Johnson & Johnson Takes $3 Billion Charge Related to DePuy ASR Hip Implant Recall, Lawsuits

It seems that the litigation surrounding DePuy Orthopaedic’s 2010 ASR Hip Implant recall is hurting Johnson & Johnson’s bottom line. According to the company’s most recent earnings statement, while Johnson & Johnson’s earnings were up, revenues were down sharply in the fourth quarter of 2011, in part because of product recalls and litigation, include the issues surrounding its DePuy unit’s defective ASR hip implant.

In its fourth quarter earnings statement, Johnson & Johnson said the company earned $218 million in the quarter compared with the $1.9 billion it earned just a year earlier. According to The New York Times, the company took quarterly charges of more than $3 billion, mostly related to the DePuy ASR Hip Implant recall. The charge will allow money to be set aside for patients and lawyers involved in product liability litigation. Of the total, $800 million was set aside to cover the medical costs of the recall.

Other product quality issues also weighed on the company’s performance. Domestic sales for the company’s consumer division fell 6.7%, in large part due to the suspension of manufacturing at the firm’s McNeil Consumer plant in Fort Washington, PA. That plant had manufactured some over-the-counter medications, including Motrin and Tylenol, that were involved in dozens of recalls two years ago. According to Reuters, Johnson & Johnson had predicted the plant would re-open this year, but on Tuesday said it will not be up and running until 2013

“Manufacturing issues and recalls have been a serious disappointment for all of us,” CEO William Weldon said earlier this week during a conference call to discuss the earnings report. “But through it all, we have remained committed to retaining the trust of our patients and customers. We have taken responsibility and instituted new measures to ensure that our products live up to the high-quality standards that our customers expect.”

According to Reuters, Morningstar analyst Damien Conover predicted that “J&J is getting ready to offer some settlements” with patients who received an estimated 93,000 of the artificial hips involved in the ASR recall.

In August 2010, DePuy Orthopaedics issued a worldwide recall of its ASR Hip Resurfacing System and the DePuy ASR Acetabular System, after data from the National Joint Registry of England and Wales showed that 1 out of every 8 patients (12%-13%) who had received the devices had to undergo revision surgery within five years of receiving it. In November, Johnson & Johnson reported that more than 3,500 lawsuits had been filed over the DePuy ASR hip implant recall.

The DePuy ASR replacement devices involved in the recall are metal-on-metal hip implants, a class of devices which have recently been linked to serious complications and injuries. Last May, amid increasing concerns that the devices were harming patients, the U.S. Food & Drug Administration (FDA) directed 21 makers of all-metal hip implants, including DePuy, to conduct post-market studies of their products to determine if they were shedding dangerous amounts of metallic debris in patients.

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