Is $750 Million Enough to Get Your Attention?

In the largest criminal (and civil) payment for the manufacture of adulterated drugs, GlaxoSmithKline yesterday agreed to pay $750 million to settle complaints that it had knowingly sold contaminated and/or ineffective products.

The complaints all stem from a plant in Cidra, Puerto Rico, since closed. (News articles from the New York Times here, The Guardian here, National Public Radio here; there are many, many more.)

In a statement, a GlaxoSmithKline (GSK) senior vice president said, "We regret that we operated the Cidra facility in a manner that was inconsistent with current Good Manufacturing Practice (cGMP) requirements and with GSK's commitment to manufacturing quality. GSK worked hard to resolve fully the manufacturing issues at the Cidra facility prior to its closure in 2009 and we are committed to continuous improvement in our manufacturing processes."

This is an apology? And what is "cGMP" anyway -- not making people sick when they use your product?

So ... just how serious were those "manufacturing issues"? NPR's Scott Hensley termed some of the "sobering":

• Nausea medicine Kytril and antibiotic ointment Bactroban could have been contaminated with bacteria.
• A special coating on Paxil CR pills cracked, leading to medicine that wasn't effective.
• Tablets of Avandeamet, a diabetes drug, were sometimes too strong or too weak.
• Different medicines were mixed up in the same bottles.
  

How were these "sobering" issues first uncovered?

Following a Food and Drug Administration (FDA) warning letter in 2002, Cheryl Eckard, then a GSK global quality assurance manager, was sent to the Puerto Rico plant to lead a team of 100 experts to fix the cited problems.

According to Gardiner Harris and Duff Wilson's article in the New York Times,

[Cidra] was GlaxoSmithKline's premier manufacturing facility, producing $5.5 billion of product each year. But Ms. Eckard soon discovered that quality control was a mess: the water system was contaminated; the air system allowed for cross-contamination between products; the warehouse was so overcrowded that rented vans were used for storage; the plant could not ensure the sterility of intravenous drugs for cancer; and pills of differing strengths were sometimes mixed in the same bottles.

Ms. Eckard complained to her supervisors, and was ignored. Instead, she was fired. A ten-year GSK employee, she turned to the FDA and sued the company. The complete complaint can be found online here; it does not make for pleasant reading. Ms. Eckard will receive $96 million, one of the highest whistle-blower awards for health care fraud.

The three-quarters of a billion dollars that GlaxoSmithKline is paying to settle the charges is the largest ever paid for the manufacture of adulterated drugs, but is only the third highest that drug companies have paid in the last two years. Pfizer agreed to pay a total of $2.3 billion in September 2009 to settle charges relating to Bextra, Zyvox, Lyrica, and other drugs (I wrote about that settlement, here), and Eli Lilly agreed to pay a total of $1.4 billion in January 2009 to settle charges related to its Zyprexa drug.

The key difference in the GSK case is that nearly all prior settlements dealt with illegal marketing issues (e.g., in the Pfizer case, a government investigation showed that Pfizer actively promoted off-label use of Bextra, by providing all-expenses-paid trips, and even kickbacks, to doctors). As the Times article noted, this GSK case "is the first successful case ever to assert that a drug maker knowingly sold contaminated products." (emphasis added)

It should also be noted that 2009 profits were up 20% over the previous year (Financial Channel article here), to 5.5 billion pounds (some $8 billion). At which point $0.75 billion doesn't sound so bad. According to Market Watch, third-quarter 2010 sales and profits are down, larger due to lower sales of Avandia (a troubled diabetes drug) and Valtrex (used to treat certain herpes infections). The company had in July set aside $750 million in anticipation of reaching an agreement with the government regarding the Cidra manufacturing complaints.

I have written before that the starting point of business ethics is contractual: I agree to provide a fair product (or service), and you agree to pay me a fair price. After that, the arguments can start.

When it comes to pharmaceuticals, the floor below which we must not go is: It's safe; it's effective; it's not contaminated; it's what I say it is.

GSK went down to the sub-basement on this one. Very senior heads should roll.

My Back Hurts -- Pass Me One of Your Vicodins Please

If you're taking illegal drugs at work, and test positive on a random drug test, you'll be fired. What if you're taking prescribed drugs for pain or anxiety?

Should you be fired for testing positive for those prescription painkillers?

