A Crisis in Confidence: A $200+ billion Wake Up Call for Johnson & Johnson

The untold story of the opioid epidemic. By Mark Tulay. Updated 9.15.19

We’re facing an escalating public health epidemic in the US: opioid addiction. Of the approximately 22 million Americans addicted to drugs and/or alcohol today approximately four million are addicted to opioids. The toll of the opioid epidemic on our nation is staggering, it stresses our economy, health care, communities, and criminal justice systems. According to the Centers for Disease Control (CDC), the number of opioids prescribed in the U.S. has quadrupled in the past 15 years. 

In 2013, health care providers wrote enough opioid prescriptions for every adult American to have their own bottle of pills. The surge of legal pain pills that fueled the prescription opioid epidemic has resulted in nearly 100,000 deaths from 2006 through 2012. I know the damage firsthand as one of the millions of Americans who has lost a loved one to the opiate scourge. 

I have been watching and helping shape the way corporations are valued on environmental, social and governance factors for over the last 25 years. We are now at a tipping point at assessing the value of Johnson & Johnson (J&J), purportedly a paragon in responsible business, which finds itself at an existential crossroads. 

Recently J&J was found guilty in a $572 million verdict in the landmark Oklahoma court verdict for its role in the opioid epidemic. This is just the tip of the iceberg as there are over 2,000 similar lawsuits pending. J&J is also under scrutiny for its culpability for alleged asbestos contamination in its baby powder products.  Last week, a jury awarded $37.3 million to plaintiffs who allege they developed mesothelioma from asbestos in baby powder. These lawsuits are eroding J&J’s reputation and soon will impact its market share. 

For too long, pharmaceutical companies have been pushing profits ahead of principles in the fight for market share for these high profit margin drugs. Some of the other implicated companies include Purdue Pharma, McKesson Corp., Cardinal Health, AmerisourceBergen Henry Schein and manufacturer Teva Pharmaceuticals.

In the 1980s, Johnson & Johnson was seeking a reliable supply of opium for a popular product, Tylenol with codeine. As such, J&J bought a business that grew and processed opium poppies in Tasmania. By 2015, at the height of the nation’s opioid epidemic, J&J was the leading supplier for the raw ingredients in painkillers in the United States. J&J developed an especially potent strain of poppy, called Norman, that produced a core painkilling agent used in OxyContin, which would soon become Purdue Pharma’s blockbuster drug.

The recent rulings are a check your engine light moment for investors of J&J and other implicated companies. These verdicts comes after the celebration of the 75th anniversary of J&J’s widely referenced Credo that reads, in part:

“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…. Our final responsibility is to our stockholders. Business must make a sound profit. We must experiment with new ideas. Research must be carried on, innovative programs developed, investments made for the future and mistakes paid for.”

The opioid crisis and recent verdict run counter to the Credo. Accountability starts at the top. It’s time for Alex Gorsky—and other CEOs similarly implicated—to go as J&J is facing more than 100,000 lawsuits since March 2018 over claims its products are defective. Until this happens, responsible investors, should walk. This is the tipping point for a crisis in confidence in leadership at J&J. Now is not the time for the company’s Board to duck and dodge, and hem and haw. The time calls for bold accountability ‘and mistakes paid for’. 

So far as a reference point, tobacco companies have paid more than $100 billion to state governments as part of a 25-year, $246 billion settlement in 1998. The opioid crisis will likely eclipse this and we’re still in the very early innings. 

Failure to act now may exacerbate damage to J&J’s longstanding reputation as a responsible business leader and puts it in a perpetual cycle of swimming upstream against a tsunami of mounting lawsuits. Absent immediate action, investors should lead the way out the J&J exit door.