Johnson & Johnson: Weathering Turbulence 77
commission on sales in Iraq. When the Kimadia started demanding kickbacks,10 Janssen-Cliag raised the commission to the agent on sales in Iraq by 10% to 22%. This hike was also approved by a Janssen-Cilag area director in Lebanon and the managing director for Janssen-Cliag’s Middle East West Asia (MEWA) group in Belgium. The Company justifi es the hike in way that the agent could conduct promotional activi- ties in Iraq. This commission increment helped the agent to pay 10% kickbacks to the Iraqi ministries and mask the payments as legitimate agent commissions in the companies’ books and records.
The SEC investigation found that the kickback payments of approximately US$ 857,387 were made in connection with 19 Oil for Food contracts. These payments were executed through the agent to Iraqi-controlled accounts in order to avoid detection by the UN. The fee was used as a bribe to the Iraqi regime, which was camoufl aged on J&J’s books and records by mischaracterizing the bribes as a legiti- mate commission. For generating the funds to pay as bribes and to conceal those payments, Janssen- Cliag and its agent infl ated the price of the contracts by at least 10% before submitting them to the UN for approval. The SEC alleges that due to this scheme, the J&J generated a profi t of US$ 6,106,225.
Lance Cpl. Cody Perkins is considered to be one of the victims of this ASR XL’s failure – a 20-year- old US Marine offi cer worked in Iraq as part of US military operation in Iraq. In November 2005, in an attack, Perkins’s commanding offi cer was killed and he returned with scrapes, bruises and a fractured femur or thigh bone. After emergency surgery in Iraq, the Mississippi native was shifted back to the United States where surgeons implanted screws to fuse the broken bone. That surgery was a failure, leaving Perkins hobbled. Dr. Keith Holley, a military surgeon, told him that the best option to get his normal life back was the so-called metal-on-metal prosthetic hip made by DePuy Orthopaedics, a unit of J&J. Through a major surgery at the Navy Medical Center in San Diego, Dr. Holley implanted DePuy’s ASR XL Acetabular System in the soldier. Perkins knew that he could not regain the mobility he had before the injury. However, he was able to resume full-time work. In 2009, Perkins, who was work- ing as a Marine criminal investigator at California Camp Pendleton at that time, started experiencing muscle fatigue at fi rst, which led to shin splints, followed by pain in his hip that radiated up to his back and down to his knees. He consulted Dr. Richard Conn; the doctor confi rmed that the current problem is not because of the complication from his original injury but due to the hip replacement and suggested he undergo a revision surgery to replace the ASR hip with another implant. Finally, it was diffi cult for him to stay back in the job and unable to pass the Marines’ rigorous annual physical fi tness test. Now a sergeant based at North Carolina’s Marine Corps Air Station Cherry Point, Perkins has joined more than 1000 other people who are suing J&J over its DePuy ASR implants, seeking damages for medical costs, lost wages and pain and suffering.
In August 2010, DePuy announced its decision to recall two types of ASR hip implants. But DePuy decided to do it only after 93,000 hips had been implanted in patients worldwide, including 37,000 in the United States. J&J says DePuy withdrew the hips because of safety reasons, at the same time the company denied in court papers that the devices are defective. Announcing the voluntary recall, it cited unpublished 2010 data from the UK showing that within 5 years, 13% of ASR XL hips failed and need- ed to be replaced, and 12% of the similar ASR Hip Resurfacing System failed. (The United States does not collect the numbers on hip failure rates.)12 All types of implants are susceptible to post-operative problems. In Australia, the registry for joint implants says 3.3% of all implants fail after 5 years. On 9 March 2010, the British Orthopaedic Association and the British Hip Society said preliminary data put the ASR XL’s failure rate in the UK as high as 49% after 6 years.
The trouble in McNeil – one of the subsidiaries of J&J – started in September 2009, when the company recalled about 8 million bottles of children’s and infant’s Tylenol, because of the FDA as- sessment that there is a possible contamination of ingredients. After 2 months of this incident, the company recalled 6.3 million bottles of Tylenol Arthritis Pain caplets, after a consumer complaint about a mouldy odour and side effects, such as nausea, vomiting, and diarrhoea. In January 2010, this recall followed with millions of bottles of skunked Rolaids, Motrin, Benadryl, and St. Joseph Aspirin.
