THENGO BEFORE the invention of stakeholder capitalism, a fundamental tenet — that the interests of customers, employees and society should be as high as or greater than those of shareholders — was set in stone at Johnson & Johnson’s corporate headquarters in New Brunswick, New Jersey. “Our Credo” like J&J calls its mission statement, dates back to 1943, when it was drafted by Robert Wood Johnson II, a former boss of the pharmaceutical company.
Enjoy more audio and podcasts on ios Where Android.
J&J says the Creed has helped build a business designed to last. Valued at $ 420 billion, it is the world’s largest pharmaceutical company by value. It is one of only two companies in America with a triple-A credit rating (the other is Microsoft). Of its $ 82.6 billion in sales last year, pharmaceuticals accounted for 55%, medical devices 28%, and consumer health 17%. She produces everything from successful cancer drugs to dressings and baby powder.
Some claim that despite all his piety, J&J let down the company and the shareholders. In recent years, he has been the subject of several lawsuits against products ranging from prescription opioids and talc to Risperdal, an antipsychotic drug. He denies any wrongdoing, but the succession of controversies has tarnished his image and charged him with legal responsibilities.
In addition, since 2012 J&Jtotal returns to shareholders were less than S&P pharmaceutical reference of about a third. Investors say the legal maelstrom is partly to blame. Another factor is unbalanced performance. buoyancy at J&JThe pharmaceutical business of, whose sales grew 8% last year, is being overlooked due to weak single-digit growth and, at times, declines in the medical devices and consumer healthcare divisions.
Now J&J is taking measures – radical by its own standards – to reform on both fronts. Alex Gorsky, its outgoing chief executive and future executive chairman, is trying to end legal issues. He is also overhauling the corporate structure. His methods have not yet had the desired effect. But they could restore the company’s position with investors and society.
The first sign of progress was in the legal field. In August 2019, an Oklahoma court ruled that J&JS promotional campaigns downplayed the risks of opioids and meant the company bore great responsibility for the deadly epidemic. He was ordered to pay $ 465 million. But on November 9, the state Supreme Court overturned the ruling, saying it was based on a misinterpretation of the public nuisance law. The previous week, a California court dismissed a similar case against J&J and other defendants.
Such victories for J&J coincide with what Carl Tobias of the University of Richmond Law School calls a new legal approach. The firm is used to pleading cases “to the end,” he says. Lately, he points out, he has shown more willingness to settle down. This summer, he finalized an opioid deal worth up to $ 5 billion with many U.S. states, cities and counties that he hopes will stop the claims against him. In October, he said he had set aside $ 800 million to settle most of his Risperdal business.
The company still walks a legal tightrope when it comes to talcum powder claims. In October, he rolled out what is disparagingly known as the “Texas two step,” a maneuver in which he set out to limit liability over 30,000 or more talc-related disputes by creating a Texas subsidiary, LTL Management, who quickly filed for Chapter 11 bankruptcy in North Carolina. It went badly. The North Carolina judge sent the bankruptcy case back to New Jersey, where there are numerous talc claims. Some Congressional Democrats have accused the cabinet of trying to manipulate bankruptcy law to deny plaintiffs their day in court. J&J argues that he established a $ 2 billion trust attached to LTL to help cover talc-related liabilities under Chapter 11. Investors are hoping this could mark the beginning of the end of the saga.
Mr. Gorsky’s second radical change is structural. J&J said in November that within 18 to 24 months it would split into two companies, one focused on consumer health, the other combining pharmaceuticals and medical devices. The consumer health sector is in dire need of a helping hand. It is no longer enough to boast that nine out of ten dermatologists recommend a skin product. Buyers need a Kim Kardashian-style razzmatazz. J&J hopes the consumer health sector will fare better with more focus. The breakage will also crystallize the lost value in the structure of the conglomerate. It is a path traveled by GSK, a British pharmaceutical company, which is launching its joint venture in the field of consumer health with Pfizer. But much remains unknown about the split. Investors greeted him with a shrug.
What excites shareholders is the pharmaceutical sector. They take seriously J&I pledges to increase annual drug sales from $ 45.6 billion last year to $ 50 billion by 2023 and $ 60 billion by 2025. It estimates it may exceed average growth of the drug market even though one of its best-selling drugs will lose patent protection. It promises new treatments, such as cell and gene therapy. Its oncology pipeline is strong. However, not everything will be smooth. The pharmaceutical company will always be linked to the gloomy medical device industry. And if the talc-related bankruptcy operation fails, the liability could fall on the pharmaceutical company.
It’s time for a boost
These are exciting times in the life sciences. Pfizer is adding a fortune to sales with its breakthroughs linked to covid-19. Eli Lilly Attracts Investors With Investigational Alzheimer’s Drug. Faced with such competition, J&J urgently needs to go beyond the legal controversies weighing on it and on the course of its action.
The bigger question is whether the business can become more dynamic overall. In part thanks to its mission statement, J&J carries a lot of history on its back. He makes decisions with caution. Mr Gorsky has taken years to recommend a breakup, although investors have wanted one since he took over in 2012. Listening to shareholders properly would have meant ingesting the good sooner, perhaps preventively. medication. ■
Learn more about Schumpeter, our global trade columnist:
Decoupling is the last thing on the minds of business leaders (November 27, 2021)
Walmart is getting back on its feet (November 20, 2021)
Supermajors have an LNG problem (November 6, 2021)
For a deeper analysis of the biggest stories in economics, business and markets, sign up for Money Talks, our weekly newsletter.
This article appeared in the Business section of the print edition under the headline “No More Tears”