Johnson & Johnson.
Out of the mire?
The Justice Department may spoil the drugmaker's fresh start.
FOR the past few years Johnson & Johnson (J&J) has stumbled clumsily through the legal and reputational swamps of contaminated pills and faulty fake hips. Under a new chief executive, it is supposed to be taking a confident stride onto firmer terrain. On April 26th Alex Gorsky, a senior manager who joined the company as a salesman in 1988, was due to take charge. Yet the ground is still worryingly soft. America's Justice Department wants Mr Gorsky to testify about alleged fraud. J&J says he has nothing to do with the case.
The government's request, made on April 11th, is the latest stage of a long dispute. The department's lawyers filed their suit in 2010, alleging that J&J made improper payments to boost prescriptions of its drugs. J&J can at least take solace in not being alone. The Justice Department has sued almost every big drug firm.
Most suits are brought under the False Claims Act, which since 1986 has encouraged citizens to sue firms that defraud the government. Whistleblowers are fortified not only by righteousness but also by a share of damages. They and the department have forged a model public-private partnership. Since 1986 the team has won more than $30 billion.
Billions have been wrung out of drugmakers. The firms have been charged with marketing drugs for unapproved uses, paying illegal kickbacks to raise sales, or both, cheating the public-health programmes that foot the bill. In the last quarter of 2011 Abbott said it had reserved $1.5 billion to pay penalties for its marketing practices, Amgen said it had reserved $780m for a similar purpose, and GlaxoSmithKline announced a staggering $3 billion agreement with the department.
The department says that J&J's questionable antics took place between 1999 and 2004. It alleges that the company used rebates, grants and other kickbacks to encourage Omnicare, a pharmacy for nursing homes, to recommend its drugs to patients. Prosecutors say that J&J continued to push sales of a drug even after warnings that it had not been properly studied in old people. On April 11th the government's lawyers asked a judge to compel Mr Gorsky, who oversaw the implicated business at the time, to testify. If the judge agrees, J&J may find a settlement attractive.
Such a deal would not be the last. Settlements show no sign of abating, for two main reasons. First, whatever the merits of the case against J&J, it is not clear that companies are changing their ways. The benefits of aggressive marketing often outweigh the cost of settlements. Aaron Kesselheim of Harvard University tracked sales of Neurontin, a drug approved for epilepsy but prescribed for much more. By 2004, when Pfizer paid $430m in penalties, annual sales had reached $2.7 billion.
Second, there is ample appetite to sue. Barack Obama's health-care law included new measures to fight fraud. For every $1 spent in such cases, the Justice Department boasts it gets $7 in return. Whistleblowers keep coming forward: last year they tooted in record numbers. And states are getting fiercer: a judge in Arkansas recently ordered J&J to pay $1.1 billion for violating the state's version of the False Claims Act.
Drug executives may find one penalty especially scary. In March Eric Holder, the attorney-general, said the Justice Department would go after people as well as companies. For example, they might be banned from business with any government health-care programme. In a country where spending on health is nearly 18% of the economy, that could finish some amply remunerated careers.