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By BOB SECHLER

FedEx Corp. said Thursday that fiscal first-quarter profit more than doubled, and raised its full-year earnings forecast, but international volume fell slightly short of expectations, and the package-delivery giant announced a charge to restructure its domestic trucking business.

FedEx also predicted “a phase of somewhat slower economic growth going forward,” compared with earlier this year, although Chief Executive Frederick Smith stressed that he views the trend as an indicator of a normal economic cycle, rather than as the precursor of a double-dip recession.

Mr. Smith, speaking on a conference call with analysts, said a number of factors, including solid corporate balance sheets and pent-up demand, should lead to continued global economic growth. He noted that FedEx “is seeing signs of a solid holiday shipping season.”

In midmorning composite trading on the New York Stock Exchange, FedEx shares were down 4.4% at $82.17 after the company forecast second-quarter earnings of between $1.15 and $1.35 a share, below analysts’ expectations.

The company, which is based in Memphis, Tenn., also lifted its earnings forecast for fiscal 2011 to between $4.80 and $5.25 from between $4.60 and $5.20.

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FedEx’s high-margin international-priority air freight service has been particularly strong, with quarterly volume climbing 19% from a year earlier. Still, that trailed the 23% growth rate FedEx logged in the fiscal fourth quarter ended in May, as well as its July forecast of fiscal-first-quarter growth of more than 20%. Regardless, FedEx executives said the first-quarter volume growth was largely in keeping with their expectations, and they said the business has continued to boom.

The company said it is “putting all hands on deck to keep up with the demand” for international-priority air freight, which has been a key driver of earnings, and is viewed as a barometer of global trade.

FedEx has introduced new planes to improve services between the U.S. and Asia, where eastbound volume has been driven by strong growth in shipments of electronics and other consumer products, and also is bringing back planes parked in the desert to boost capacity.

But FedEx’s domestic trucking unit continues to rack up losses in the face of overcapacity and weak pricing. The company said Thursday that it will combine its FedEx Freight and FedEx National LTL operations at the end of January.

It expects to record $150 million to $200 million in charges in the next two quarters as it cuts its full-time employee count by 1,700, or some 5%, and closes 100 facilities.

For the quarter ended Aug. 31, FedEx reported a profit of $380 million, or $1.20 a share, up sharply from $181 million, or 58 cents a share, a year earlier. In July, the company raised its per-share forecast to between $1.05 and $1.25.

Quarterly revenue rose 18% to $9.46 billion, following a year-earlier plunge of 20%. Analysts most recently forecast FedEx’s revenue at $9.42 billion.

The express-shipping segment saw revenue climb 20%. U.S. domestic revenue per package was 7% higher while average daily package volume increased 3%.

The ground-shipping segment’s revenue increased 13%, as average daily volume climbed 7%. Freight revenue was up 28% while the smaller services segment saw an 8% drop in revenue.

—Matt Jarzemsky contributed to this article.

Write to Bob Sechler at bob.sechler@dowjones.com

By SPENCER E. ANTE

Flooding in Thailand threatens to ruin Christmas. The company that makes Magna-Tiles says the flooding has closed all its production and it is temporarily out of products. WSJ Corporate Bureau Chief Andrew Dowell has the details on Lunch Break.

The recent flooding in Thailand has disrupted more than exports of cars and PCs. It also has knocked out supplies of a popular toy at the height of the holiday season.

Inventories of Magna-Tiles, which are magnetic connector toys, have disappeared, says its manufacturer, Valtech LLC. Flooding in the suburbs of Bangkok, where the Chicago-area company’s factory was located, destroyed the machinery that makes the square- and triangle-shaped tiles used to construct rocket ships, roadways and skyscrapers.

That has triggered a run on the toys, which have caught on in schools and with young children, who find that the magnets make the toys easy to assemble. Prices have soared, more than doubling in the past month since the company announced it had run out of product.

A 32-piece set of colored tiles retails for $49.50, and a 100-piece set lists for $110. But sellers on eBay are asking $150 to $250 for the 100-piece sets, while sellers on Amazon.com are offering the large set for $349.99 plus shipping. Smaller sets are listing for $65 to $100.

“We did not think the flooding would get to our industrial park but it did,” said Rudy Valenta, chief executive and owner of 14-year-old Valtech. “You can’t fight mother nature.”

Roger Glazebrook, a manager at Manhattan store Mary Arnold Toys, said the company was lucky because it stocked up on the Magna-Tiles months ago. They are the store’s top seller, he said. But the store finally ran dry on Tuesday.

“Now everyone is calling,” he said. “It’s one of those unobtainable toys.”