The company had known of the odours for more than a year and only began pulling products at regu- lators’ urging, Karen Hirshfi eld, acting chief of the FDA’s Recalls and Shortages Branch, revealed to media people.13
Amid these issues, the company agreed to pay more than US$ 81 million to resolve federal criminal and civil claims over illegal promotion of epilepsy drug Topmax. The major accusation against the com- pany was that, one of the subsidiaries of J&J—Ortho-McNeil Pharmaceutical—promoted Topamax for bipolar disorder and alcoholism, but it did not have FDA approval. The court stated that the company
12 Johnson & Johnson’s Quality Catastrophe, Bloomberg Businessweek, Cover Story, 31 March.
13 David Voreacos, Alex Nussbaum and Greg Farrel, Johnson & Johnson reaches for a Band-Aid, Bloomberg Businessweek, May 2011.
Johnson & Johnson: Weathering Turbulence 79
hired physicians through its “Doctor for a Day” program to join company reps on sales calls and to speak to colleagues about off-label uses and doses.14
In March 2011, the Federal Government announced the taking over of three Tylenol plants following a blizzard of drug recalls in 2010–2011.15 More specifi cally, those facilities are part of McNeill-PPC, Inc. As part of the investigation, the FDA and Justice Department took action against two of the McNeil PPC’s executives – vice president of quality and its vice president of operation – for over-the-counter product for failing to comply with federally mandated manufacturing practice.16 The government also continues its investigation into the product defects that are at the center of the recalls and have been critical of how slowly J&J has acted in the recalls (refer Exhibit III: Product Recalls).
The FDA found that the continuing problems at the facilities in J&J cannot solve on their own. More- over, the FDI stated that the facilities were not complying with federal laws. The FDA announced a con- sent decree17 of permanent injection against McNeil-PPC and two of its executives for failing to comply with current good manufacturing practice requirements as required by federal law. This action stopped the McNeil-PPC from manufacturing and distributing drugs from its Fort Washington, Las Piedras, and Lancaster facility until the FDA determines that its operations are compliant with the law.
As Douglas Steam from the FDA noted:
“We’ve had a long engagement with McNeil over the last year with regard to their quality system.
We think this represents necessary important steps to assuring quality across the board.”18
The problems in J&J are not limited only to DePuy and McNeil. In the last 15 months alone, the com- pany has recalled a huge set of products which include contact lenses, syringes fi lled with prescription medications, hernia devices and other products made by subsidiaries around the world. In August 2010, J&J recalled a million of 1-Day Acuvue TruEye contact lenses in Europe and Asia after customers complained of pain and redness linked to problems with a factory rinsing process. According to FDA estimation, this is, almost twice as many as Pfi zer, the world’s largest health-care product company by revenue, or Procter & Gamble, the world’s largest consumer products company.
EXHIBIT I: J&J’s financial summar y
Currency in millions of US dollars
Dec-30, 2007 Dec-28, 2008 Jan-03, 2010 Jan-02, 2011
Revenues 61,095.00 63,747.00 61,897.00 61,587.00
TOTAL REVENUES 61,095.00 63,747.00 61,897.00 61,587.00
Cost of goods sold 17,751.00 18,511.00 18,334.00 18,792.00
GROSS PROFIT 43,344.00 45,236.00 43,563.00 42,795.00
Selling general and admin expenses, total
20,451.00 21,490.00 19,801.00 19,424.00
R&D expenses 7,680.00 7,577.00 6,986.00 6,844.00
14 http://www.dddmag.com/news-JJ-Subsidiaries-Settle-Topamax-Case-43010.aspx
15 http://www.fda.gov/NewsEvents/Newsroom/PressAnnouncements/ucm246685.htm
16 Parija Kavilanz,, U.S. takes over three Tylenol plants, CNN Money.com, 11 March 2011
17 The Consent Decree is an agreement that is reached with the FDA to govern certain McNeill Consumer Health- care manufacturing operations until McNeill completes the remediation of its facilities to the FDA’s satisfac- tion. The Consent Decree is subject to approval by the court.