It's actually a more complicated issue than it might sound.

What if you're taking prescription painkillers so that you can get back to work? What if you're taking painkillers as a result of injuries sustained on the job? What if you're taking a painkiller that was prescribed to one of your colleagues, who offered you one of his pills because your back hurts, and you forgot to bring your medication with you? What if ...

I'll stop here -- there are endless variations possible, but you get the picture.

Katie Zezima and Abby Goodnough have a long article in today's New York Times about how prescription drug testing may pose a new kind of "quandary" for employers, some twenty years "after the Supreme Court first upheld the right to test for drugs in the workplace."

It used to be that companies only tested for illegal drugs, but more and more companies are testing for prescription painkillers, anxiety medication, and more.

In one example in the Times story, a 22-year employee (not a 22-year-old, but someone who had been with the company for 22 years) was fired for taking a medication which had been prescribed by her doctor for back pain because she had tested positive for that drug, which the company, "which makes car parts, had suddenly deemed unsafe."

Now trimming car window molding, which was this woman's job, is not an office job. There is far more dangerous equipment around the factory floor than staplers. Employees may be working in closer proximity than the next cubicle, and if someone on the line has an accident or is impaired, there is substantial risk to those nearby. (Note: this particular employee is suing for discrimination and invasion of privacy, and her company would not comment for the article, citing the ongoing lawsuit.)

But how impaired is too impaired? In this tough economy, a lot of people who have jobs will do anything to keep those jobs. If it means popping a bunch of pain pills to keep working on the line, they will do that.

The employee who was fired said that "she understood [the company's] safety concerns but believed the company should have worked with employees who take prescription drugs rather than fire them. She said,

If the medicine they're taking is not good for them or the workplace, then there should be some sort of program where they can teach us how that affects you or see if something can be worked out. But that was not an option for us.

The automotive parts manufacturer decided that it wanted to "provide a safe environment" and would consider all drugs "unsafe if its label included a warning against driving or operating machinery, but doctors say many users function normally despite such warnings."

I can understand that the manufacturer preferred to have a blanket policy: All drugs of this type will be banned. Such a policy is easier to explain, easier to administer, and should be easier to defend in a court of law (although we'll have to wait and see whether it can be successfully defended). But is it ethically better?

In general, I don't like hard-and-fast rules for how to treat people because people themselves aren't "hard and fast". Some people respond better to "carrots" and some react better to "sticks". In the case of medications, different people react to different medications differently. Some people get "up" on "downers"; some people get slow and logy on "uppers".

Moreover, the Times article points out that setting rules about prescription drug use at work can easily run afoul of the Americans with Disabilities Act which "prohibits asking employees about prescription drugs unless workers are seen acting in a way that compromises safety or suggests they cannot perform their job for medical reasons."

Other employees at the plant said in interviews that there were some people there who used illegal drugs, and that some passed around prescription drugs (along the lines of, "Sorry, I don't have any Tylenol for your headache, but I'll give you one of my OxyContins.").

With an employee who has been working for you for 22 years -- assuming you're really worried about line safety ... don't you think you could have found a different, non-line position for her?

I wouldn't mind a "no illegal drugs" blanket rule, and I wouldn't mind a "no prescription drug sharing" blanket rule. But firing people for using a properly-prescribed drug properly, without any evidence that it's affecting their ability to perform their job?

That's going too far.

Fool Me Once...

I'm not a health-care industry analyst, so why am I writing about Johnson & Johnson for the fourth time this year?

It's to say, "I told you so."

And I'm not happy about it.

Back in January (here), I wrote about how long it took McNeil Consumer Healthcare, a J&J division, to respond to consumer complaints about odd smells in some bottles of over-the-counter medications. At that time, I wrote,

As a consumer, I have plenty of generic non-branded choices for pain relief. Unless I have a good reason to trust J&J to provide me with a higher level of product quality, why would I pay extra for Tylenol or Motrin?

I wrote again about McNeil in March (here), about the steps the company was taking to address the funny-smell problem (traced to chemicals leaching from wooden pallets that were used to transport and store product packaging materials), and contrasted the company's behavior with the "gold standard" comments J&J got in 1982 for its Tylenol recall.

