With big money pending, J&J's Gorsky plays nice with FDA

To listen to Johnson & Johnson's new chief executive officer Alex Gorsky Tuesday during the quarterly conference call with Wall Street analysts, one might have thought there is no bigger fan of the U.S. Food and Drug Administration.

"We feel very good about our overall relationship with the FDA," said Gorsky, who succeeded Bill Weldon as CEO in April.

But J&J is in a dicey position regarding the federal government on several fronts, so anything short of happy talk would have been shocking.

J&J is still negotiating with the Justice Department over potential criminal and civil charges related to allegations of kickbacks to Omnicare, a nursing home pharmacy company, and illegal marketing of the anti-psychotic drug Risperdal.

Depending on the week and the news organization, the dollar figure in the settlement goes between $1.5 billion and $2 billion. Even for J&J, that's enough money to be careful with.

During the conference call, chief financial officer Dominic Caruso said the company took a $600 million charge against second-quarter earnings to add to its reserves to pay fines related to litigation.

Federal prosecutors this spring asked a judge to compel Gorsky to give a deposition in the case because he was the leader of Janssen Pharmaceuticals - the subsidiary that makes Risperdal - during the period under investigation.

While some people say pharmaceutical companies view such fines as the cost of doing business, companies and executives do need to worry about accumulation of multiple problems.

It's rare that executives go to jail, but four Synthes executives were sent to prison last fall.

Plus, the federal government can "exclude" executives and companies from participating in federal insurance programs such as Medicare, Medicaid and Tricare (the military health insurance program). With the millions of dollars coming from the government in the form of drug reimbursements, no executive or company can operate without those funds.

Meanwhile, Gorsky and his pharmaceutical division want the FDA to approve its new drugs.

On a more local level, Gorsky has to manage the ongoing repairs and remediation of the McNeil Consumer Healthcare facilities in Fort Washington, Lancaster and Las Piedras, Puerto Rico. The Fort Washington factory stopped making medicine in April 2010 after dozens of recalls. The other two are operating at reduced levels because the whole unit is operating under a judge-approved "consent decree," which is plan of increased oversight. A third party, The Quantic Group, is involved in that oversight.

A link to Tuesday's Inquirer story, focused on McNeil, is here.

Before Gorsky, McNeil and J&J can resume making and selling Tylenol at full speed, it has to satisfy the FDA and a judge. While McNeil stopped production in April 2010, the consent decree was signed in 2011 and Gorsky said the company did not start to implement it until the third quarter of 2011.

Gorsky said the company is "learning" how to operate under the decree. He was asked by an analyst if there was tension in the FDA relationship, which prompted the comment about the relationship being "very good." He was also asked to elaborate on what the company has to learn under a consent decree.

"It's a relationship we take on very seriously, one we work on building in an appropriate way, with open dialog," Gorsky said. "We think it is critically important at the most senior levels of the organization, that we demonstrate a commitment and we are clearly aligned around our goals and plans going forward. It absolutely involves people at the most senior level of our organization, including myself. We see the FDA as a very important partner, not only in this area of our business, but all areas of our business. Ultimately, we're trying to get products to patients in a timely and well-considered manner."

Gorsky suggested there were three aspects to working through the consent decree.

"You continue to work with the agency on all the specific steps as we work our way through the agreement process," Gorsky said. "The second aspect is that we are working with an outside party, Quantic, that is verifying and validating different procedures, so in that there is a learning process, as they come on board, ensuring that we are fulfilling the commitments we made along the way.

"The third significant aspect of learning for us is getting the right balance between our consent decree requirements, resources and commitments, and also produce products and getting it to the marketplace. Our customers are clearly interested in getting a consistent and reliable supply. We're very encouraged that when we have gotten product on the shelves, we've seen very solid demand on the part of our customers. That is something we're working deliberately on and something we want to get right, having that balance going forward."