18 http://prstrategyandapplication.wordpress.com/2011/03/14/johnson-johnson-a-long-way-from-tylenol/
(Continued)
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Currency in millions of US dollars
Dec-30, 2007 Dec-28, 2008 Jan-03, 2010 Jan-02, 2011 OTHER OPERATING EXPENSES, TOTAL 28,131.00 29,067.00 26,787.00 26,268.00
OPERATING INCOME 15,213.00 16,169.00 16,776.00 16,527.00
Interest expense -296 -435 -451 -455
Interest and investment income 452 361 90 107
NET INTEREST EXPENSE 156 -74 -361 -348
Currency exchange gains (loss) -23 -31 -210 -130
Other non-operating income (expenses) 167 10 350 -68
EBT, EXCLUDING UNUSUAL ITEMS 15,513.00 16,074.00 16,555.00 15,981.00
Merger and restructuring charges -745 – -1,186.00 –
Gain (loss) on sale of assets – 536 – –
Other unusual items, total -1,485.00 319 386 966
In process R&D expenses -807 -181 – –
Legal settlements – 500 386 966
EBT, INCLUDING UNUSUAL ITEMS 13,283.00 16,929.00 15,755.00 16,947.00
Income tax expense 2,707.00 3,980.00 3,489.00 3,613.00
Earnings from continuing operations 10,576.00 12,949.00 12,266.00 13,334.00
NET INCOME 10,576.00 12,949.00 12,266.00 13,334.00
NET INCOME TO COMMON INCLUDING EXTRA ITEMS
10,576.00 12,949.00 12,266.00 13,334.00 NET INCOME TO COMMON EXCLUDING
EXTRA ITEMS
10,576.00 12,949.00 12,266.00 13,334.00 Source: Compiled from Johnson & Johnson’s fi nancial disclosure
EXHIBIT II: EUCOMED code of business practice (Exer ts)
19 Specific PoliciesQuality and Regulatory Compliance
Eucomed’s members are committed to the production and supply of high-quality medical devices and related services in the interest of patient safety and well-being. Members should comply with the legal and regulatory requirements of the countries where they do business. These include both regulations specifi c to medical devices and general legal requirements applicable to the medical device and other industries. The following paragraphs are not intended to be an exhaustive list of requirements but they do highlight areas of particular relevance to the medical device industry.
Interactions with Health-Care Professionals
Compliance with applicable laws and adherence to ethical standards are important to the medical tech- nology/devices industry’s ability to continue to collaborate effectively with health-care professionals.
Such collaboration can take the form: developing medical technologies; providing training, education
19 www.fenin.es/pdf/eucomed_code_business_practice.pdf
EXHIBIT I: Continued
Johnson & Johnson: Weathering Turbulence 81
and service and support to enable the safe and effective use of medical technologies; and supporting medical research, education and enhancement of professional skills.
These activities are necessary to advance medical science, and improve patient care.
To ensure ethical interactions with individuals or entities that purchase, lease, recommend or use members’ products, members should duly consider the Eucomed Guidelines on Interactions with Health Care Professionals.
Advertizing and Promotion
Members should ensure that all promotional presentations, including product claims and comparisons, are accurate, balanced, fair, objective and unambiguous. They should be justifi ed by appropriate evi- dence. Statements should not mislead the intended audience.
Unlawful Payments and Practices
Members should not directly or indirectly offer, make, or authorize payment of money or anything of material value, to unlawfully (a) infl uence the judgment or conduct of any individual, customer, or company; (b) win or retain business; (c) infl uence any act or decision of any governmental offi cial; or (d) gain an advantage. This requirement extends not only to direct inducements but also to indirect in- ducements made by a member in any form through agents, consultants or other third parties. Members should have particular regard to laws and regulations prohibiting or restricting inducements aimed at infl uencing clinicians or customers.
Competition/Antitrust and Procurement Laws
Members should conduct their business activities in accordance with the requirements of applicable competition and public procurement laws. Prohibited activities may consist of (a) agreements or under- standings with competitors to fi x prices, allocate customers or territories or restrict sales; (b) exchange of pricing or other confi dential information with competitors; and (c) price discrimination or refusals to sell. Members should duly consider the Eucomed Guidelines on Competition Law.
Export Controls and Sanctions
Members should ensure compliance with applicable export control laws and other rules restricting trade with certain countries.
