Johnson and Johnson Hit with Recall Charges, Lowers 2012 Outlook

Johnson and Johnson Hit with Recall Charges, Lowers 2012 OutlookJohnson and Johnson saw charges of $3 billion in the fourth quarter of December, most of which were related to the recall of its defective artificial hips, which has led the company to give lower 2012 earnings forecasts than analysts expected.

According to Reuters, J&J's DePuy Orthopedics unit issued a massive recall in 2010, stating its "metal-on-metal" hip-replacement devices could shed metal fragments and cause disabling injuries.

Morningstar analyst Damien Conover predicted that "J&J is getting ready to offer some settlements" with patients who received the roughly 93,000 artificial hips. Fourth-quarter charges will allow the money to be allocated for patients and lawyers continually getting involved in product liability litigation.

The DePuy ASR devices were designed to be more durable than older implants that used metal and polyethylene for the ball-in-socket segment of the joint. However, Conover says the company's devices have a nearly 30 percent failure rate – three times higher than other metal-on-metal devices.

Gabelli & Co. analyst Jeff Jonas stated that the various fourth-quarter charges include $800 million for medical costs of the recall.

According to The Wall Street Journal, J&J reported an 89 percent drop in fourth-quarter profit due to the onslaught of legal settlements and product-liability costs. Aside from the hip-replacement charges, the company also faced allegations that it promoted the antipsychotic Risperdal for unapproved uses. In total, the charges totaled $2.9 billion in the fourth quarter.

Earlier in January, J&J settled a lawsuit in Texas for $158 million after claims were made that the company's improper marketing of Risperdal caused the state's Medicaid program to pay more for the drug than necessary.

J&J has also had problems with its Doxil drug, which is used to treat ovarian and other cancers. The drug has been in short supply since the middle of 2011, when problems arose at the company's contract manufacturer Ben Venue Laboratories. The company said a new supply of the drug from the Ben Venue facility may not be available until later in 2012. The problems led fourth-quarter U.S. sales of the drug to decline 82 percent to $10 million.