And then in August, news broke of more problems, this time at the DePuy Orthopaedics unit and Acuvue contact lens. It was the ninth product recall for J&J this year. In that post (here), I quoted an investment banker who follows the company:

No. 1, is there a systemic issue at J&J? No. 2, is this [the DePuy hip-replacement recall] reflective of that systemic issue? And, No. 3, is there more to come?

I also noted that all these recalls were starting to affect J&J's bottom line.

And now it seems to be affecting consumer behavior.

Andrea Gardner, for American Public Media's Marketplace program today, reports that more and more parents are realizing that "there is no boogieman in the [generics] bottle", which could have a huge, long-term impact on companies like J&J.

Gardner notes (full story here) that she usually bought generics for herself, but bought branded products to care for her infant. With the recall of Infant Tylenol in April, she turned to generic acetaminophen. Will she go back when production ramps up again?

Gardner quotes a pharmaceutical industry analyst, who thinks that she, and other mothers like her, will return to the fold. There will be "a barrage of ads from J&J in 2011 and '12, with a message of trust, and changes made in the wake of the recall," he believes.

But: today's New York Times reports that McNeil is now voluntarily recalling eight-hour Tylenol caplets made at its Fort Washington PA plant, before that plant was closed.

Can a massive advertising campaign really make consumers forget everything they've heard this year? Fool me once.... Fool me twice.... Fool me thrice....

At some point, consumers can't be fooled anymore.

In Whose Universe Was Robo-Signing a Good Idea?

Given that all 50 state attorneys general are looking into current foreclosure practices (full article from New York Times here), it seems likely that some of the practices weren't OK in the legal universe.

Taking "hair stylists, Walmart floor workers and people who had worked on assembly lines" and making them "foreclosure experts" without any formal training, as reported by AP's Michelle Conlin (full story here) certainly isn't OK in the ethical universe.

But ... beyond all that? ... it was stupid in the corporate universe too.

Of depositions released Tuesday, Conlin writes,

The depositions paint a surreal picture of foreclosure experts who didn't understand even the most elementary aspects of the mortgage or foreclosure process -- even though they were entrusted as the records custodians of homeowners' loans. In one deposition taken in Houston, a foreclosure supervisor with Litton Loan couldn't define basic terms like promissory note, mortgagee, lien, receiver, jurisdiction, circuit court, plaintiff's assignor or defendant. She testified that she didn't know why a spouse might claim interest in a property, what the required conditions were for a bank to foreclose or who the holder of the mortgage note was. "I don't know the ins and outs of the loan, I just sign documents," she said at one point.

If it weren't so pathetic, it might be funny.

If you're a bank with a whole lot of mortgage loans that might or might not, well OK, probably are, bad ... wouldn't you want people looking at the documents who could figure out which ones were really really bad and which ones might be salvageable?

I wrote last month about the recurring problem of a passion for new sales as opposed to servicing and satisfying the customers you have, and part of this problem is related to that one. In the go-go years, banks spent billions to build their mortgage machines. With the market on a seemingly nonstop upward rise, actually servicing mortgages became an afterthought.

But when the bubble popped, a new army of trained employees was needed, and the banks were very slow to hire such talent. Enter the robo-signer (for those of you who haven't been following this story closely, some bank employees were signing off on literally thousands of foreclosure every month without reviewing the files, as is legally required. To keep up with the flow of paperwork, they just kept signing -- a robot could have done it just as well.).

The Times' Eric Dash and Nelson Schwartz note that "banks had few financial incentives to invest in their servicing operations... A mortgage generates an annual fee equal to only about 0.25 percent of the loan's total value, or about $500 a year on a typical $200,000 mortgage. That revenue evaporates once a loan becomes delinquent, while the cost of a foreclosure can easily reach $2,500 and devour the meager profits generated from handling healthy loans." (click here for full story)

So once again, we see that incentives work ... as long as we know what exactly we're incentivizing.

And one might argue that, if the cost of a foreclosure is so much higher than the profit, it might pay to do the triage and find as many homeowners whose loans could successfully be modified as possible....

The scandals are going to get worse, I fear, before they get better. Felix Salmon's Reuters blog makes a strong case that the investment "banks had price-sensitive information on the quality of the loan pool which they failed to pass on to investors in that pool. That’s a lie of omission, and if I was one of the investors in one of these pools, I’d be inclined to sue for my money back."

Maybe I should have gone to law school.