were authorised by the US Drug

Enforcement Agency, there was no evi-

dence 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 companyis

already named in a mass litigation

brought by 2,000 municipalities, set for

trial in October. Legal expertsbelieve

the verdict could incite the interest of

more plaintiffs, including state attor-

neys-general who have so farfocused on

Purdue Pharma, the maker of the Oxy-

Contin 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 consider-

ing 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,author of

The United States of Opioids.

J&J is likely to be able to shoulder the

immediate financial costs of more cases

Johnson &

Johnson chief

Alex Gorsky,

above, says he

recognises the

‘severity’ of the

opioid epidemic.

Right, J&J’s baby

powder, part of

its core baby

franchise.

Below, medics in

Boston try to

revive a man

after an opioid

overdose in 2017

FT montage

Oklahoma falloutPharma groups face

thousands more lawsuits over their

alleged role in the opioid epidemic

Drug abuseAt a recent trial J&J was

accused of acting like a ‘drug kingpin’,

and must pay compensation of $572m

Brand damageJ&J was among the top

10 most reputable companies in the US

in 2016, but is now not in the top 100

‘It is entirely reasonable

to go back and

revisit every form of

guidance and advice

given to doctors’

‘When I look at the share

price going up, people

aren’t comprehending

just how many more

lawsuits are to go’

A target on its back

Johnson & Johnson:

a key player in Big Pharma

Share price and index (rebased)

Jan  Sep

J&J

S&P

Pharmaceuticals

Source: Refinitiv

The US opioid crisis

Deaths from opioid overdoses (')







   

Prescribed

Not prescribed

Sources: National Center for Health Statistics; CDC

SEPTEMBER 6 2019 Section:Features Time: 9/20195/ - 18:34 User:dana.prince Page Name:BIG PAGE, Part,Page,Edition:USA , 7, 1