The last couple of weeks have seen the breaking of two major corporate scandals. The first involved the pharmaceutical giant Johnson & Johnson aggressively marketing its antipsychotic medication Risperdal to the elderly and the very young, despite the obvious risks. The company pleaded guilty to a crime and wound up paying $2 billion in penalties and settlements. The final cost may go up to $6 billion.
But you have probably heard a lot more about Volkswagen cheating on US emissions tests, affecting up to 11 million vehicles, and likely to cost the company billions.
Very similar scenario in both cases. Now let’s compare and contrast, as seen through the eyes of two newspaper columnists …
Very soon after the VW story broke, its CEO, Martin Winterkorn, stepped down. Writing in the Washington Post, Jena McGregor observed that changing CEOs is only the beginning, that basically the top tier management need to be shown the door, as well. Indeed, the company announced that it "is expecting further personnel consequences in the next days.”
Citing various business experts, Ms McGregor concluded that VW needs to separate itself from its old culture as soon and as dramatically as possible. VW has a reputation to win back. In the meantime, they will pay dearly in the form of lost public confidence.
Now let’s look at J&J. Illegally marketing drugs for uses not approved by the FDA is hardly a rare event. Paying the fine is simply regarded as the cost of doing business. The first story of this type that I wrote concerned Warner-Lambert - subsequently taken over by Pfizer - illegally marketing the anti-epileptic drug Neurontin as a bipolar med. In 2004, the company paid a $430 million fine. By that time, the drug had rung up billions in sales.
J&J followed the same playbook. According to Nicholas Kristof, writing in the New York Times, “In short, crime pays, if you’re a major corporation.” Do the math - J&J made $30 billion in sales on Risperdal in the US and abroad, nearly all of that net profit.
Last year, J&J rewarded Alex Gorsky, the person responsible for marketing Risperdal during the time in question, by elevating him to CEO. He earned $25 million last year. On top of that, an interfaith group announced it would honor Mr Gorsky with an award as a “man of integrity” and a “corporate leader with a sense of social responsibility.”
According to Mr Kristoff, J&J disputes the narrative of the reporter who broke the story and denies any sort of cover-up. In other words, Mr Gorsky will keep his job. There will be no high-level sackings, no changes in corporate culture, no attempt to win back the confidence of the public.
Rather, this is a case of the public be damned. My take: We - the end-users - do not enter into Big Pharma’s criteria for what constitutes the public. Yes, there is direct-to-consumer advertising, but the industry’s bottom line is built on getting doctors to change their prescription preferences - from the competitor’s Drug A to the company’s Drug B.
We don’t figure in the industry’s calculations. There are no patient focus groups, no patient consultants, no patients involved in the development or decision-making process, other than as test subjects.
Compare: When the car-buying public feels betrayed by a manufacturer, they stop buying the company's cars. Trust me, VW's bottom line will suffer. But Pharma is immune from all that. It doesn’t matter how we feel, the doctors will keep prescribing, the payers will keep paying. And J&J will just keep rolling along.