Environmental Issues
Members should conduct their business in compliance with all applicable environmental laws and regu- lations.
Data Privacy
Members should ensure that patient data and other types of confi dential or personal data be maintained and used in accordance with applicable legal requirements.
Compliance and Enforcement
Members should take measures to ensure compliance with the principles of this Code by their employ- ees, agents and representatives. Members should adopt effective compliance programs by issuing writ- ten policies and procedures, and in the case of corporate members, by conducting training programs and implementing clear procedures, controls and enforcement mechanisms.
Eucomed reserves the right as a last resort – in application of the relevant provisions or principles of its statutes – to withdraw membership from any member who, Eucomed is convinced, does not follow the principles of this Code of Business Practice.
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EXHIBIT III: Product recalls
Date Products Problem
8 March 2011 5 lots of insulin pump cartridges Potential leaks
2 March 2011 107 batches of surgical sutures Potential sterility problems 11 February 2011 70,000 syringes fi lled with the antipsychotic
drug investigations
Cracks in the syringes 14 January 2011 50 million bottles and packages of various
kinds of Tylenol, Benadryl, Rolaids and other consumer products
Lax cleaning procedures at manufacturing plant 9 December 2010 All lots of Softchews Rolaids antacids Wood and metal bits in the
tablets 2 December 2010 12 million bottles of Mylanta and almost
85,000 bottles of AlternaGel liquid antacid
Small amounts of alcohol from fl avouring agents was not noted on product packaging 1 December 2010 492,000 boxes of 1-Day Acuvue TruEye
contact lenses
Consumer complaints of stinging pain
24 November 2010 9 million bottles of Tylenol Inadequate warning of trace amounts of alcohol used in the product fl avourings
23 November 2010 4 million packages of children’s Benadryl Allergy Fastmelt tablets in cherry and grape fl avours, around 800,000 bottles of Junior Strength Motrin Caplets, 71,000 packages of Rolaids, in a cherry fl avoured extra-strength Softchews formulation
Problem: insuffi ciencies in the development of the manufacturing process and consumer complaints about consistency and texture 18 October 2010 1 lot of adult Tylenol caplets Musty or mouldy odour 8 July 2010 21 lots of Tylenol for children and adults,
several forms of Benadryl and Motrin sold in the United States, Fiji, Guatemala, the Dominican Republic, Puerto Rico, Trinidad and Tobago and Jamaica in expansion of Jan.
15 recall. The company has said this action affected 2.5 million bottles of medicines
Musty or mouldy odour detected in earlier recall
15 June 2010 4 lots of Benadryl and Extra Strength Tylenol gels sold in the United States, Trinidad and Tobago, Bermuda and Puerto Rico in expansion of Jan. 15 recall. The company has said 500,000 bottles were affected
Musty or mouldy odour detected in earlier recall
30 April 2010 40 products including liquid infant and children’s pain relievers, Tylenol, and Motrin and allergy medications Zyrtec and Benadryl.
About 135 million bottles were affected, according to congressional investigators
Manufacturing defi ciencies that may have affected the quality, purity or potency of the medicines
(Continued)
Johnson & Johnson: Weathering Turbulence 83
Date Products Problem
15 January 2010 53 million bottles of over-the-counter products including Tylenol, Motrin and Rolaids, Benadryl and St. Joseph’s Aspirin, involving lots in the Americas, the United Arab Emirates and Fiji
Unusual mouldy, musty or mildew- like or linked to chemical in wood pallets used to store and ship products
December 2009 Expands November recall of Tylenol Arthritis Pain caplets
Consumer reports of unusual mouldy or with the 100-count bottles
November 2009 5 lots of Tylenol arthritis pain caplets Reports of an unusual musty or mildew-like odour that was associated with nausea, stomach pain, vomiting and diarrhoea September 2009 Some lots of infants’ and children’s
Tylenol
Possible bacterial contamination July 2009 Motrin tablets sold mostly at
convenience stores. The recall is the subject of a congressional probe into what some Democratic lawmakers say was a stealthy effort to buy back the drug rather than recall it. J&J has said that FDA knew of their actions, while FDA has said that as soon as it found out, it sought a recall
Problems with dissolving
Source: Company website
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