J&J Settlement with Shareholders

July 16, 2012 — Johnson & Johnson has reached a tentative settlement with shareholders, who sued the company following years of drug recalls, government investigations, and billions of dollars in fines for ongoing safety problems and quality control issues. If shareholders approve the plan, J&J executives will be held to stricter standards for notifying shareholders and fixing problems.

 

Over the last few years, J&J has faced several high-profile, expensive recalls, lawsuits, and investigations. Although some of these issues had been ongoing since the 1990s, shareholders allege that the executives ignored obvious signs of misconduct and failed to fix problems at manufacturing facilities.

The settlement agreement proposes to establish a Regulatory, Compliance, and Government Affairs committee that will liaison between the shareholders and executives. The committee will receive reports from executives that will include information about any serious compliance or quality control issues, and then inform shareholders and investors about those issues. All employees of J&J, including company executives, will also be evaluated for how well they have complied with quality standards and regulations, and their pay will be adjusted accordingly.

U.S. District Judge Freda Wolfson is expected to approve the plan in the coming weeks. Afterward, there will be a commenting period for the shareholders. The settlement plan could be approved by the fall.

J&J has gone through several high-profile criminal and quality-control scandals recently, including:

  • Paying illegal kickbacks to doctors and pharmacists who prescribed Risperdal, a powerful anti-psychotic, to elderly nursing home residents, despite the fact that drug kickbacks are illegal and Risperdal increases the risk of death in dementia patients.
  • Illegally marketing drugs to treat conditions not approved by the FDA. Also known as “off-label marketing,” J&J paid the U.S. Department of Justice (DOJ) $2.2 billion for illegally marketing Risperdal for off-label use, as well as $82 million in criminal/civil penalties for marketing Topamax off-label for use in children.
  • Since 2009, around 36 major product recalls. The largest was in April 2012, when the company recalled 136 million bottles of Tylenol, Benadryl, and Motrin. Other recalls have been due to glass and metal fragments in liquid medicines, foul odors emanating from medicines, and improper amounts of active ingredients in drugs.
  • Medical device recalls. DePuy Orthopedics (a subsidiary company of J&J) recalled the ASR metal-on-metal hip implant due to a 15% five-year failure rate. Settling this litigation will likely cost billions.

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