A Stealth Drug Recall: Who Protects Consumers and Shareholders?

• Date: 01 January 2015
• Author: Nancy Lasher,Susanna Monseau
• Published date: 01 January 2015
• DOI: http://doi.org/10.1111/jlse.12023

Journal of Legal Studies Education

Volume 32, Issue 1, 91–129, Winter 2015

A Stealth Drug Recall: Who Protects

Consumers and Shareholders?

Susanna Monseau∗and Nancy Lasher∗∗

I. Introduction

In September 2010 William Weldon, chief executive officer (CEO) and chair-

man of Johnson & Johnson (J&J), was called to testify in front of the Com-

mittee on Oversight and Government Reform to explain the largest product

recall in the 125-year history of the well-known pharmaceutical and consumer

products company. The following case study uses the public testimony from

two hearings before the Congressional Committee and other public docu-

ments to trace the story of the recalls and cover-ups related to Motrin and

Tylenol products from 2008 to the Consent Decree in 2011. The case facts are

followed by three additional sections: the first provides background on the

Food and Drug Administration (FDA) and the regulatory process for phar-

maceuticals, including details of the standard of current good manufacturing

practices; the second section provides a primer on corporate governance to-

gether with a discussion of J&J’s board of directors and board committee

structure; and the third comprises a teaching note. J&J is a well-known public

company, familiar to most students. The authors have used this case with

great success in legal environment and business ethics classes to stimulate

discussion on ethics, corporate governance, and the role of regulatory agen-

cies like the FDA. The authors provide students with the case facts and ask

them to answer some of the questions before class so that class time can be

used to discuss the issues.

∗Associate Professor, The College of New Jersey

∗∗Associate Professor, The College of New Jersey. The authors would like to thank Tim

Pfenninger, The College of New Jersey, Class of 2014, and Terrence Bennett, The College

of New Jersey Librarian, for their assistance with this article.

C2015 The Authors

Journal of Legal Studies Education C2015 Academy of Legal Studies in Business

91

92 Vol. 32 / The Jour nal of Legal Studies Education

II. Case Facts

A. Johnson & Johnson and the Credo

In 1886 three brothers, Robert Wood Johnson, James Wood Johnson, and

Edward Mead Johnson, founded J&J in New Brunswick, New Jersey. Among

other products, the company pioneered sterile surgical dressings, first aid,

and wound care.1Today it is the world’s sixth largest consumer health care

company, with 275 operating companies in sixty countries.2It divides its busi-

ness into three segments: consumer, medical devices, and pharmaceuticals.3

The consumer segment, which includes over-the-counter (OTC) medica-

tions, baby care, and skin and hair care, had worldwide sales of over $14

billion in 2012.4Part of the consumer segment of J&J, McNeil Consumer

Healthcare (McNeil), manufactures and markets the well-known OTC med-

ications Tylenol and Motrin.

In 1942 Robert Wood Johnson, the son of J&J’s founder, authored a

landmark document: The Credo. The Credo states, “We believe our first

responsibility is to the doctors, nurses and patients, to mothers and fathers

and all others who use our products and services. In meeting their needs

everything we do must be of high quality.”5

In 1982 J&J and subsidiary McNeil stayed true to the Credo’s em-

phasis on the customer when six people died after taking cyanide laced

capsules of Extra Strength Tylenol.6In the aftermath of the tragedy, com-

mentators predicted that although the poisonings were not the company’s

fault, the well-respected brand would never recover from the sabotage;7

1Johnson & Johnson History: Our Timeline,Johnson & Johnson, http://www.jnj.com/

connect/about-jnj/company-history/ (last visited May 7, 2013).

2Our Company,Johnson & Johnson, http://www.jnj.com/connect/about-jnj/ (last visited May

7, 2013).

3Annual Report 2012, Johnson & Johnson, http://files.shareholder.com/downloads/JNJ/35-

78493118×0×644760/85FD0CFF-2305-4A02-8294-2E47D0F31850/JNJ2012annualreport.pdf,

at 4 [hereinafter 2012 Annual Report].

4Id.

5Our Credo Values,Johnson &Johnson, http://www.jnj.com/connect/about-jnj/jnj-credo (last

visited May 7, 2013).

6Judith Rehak, Tylenol Made a Hero out of Johnson & Johnson: The Recall that Started them

All,N.Y. Times (Mar. 23, 2002), http://www.nytimes.com/2002/03/23/your-money/23iht-

mjj_ed3_.html.

7Id.

2015 / A Stealth Drug Recall 93

nevertheless, J&J, emphasizing the company’s commitment to its credo’s val-

ues, recalled every bottle of Tylenol on the shelves and designed tamper proof

packaging.8It was expensive, but Tylenol regained its place as the number

one OTC pain reliever in the United States.9In 2008, McNeil brands Tylenol

and Motrin were again contaminated, this time in the company’s own facili-

ties, but J&J and its subsidiary, McNeil, did not win praise for their handling

of the situation.

1. Tylenol Recalls—Tribromoanisole Contamination

In April 2008 McNeil received several customer complaints that its Tylenol

products manufactured in Puerto Rico had an uncharacteristic odor and

caused nausea, vomiting, stomach pain, and diarrhea.10 McNeil tested the

products for microbial contamination but could find no cause; so it closed the

investigation and did not notify the FDA of the problem.11 In May and June

of 2009 the FDA noted several other violations at McNeil’s Fort Washington,

Pennsylvania, manufacturing plant including the company’s failure to meet

its own quality standards.12

After one hunded further complaints about the “uncharacteristic bad

odor” and reports of at least two children’s deaths possibly related to con-

sumption of Tylenol products, McNeil launched a second investigation to

determine what was causing the unusual smell13 and in September 2009

finally pinpointed a chemical called 2–4–6 tribromoanisole (TBA) as the cul-

prit.14 TBA is yielded from the “breakdown of a chemical that is sometimes

applied to wood that is used to build wood pallets that transport and store

8Id.

9Michael Waldholz, Johnson & Johnson Says It Is Convinced Tylenol Poisoning Was Isolated Incident.

Wall St. J., Feb. 12, 1986, http://search.proquest.com/docview/397950868?accountid=10216.

10Johnson & Johnson’s Recall of Children’s Tylenol and Other Children’sMedicines: Hearing Before the H.

Comm. on Oversight & Gov’t Reform, 111th Cong. 78 (2010) [hereinafter Tylenol Hearings I].

11Johnson & Johnson’s Recall of Children’s Tylenol and Other Children’s Medicines and the Phantom

Recall of Motrin (Part 2): Hearing Before the H. Comm. on Oversight & Gov’t Reform, 111th Cong. 66.

(2010) [hereinafter Tylenol Hearing II].

12Tylenol Hearings I, supra note 10, at 9.

13Id. at 78–82.

14Id. at 82.