Johnson & Johnson, Under Fire, Has

Track Record Of Weathering Trouble

The health care giant faces multiple lawsuits, including one over
opioids. A reputation for corporate responsibility, dating back to the
Tylenol scandal, o<ers some protection but no guarantee.
BY SCOTT HORSLEY · JUN 3, 2019 · 3 MINUTES ! Save for Later

Johnson & Johnson faces multiple lawsuits, including one over the opioid epidemic. A reputation for
corporate responsibility, dating back to the Tylenol scandal, o<ers a measure of protection, but no
guarantee, analysts say. Source: Mike Blake

In the health care industry, there are few brands more well known than Johnson
& Johnson. The maker of consumer staples ranging from Band-Aids to baby
shampoo has faced a number of controversies in its 133-year history. Now it is
contesting charges that it contributed to the nation's opioid epidemic.

Stock in Johnson & Johnson took a beating last week, as a trial got underway in
Oklahoma. State o<icials there allege the giant company sparked a deadly public
health crisis. The company's shares fell 4% last Wednesday and regained less than
1% the following day.

The state of Oklahoma has accused the company of creating a "public nuisance"
by oversupplying prescription painkillers.

"If you oversupply, people will die," said attorney Brad Beckworth, who is
representing the state.

Johnson & Johnson denies any wrongdoing.

Wednesday's stock drop knocked about $20 billion o< J&J's market value — a
sizable decline for the company.

Credit Suisse analyst Vamil Divan thinks the market overreacted. He noted that
J&J was responsible for a tiny fraction of the prescription painkillers sold in
Oklahoma, and the company's drugs were mainly prescribed to patients who
were already using other opioids.

"Obviously, the opioid epidemic is a major epidemic," Divan said. "I'm certainly
not trying to minimize that. And I don't think the company is either. But the role
that Johnson & Johnson specifically played here seems to be relatively limited."

Divan said Johnson & Johnson could have more exposure from a di<erent series
of lawsuits involving its baby powder. Last year, a jury in St. Louis ordered
Johnson & Johnson to pay $4.7 billion to women who developed ovarian cancer
aaer using its talcum powder. The company is appealing.

The stakes in this and similar cases are particularly high for the company, because
they threaten its trustworthiness. Consumers know Johnson & Johnson best
through its array of baby products — baby oil, baby shampoo and baby powder —
that have been around for generations.

In December, Reuters reported that Johnson & Johnson had known for decades
that the raw material in talcum powder could be contaminated with asbestos and
sought to cover it up. The report triggered a 10% drop in the company's stock
price. J&J called the report "false and inflammatory."

"We unequivocally believe that our talc, our baby powder, does not contain
asbestos," CEO Alex Gorsky told CNBC.

Decades ago, Johnson & Johnson was at the center of another, more dramatic
health scare. In 1982, seven people died aaer taking extra-strength Tylenol
capsules that someone had laced with cyanide.

Johnson & Johnson, which makes Tylenol, ordered a nationwide recall and
redesigned its packaging to prevent future tampering. The costly and proactive
response is oaen held up as a model of corporate responsibility.

"The Tylenol episode created what might still be characterized as the standard for
how to deal with a crisis," said Harvard Business School professor Stephen
Greyser, who documented the episode. EN Upload Saved

He said the company was guided by its o<icial credo, which says Johnson &
Johnson's first responsibility is to patients, doctors, nurses, and the mothers and
fathers who use its products.

"The credo has historically made it clear that if one focuses on customers, down
the road, profits will come," Greyser said.

Tylenol recovered and is now one of the top-selling over-the-counter pain

medications.

In the years since, Johnson & Johnson has grown far beyond its roots in the
consumer medicine cabinet. Household brands, including Listerine and
Lubriderm, accounted for just 14% of the company's U.S. sales last year. Fully half
of its revenue now comes from pharmaceuticals, used to treat everything from
depression to blood clots.

These products are not as identified with Johnson & Johnson as Band-Aids or
baby powder. But they're much bigger moneymakers. And even though the drug
business packs its own challenges — including generic competition, government
regulation and lawsuits like the one in Oklahoma — Credit Suisse analyst Divan is
bullish on Johnson & Johnson's future.

"Nothing is ever 100%. There's always some uncertainty," he said. "But you have
relative comfort that this is a company that can deal with some of these things
that may come up along the way. And if you look at its track record also, over one
year, three years, five years, 10 years, generally this company has delivered."
That famous Johnson & Johnson credo concludes, when the company operates
according to its principles, stockholders should realize a fair return.

Copyright 2019 NPR. To see more, visit NPR.

Johnson & Johnson Prescription Drugs Pharmaceutical Wellness

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