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Experts warn: Loss of consumer confidence could cost J&J more than the billions it's paying in settlement

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Johnson & Johnson world headquarters in New Brunswick
Johnson & Johnson world headquarters in New Brunswick - ()

By Beth Fitzgerald and Tom Zanki

A Johnson & Johnson subsidiary will pay at least $2.47 billion to settle thousands of lawsuits over its recalled hip implants; it's a settlement that some estimate could reach as much as $4 billion.

But experts warn the loss of consumer confidence in the New Brunswick-based pharmaceutical giant could be bigger.

James Abruzzo, co-director of the Institute for Ethical Leadership at the Rutgers Business School, said J&J's actions did not meet their credo, which pledges to put "doctors, nurses, patients, mothers and fathers" above other stakeholders, including employees, communities and stockholders.

"I tried to match up what their actions have been over the last couple of years, at least what I have read, against their credo, and there seems to be a disconnect between the he two," Abruzzo said.

Abruzzo said if J&J had "thought first and foremost about their patients, probably they would have not waited to be sued before they took some action."

Michael Cherenson, vice president of Success Communication in Livingston and a past president of the Public Relations Society of America, agreed the company came up short.

Cherenson compared the company's reaction to how it handled the Tylenol tampering case in the 1980s, when the New Brunswick-based company earned widespread praise.

"In the Tylenol case, they acted quickly and decisively to correct the problem," Cherenson said. "In this instance, they didn't act decisively: Once they found a problem, they didn't correct it quickly. That is a betrayal of trust, and I think it's going to take some time for them to rebuild trust."

The settlement announced late Tuesday covers about 800,000 patients who participated in a hip replacement program, providing about $250,000 per patient.

And the size of that settlement is cause for concern, Rutgers law professor Michael Carrier said.

"This is a pretty big settlement in terms of the amount of money J&J is willing to pay," he said. "They want to get this behind them.

"By giving people who are affected a pot of money so they can feel like they have been made whole, that removes a potential thorn in their side in future years."

The impact, however, may be different.

"It is almost as if they are admitting they were wrong, and the concern is that, in the future, perhaps patients won't consider J&J as reputable as their competition," Carrier said.

According to published reports, J&J's DePuy unit recalled 93,000 ASR hip implants worldwide in August 2010, saying 12 percent failed within five years. Internal J&J documents show 37 percent failed after 4.6 years.

Patients who had their hips replaced claimed the all-metal implants were defective, causing injuries that required additional surgeries. The agreement, which covers patients who had surgeries through Aug. 31, was approved in federal court in Toledo, Ohio.

The company has been setting aside money for the settlement and expects to make most payments in 2014.

"The U.S. settlement program provides compensation for eligible patients without the delay and uncertainty of protracted litigation," the DePuy unit said in a statement.
DePuy said some lawsuits remain in the United States, and the company said it will continue to fight them.

RELATED: J&J agrees to pay $2.2 billion to settle kickback suit

The Indiana-based DePuy said it remains committed to "advancing innovative treatment options to serve those who need joint replacement surgery."

Cherenson said how J&J operates will be key for the company as it moves forward.

"(They need to do) what they say they are going to do, put forward the best products and show concern and care for their customers," Cherenson said. "Certainly a monetary settlement alleviates some of the pain, but it's not going to alleviate the memory. Now they are going to have to exceed expectations in the marketplace."

All while avoiding more settlements.

Mahmud Hassan, professor finance and economics at Rutgers Business School, feels that could be difficult.

"I don't think this is the end of the story. More litigation is still outstanding," he said.

Hassan said the company needs to get the financial impact of this problem resolved "so that is does not have a ripple effect on other divisions and products."

The key is to ensure that this problem does not cause J&J "to stop investing in new products."

Abruzzo said good ethics ultimately make for good business.

"I think that probably the lesson is that sticking to your ethical behavior in the end is financially the best route to go," he said. "Because not only are they paying huge fines but their reputation and their brand are being diminished."

The agreement marks the second huge legal settlement in a month for J&J. On Nov. 4, the company settled litigation for $2.2 billion with the Department of Justice over allegations it marketed schizophrenia drug Risperdal and other medications for uses not approved by the U.S. Food and Drug Administration.

Back in the fall of 1982, seven people died in the Chicago area after taking Tylenol capsules that has been laced with cyanide. No suspects were ever charged, and the case led to changes to create tamper-evident packaging of over-the-counter drugs.


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