RPT-UPDATE 4-J&J ortho unit recalls hip replacement systems

* DePuy Orthopaedics recalls two hip replacement systems

* ASR XL Acetabular, Hip Resurfacing systems recalled

* More damage to J&J’s reputation seen

* J&J shares slightly lower (Adds more analyst’s comment, updates stock prices)

By Debra Sherman

CHICAGO, Aug 26 (Reuters) - Johnson & Johnson JNJ.N, whose consumer unit has been plagued by massive recalls over the past year, said on Thursday its orthopedic unit was voluntarily recalling two hip replacement systems.

J&J’s DePuy Orthopaedics said it was recalling its ASR XL Acetabular System and ASR Hip Resurfacing System -- both used in hip replacement surgery -- due to the number of patients requiring a second hip replacement procedure, or a revision. Some 93,000 people around the world have the ASR hip implant.

A spokeswoman said management is evaluating how much of a financial impact, if any, the recall will have.

The recall comes just days after the U.S. Food and Drug Administration warned DePuy to stop marketing its Corail Hip System for unapproved use and about a week after J&J’s Vision Care recalled some 100,000 boxes of 1-Day Acuvue TruEye lenses overseas. [ID:nN24248395] [ID:nN23191042]

Over the past year, J&J’s reputation has been tarnished by recalls of Tylenol, Motrin and other nonprescription drugs brands.

Previous recalls were related to manufacturing issues, but the recall of the hip replacement systems “seems to be more of a design issue,” said Noble Financial Group analyst Jan Wald. “Perhaps it points to an issue at the company that relates to the quality of design within orthopedics.

“If I were going to get a hip right now, I’m not sure I’d want a J&J hip.”

In a news release, DePuy said new, unpublished 2010 data from the National Joint Registry of England and Wales show a five-year revision rate of about 12 percent for the ASR Hip Resurfacing System and about 13 percent for the ASR XL Acetabular System.

“That 12 percent rate is pretty high,” Wald said.

He noted that, since these are older products, the company probably does not sell a lot of them, so the financial impact of the recall will likely be limited.


“It’s probably not going to affect (DePuy’s) overall business much -- it’s the overall reputational harm that’s concerning,” the analyst said.

Jeff Jonas, an analyst with Gabelli & Co, said he did not think the recall would have a material effect on DePuy. “It’s just bad timing, given the problems in the consumer unit, the lenses and now this. There’s just too much of this lately.”

Earlier this month, a senior J&J pharmaceutical executive was put in charge of overseeing manufacturing at the company’s consumer healthcare unit, as well as plants making medical devices. The move was seen as a response to quality-control lapses that led to recalls. [ID:nN18207640]

J&J has more than 250 operating companies making products ranging from heart devices to baby shampoo.

Warsaw, Indiana-based DePuy said it intends to cover “reasonable and customary costs” of monitoring and treatment for services, including revision surgeries, associated with the ASR System recall.

It said it was providing hospitals, surgeons and patients with information about the recall to help them determine what steps to take.

The ASR Hip Resurfacing System was introduced in 2003 and is only approved for use outside the United States. The ASR XL Acetabular System was launched in 2004 and has been available worldwide.

In 2009, DePuy decided to discontinue the ASR System because of declining demand and so it could focus on developing the next generation of hip replacement and resurfacing technologies.

Piper Jaffray analyst Matt Miksic called the recall “old news,” noting that the company had been phasing out the product since December because of performance problems. He said the impact of the product withdrawal was evident in the company’s second-quarter results, showing soft sales of hip implants, and will likely continue to drag on hip implant numbers in the second half of the year.

J&J shares fell 11 cents to $57.87 on the New York Stock Exchange at mid-afternoon.

The shares of Stryker Corp SYK.N and Zimmer Holdings IncZMH.N, the other big manufacturers of hip implants, were also slightly lower, as was Britain's Smith & Nephew Plc SN.LSNN.N, another big implant maker. (Reporting by Debra Sherman; Editing by John Wallace, Andre Grenon and Richard Chang)