Johnson & Johnson (NYSE:JNJ) investors have had enough with the word "recall" recently. Between its massive over-the-counter children's medicines recall back in 2010 to its recent headache-inducing hip implant recalls, J&J has struggled to shake off concern over this disappointing trend.
Today, we have a new recall: The company's subsidiary LifeScan has voluntarily called back all of its OneTouch Verio IQ blood glucose meters sold in the U.S., citing problems with the device shutting off at high blood sugar readings. Big problem, right? Not exactly -- investors have barely budged despite the news, and this story is an example of why not every recall warrants immediate concern.
This recall is not like the others
J&J has sold around 90,000 OneTouch meters in the U.S., but don't expect that many meters to be sent back asking for a replacement. The recall concerns the OneTouch's propensity for failing to warn users of blood glucose readings above 1,024 milligrams per deciliter; instead, the machine will simply shut off at such potentially fatal levels.
Sounds bad -- but the likelihood of an individual even reaching a blood sugar level of 1,024 mg/dl is absurdly small. As a comparison, average blood glucose levels range around or below the 80-150 mg/dl range, while even just tripling that number into the 300s or 400s can be cause for concern for diabetic or other blood sugar-sensitive individuals. Hitting the levels that affect the OneTouch meter is not only a deadly occasion, but also an incredibly rare one. It's likely that the huge majority of the device's users will never even come close to that kind of reading, and thus won't experience a problem with the OneTouch.
Let's compare that to Johnson & Johnson’s high-profile hip device recall. 37% of subsidiary DePuy's ASR hip implants, which J&J pulled in 2010, failed within five years, according to an internal study. With 93,000 ASR hip implants recalled, a 37% failure rate would indicate up to more than 34,000 devices failing, something that J&J and its shareholders couldn't afford to overlook. By comparison, it's a pretty good bet that 37% of OneTouch users -- or more than 33,000 people -- won't hit blood glucose readings of 1,024 mg/dl.
The power of diversity
This recall is also a testament to the strength of Johnson & Johnson’s diversity. While the company's broad spectrum of products that's spread out across medical devices, consumer care, pharmaceuticals, and more doesn't lend itself to the fast growth and blockbuster booms of big pharma, J&J can also take hits like recalls in stride without losing too much momentum. No matter how much the company loses from the OneTouch recall, it's safe to say that it won't make too big a dent on a company that made more than $10.8 billion in net profit last year.
The final verdict? Don't let this recall shake your confidence in health care's safest and most-diversified pick. J&J has succeeded despite its hip device and over-the-counter recalls; it will surge past the OneTouch mishap without slowing down. Given the rarity at which blood glucose levels approach the range in question for this recall, I doubt many customers will be lining up to demand replacement products. This won't be enough to stop J&J's momentum -- the stock's run higher since the start of the year should only continue.