J&J CEO testified Baby Powder was safe 13 days before FDA bombshell

LOS ANGELES/NEW YORK: Facing off against a plaintiff's lawyer for the first time about Johnson & Johnson's Baby Powder, the company's Chief Executive Alex Gorsky earlier this month insisted that the company's iconic brand was safe.

"We unequivocally believe that our talc and our baby powder does not contain asbestos," Gorsky testified in an Oct. 3 deposition in a case involving a retired Indiana college professor who alleges his cancer was caused by the Baby Powder he used for decades. The deposition has not been previously reported.

Gorsky, citing "thousands of tests and studies" to support his testimony, said: "I'm not aware of our baby powder or talc containing asbestos."

That's harder for him to say now. Last Wednesday, just 13 days after his deposition, the U.S. Food and Drug Administration told the healthcare giant it had discovered asbestos, a known carcinogen, in a bottle of Johnson's Baby Powder.

On Friday, a day after getting the full FDA test results, J&J recalled 33,000 bottles of Baby Powder in the United States. It marked the first time the company has recalled Baby Powder for possible asbestos contamination and the first time U.S. regulators have announced finding asbestos in the product.

The recall is the latest blow to a healthcare conglomerate that has for many years tried to project an image as a caring company. It is now facing thousands of lawsuits over a variety of products, including legal action by more than 15,000 consumers claiming its talc powders caused their cancers.

Shares in J&J, which in February said it had received subpoenas from the U.S. Justice Department and U.S. Securities and Exchange Commission for documents related to the asbestos contamination allegations, dropped almost 6% on Friday after the recall was announced. The inquiries include a criminal grand jury investigation into how forthright J&J has been about the safety of its powders, according to people familiar with the matter.

In the deposition, Gorsky was pressed again and again to say - without qualification - that the company's powders were asbestos free. But in answering questions under oath for the first time in the talc litigation, he stuck to his statement that he "believed" J&J's powders were clean.

The FDA finding will make it much more difficult for Gorsky and the company to continue saying that they "believe" the talc powders are free from asbestos, said Elizabeth Burch, a product liability expert at the University of Georgia School of Law. She said the test result and recall lend credibility to what plaintiffs have been arguing in court for months.

J&J stands behind the safety of its talc and said it's investigating the FDA test result. The company said it proceeded with the recall "out of an abundance of caution."

In a statement on Sunday J&J said: "Thousands of tests over the past 40 years repeatedly confirm that our consumer talc products do not contain asbestos, including prior tests by the FDA as recently as last month."

In a written response to questions from Reuters on Monday, J&J added that Gorsky had no knowledge of the FDA finding of asbestos at the time of his deposition.

The company also said the FDA notified it on Sept. 20 that a test of its Baby Powder did not find any asbestos. Neither had the regulator detected asbestos during testing in 2010 using the "most sophisticated testing techniques available."

COULD BE DEPOSED AGAIN

Gorsky's testimony echoed statements he made after Reuters on Dec. 14 last year published an investigation that found J&J knew for decades asbestos lurked in its talc.

Internal company records, trial testimony and other evidence show that from at least 1971 to the early 2000s, the company's raw talc and finished powders sometimes tested positive for small amounts of asbestos, the Reuters investigation found. Company executives, mine managers, scientists, doctors and lawyers fretted over the problem and how to address it while failing to disclose it to regulators or the public.

Jim Kramer, the lawyer who deposed Gorsky this month, said he plans to ask the New York state judge in the case to allow him to question the CEO a second time in light of the FDA's findings and the recall.

J&J declined to comment on the possibility of a second round with Kramer or about its legal strategy following the FDA test result.

Gorsky faces at least one more deposition, this one ordered by a Missouri judge for Baby Powder cancer cases pending in that state. That has yet to be scheduled.

DISCUSSED DROPPING TALC POWDERS

In his daylong videotaped deposition, Gorsky, a former Army Ranger, recounted his efforts to stem the growing controversy over one of the company's signature products.

Sitting at the head of a conference table with the blinds drawn in the midtown Manhattan offices of a mediation firm, he testified that J&J considered dropping talc powders.

"We had discussions internally along the way regarding should we leave ... talc on the market or not," Gorsky said at the deposition.

In the end, however, Gorsky said the company, which also sells Baby Powder made from cornstarch, stuck with talc because it was confident about its safety and because many consumers liked its feel.

