Caroselli, Beachler & Coleman, L.L.C.

Johnson & Johnson forced to produce safer drugs?

Johnson & Johnson, a drug manufacturer that has a facility here in Pennsylvania, has had 25 products recalled since 2009. From insulin pumps to rheumatoid arthritis drugs, the company has implemented such recalls in an attempt to limit its exposure to product liability litigation.

Johnson & Johnson's net worth had declined by 27 percent in 2011. Fourth quarter expenses in 2011 were $2.9 billion that came from product liability expenses, litigation settlements and costs associated with a hip replacement recall.

The reason why its business has declined over recent years is simple: negative publicity. Public pressure, legislation and adverse lawsuits will either make a company improve its safety track record or risk being sued by its stockholders for failing to pay closer attention to what it manufactures.

Product liability litigation brought by attorneys accustomed to suing drug manufacturers will cost a company its business. The only way to make the litigation go away is to develop safer products. Not only does such litigation compensate victims that have been injured by defective drugs or medical devices, it also creates that negative publicity that will drive consumers away until the manufacturer has regained the buyer's trust.

Yet because Johnson & Johnson has actually attempted to improve its safety record concerning products that it produces, Johnson & Johnson's earnings may be seeing a turn around and stock prices in the company will probably grow during the next few years. Only by reducing product liability expenses by manufacturing safer products will the company be able to see a return of its customer base.

Source: Seeking Alpha, "Is Johnson & Johnson Finally Getting the Right Medicine?" by Anthony J. Pregony, Feb. 22, 2012

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