Bone Putty Recall Adds To JNJ’s Woes

Johnson & Johnson (NYSE:JNJ) is recalling its Hemostatic Bone Putty as the implant could catch fire if exposed to electrosurgical systems during surgery. The U.S. FDA tagged the recall as class I, the most serious. ^[1] The recall comes barely after a month of $21 billion acquisition of Synthes and at a time when the company is trying hard to revive its combined DePuy Synthes division, whose brand value has taken a hit following the DePuy metal hip implants recall and related lawsuits. With its Synthes aquisition, Johnson & Johnson was hoping to recover from these headwinds.

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Hemostatic Bone Putty is used to stop bleeding by creating a barrier along bones that have been cut due to either trauma or as part of some surgical procedure. Recently, the company has warned its customers that the devices manufactured between last July and December were prone to igniting if exposed to electrosurgical devices and initiated the recall. ^[1]

It certainly doesn’t bode well for the company, which is grappling with declining sales in its Medical Devices & Diagnostics division. A strong outlook for the U.S. dollar amid the global economic slowdown and pricing pressure following the healthcare reforms continue to pose concerns for the company in the short term. While we don’t know the total sales of  the device,  one can be certain that such news will only result in a decline in sales in short term. The buyers care about potential side-effects when buying any pharmaceutical / healthcare product.

The company may see new product liability lawsuits associated with the bone putty and it may have to set aside funds for litigation costs. While the litigation costs and settlements have an immediate impact on the cash reserves, we are concerned about its long-term impact, which could be hard to assess.  If these lawsuits hurt Johnson & Johnson’s image, it may impact its sales across the segments.

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1. J&J unit recalls bone putty, Reuters, August 21 2012 [↩] [↩]