"We had the right testing procedures in place and so there was ... no medical reason or safety reason to withdraw it," he testified.

"There were in fact differences between cornstarch and talc-based baby powder in its feel, in its absorbency," said Gorsky, who has been J&J's CEO since 2012. The company "felt it was important to have different options on the market based upon different consumer needs."

The plaintiff's lawyer pressed the 59-year-old Gorsky on his use of the word "believe" when asked about asbestos in J&J's talc. "My follow up is," Kramer said, "can you not answer the question as I've presented it with a yes or a no?"

Gorsky, who said in the deposition he uses Johnson's Baby Powder and had also used it on his son, didn't budge. "I did not personally conduct every single test. I can only ... gauge it based upon the data and totality that's been presented to me."

In its answers to Reuters questions on Monday, the company reiterated that "Mr. Gorsky is not a scientist and did not conduct the tests. He therefore relies on others to advise him."

Before the FDA test result, Gorsky's focus on what he "believed" to be true was helpful to J&J's legal position, said Andrew Bradt, a Berkeley Law professor at the University of California. Many state laws require plaintiffs to prove companies knew a product was defective, and if Gorsky had unequivocally said talc does not contain asbestos then opposing lawyers could seek to undermine his declaration by contrasting it with the results of tests J&J knew about over the years suggesting otherwise.

However, in light of the FDA asbestos discovery, plaintiff lawyers could now make it sound like he was being hesitant in his deposition, Bradt said.

'MAD MONEY'

Much of the testimony centered on Gorsky's efforts to quell public and investor concerns raised by the Dec. 14 Reuters investigation and a story published hours later in the New York Times. The Reuters report had prompted a stock selloff that erased about $40 billion from the company's market value in one day.

In the subsequent days, J&J tweeted, posted on Facebook, ran a series of full-page newspaper ads, published a lengthy rebuttal to the Reuters investigation on its website and announced a $5 billion stock buyback.

In video posted in December and still featured on J&J's website, Gorsky emphasized that regulators "have always found our talc to be asbestos free."

Jim Cramer, the host of the CNBC investing show "Mad Money," gave Gorsky the chance to present his side of the story last December, according to copies of emails shown at the deposition.

Hours after the Reuters and New York Times articles were published, Cramer sent a message to Gorsky's work email, saying: "Dear Alex, if you feel these talc stories are not truthful, I would love to know how to refute them! - all the best, Jim."

And that evening, Cramer sent a followup: "Thank you, Alex. Do not be afraid to overwhelm me. I will work all weekend to tell the truth about your great company!!! -Jim."

Gorsky appeared in person in the "Mad Money" studio the following Monday, Dec. 17.

"We want to make sure that our trust and integrity that we've earned over the last 130 years is maintained for the next 130 years," he told viewers.

"We unequivocally believe that our talc, our Baby Powder, does not contain asbestos," Gorsky said on the broadcast.

In an email to Reuters, Cramer said his goal "was to get Alex Gorsky on CNBC first and to ask all the toughest questions ... There were no ground rules and nothing was off the table." At the end of the Dec. 17 broadcast, there was a disclosure that Cramer's charitable trust owned J&J shares.

It still has a stake today, Cramer said.

TESTING ACCURACY

When the question of previous test results came up in the deposition, Gorsky said occasional findings of asbestos in talc haven't held up under scrutiny. Such tests were subsequently found to be "incomplete or inaccurate," he said.

A New Jersey judge overseeing thousands of talc lawsuits consolidated in a federal court is expected to rule soon on a J&J request to disqualify expert witnesses hired by plaintiffs, including the head of an asbestos testing lab who testified in earlier trials that he found the contaminant in the company's powders.

In a filing Friday, plaintiffs' lawyers drew the judge's attention to the FDA finding of asbestos in the bottle of Baby Powder and said they have asked J&J to turn over documents related to the FDA test results and any communications with regulators.

In a brief conference call Friday with analysts and journalists, J&J officials called the FDA test results "extremely unusual," and suggested the sample may have been contaminated by an outside source or come from a counterfeit bottle.

A few hours later, the FDA shot back with a defense of its laboratory analysis, saying it wasn't aware of "any records pointing to counterfeit Johnson's Baby Powder in the U.S. market." The FDA declined to provide further comment for this article.

By Chad Terhune, Lisa Girion and Mike Spector

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