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J&J’s hip problems worsen with US government probe

Date February 26, 2013

The sad saga of Johnson & Johnson’s ASR hip implant grinds on. The US Justice Department is now investigating the marketing of the long-since-recalled device by J&J’s subsidiary DePuy, adding to the New Jersey-based conglomerate’s already profound legal woes.

J&J is already facing nearly 11,000 civil suits in the US from patients who claim that it sold the hip despite knowing it was faulty. The first of these went to court last month, and documents have emerged that indicate that surgeons told the company the hip was defective two years before its 2010 recall. If the firm is found to have misled patients it will face huge damages; if it is found to have lied to the US government too, the cost of the scandal will soar.

Growing losses

A separate lawsuit brought by a patient implanted with a different J&J product gives an indication of the magnitude of the damages the company could end up paying in the ASR cases. A jury in Atlantic City has ordered J&J to pay $3.35m in compensation to a patient who received its Gynecare Prolift vaginal mesh implant, after finding that she had been fraudulently misled about the product’s risks. Ethicon, a J&J subsidiary, took the Prolift mesh off sale last June as it was selling poorly; it was not subject to a recall.

The patient can now seek punitive damages on top of the compensation. These are capped at five times compensatory damages, meaning J&J could face a final bill in excess of $20m. In practice, the damages are likely to be reduced on appeal, or a separate settlement may be reached. But with around 2,000 more cases concerning the Prolift mesh pending, J&J stands to lose quite a bit.

At least the Prolift case does not involve the government. According to a form 10-K J&J filed on Friday, the US Attorney's Office for the District of Massachusetts and the Civil Division of the Department of Justice are investigating whether anyone – or any organisation – made false statements affecting federal healthcare programmes in connection with the ASR.

The first “informal request” for ASR-related documents was made back in August, and has since been followed by similar requests. J&J says it has volunteered some documents and is “fully cooperating” with the government's civil investigation. It denies that it misled patients or the authorities.

Divestment

J&J is known to be weighing up the possibility of divesting its diagnostics arm (J&J considers diagnostics sale, but why stop there? January 24, 2013). The problems affecting Ethicon and DePuy will add weight to those arguing for further selloffs – cutting off the poorly performing parts to stop them dragging the whole company down.

Spinning off Ethicon or DePuy is possible, though it would necessitate a large provision for potential damages, unless J&J were to wait until the cases were resolved.

Any divestment of the diagnostics subsidiary ought to remain unaffected, as J&J’s business units are kept apart, and run separately. Nevertheless there could be some concern about whether poor conduct in one division reflects a wider malaise. With the problems at DePuy and Ethicon and what looks likely to be at least a $1bn settlement over illegal marketing of  Risperdal, J&J is facing ongoing damage to its reputation.

To contact the writer of this story email Elizabeth Cairns in London at elizabethc@epvantage.com or follow  @LizEPVantage on Twitter

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