Magna-Tiles were introduced in 1997 and got off to a slow start. When schools began buying them as educational tools, the business took off around 2003 and it has been growing steadily ever since.

The floods came at the worst possible time. The company generates about 35% of its sales in the last three months of the year, said Mr. Valenta.

Valtech subcontracts the manufacturing of its Magna-Tiles to the factory of a major toy maker in the suburbs of Bangkok. The arrangement has worked well since the deal was struck nine years ago, said Mr. Valenta, who wouldn’t identify the company.

But in early October, monsoon rains triggered the worst flooding Thailand has seen in decades. The deluge left the factory under more than six feet of water for more than a month as runoff from the north besieged the city. Production came to a halt and ruined Valtech’s machinery.

All hasn’t been lost, though. Valtech officials were able to salvage the molds used to make the plastic squares and triangles. They plan to restart production at a new factory outside the flood zone by early next year. But even then it could take two months or more to ramp up production. Mr. Valenta hopes to start selling tiles by April.

Until then, consumers have been left to hunt for the last available Magna-Tiles. Sophia Chiang, the chief executive of a California start-up that helps nonprofits to raise money, was looking to buy more tiles for her two children. “My kids love the Magna-Tiles,” she said. “We have 150.”

But Mrs. Chiang was shocked when she searched for the tiles on Amazon.com and found sellers on the site were asking $300 for a toy she spent $100 on just months ago. She passed, because she only buys from Amazon merchants when they offer products at a discount. “I thought it was holiday markup,” she said. “I had no idea it was the Thai thing.”

Some retailers have also taken to the Internet, touting their tile inventory. “Yes we have @Magnatiles! We stock up so you don’t have to worry,” announced the Twitter account of Baltimore toy retailer aMuseToys. On Dec. 14, the company posted a follow-up tweet: “Just had an economist here say we need to raise our prices on @magnatiles. Told him we understand supply and demand, but will never raise ‘em.”

—Kate Linebaugh contributed to this article.

Write to Spencer E. Ante at spencer.ante@wsj.com

By DAVID A. GRAHAM

Santa Maria, Calif. A year ago, Pedro Garcia and his terminally ill wife, Julia, were about to be evicted from their home of nearly 40 years after their mortgage lender foreclosed on the loan.

Today, Mr. Garcia is living in his Southern California home nearly payment free. The turn of events came after the lender, Bank of America Corp., employed an unusual tactic that is being used on occasion to help some debt-strapped seniors locked into exotic mortgages known as option ARMs from losing their homes.

“There are a lot of people who lost their houses [in the recession], so I’m fortunate,” says Mr. Garcia, a 69-year-old retired corrections officer. “We lived in this house since 1970 and this was our dream.” Mrs. Garcia died last November.

Mr. Garcia owed about $490,000 on his home, which a recent appraisal said is now worth only about $150,000. Bank of America wrote down about $405,000 of the loan. To account for the rest, the bank then issued a reverse mortgage for about $85,000. But instead of paying that amount to Mr. Garcia, as is usual with a reverse mortgage, the bank paid the proceeds to itself. A reverse mortgage is a form of equity loan available to older homeowners that generally doesn’t need to be repaid until after the homeowner dies.

That means Mr. Garcia can remain in his home without having to make mortgage payments to Bank of America. (Mr. Garcia is making small monthly payments on a second mortgage that was modified by another lender.) When he dies, the house reverts to Bank of America, and his heirs can choose to buy it back for the $85,000 plus interest and fees. Or, if the heirs choose to walk away, the bank can sell the house, and any proceeds above the loan amount would go to Mr. Garcia’s family.

Under pressure from the government, banks in general have been stepping up efforts to work with financially troubled homeowners. The Treasury Department this month said it had met its goal of beginning trial loan modifications by Nov. 1 for 500,000 borrowers as part of the Obama administration’s $75 billion foreclosure-prevention plan. But many stretched borrowers complain it’s still hard to get help from lenders, and economists expect foreclosures to continue to increase.

In Mr. Garcia’s case, the big write-down Bank of America was willing to take highlights the controversy surrounding pay-option adjustable-rate mortgages. Option ARMS, as they’re known, have become the focus of investigations and a spate of lawsuits by borrowers who believe they were misinformed about the loans’ complicated structure. It also follows the bank’s settlement last fall of predatory-lending charges brought by several state attorneys general against Countrywide Financial Corp., which Bank of America acquired last year. Under the settlement, in which the bank neither admitted nor denied guilt, the bank agreed to, where possible, modify the terms of certain subprime mortgages and option ARMs serviced by Countrywide.

Michael Drawdy, Bank of America’s senior vice president for home retention, says the bank has issued approximately 20 reverse mortgages with write-downs to borrowers like Mr. Garcia who have “dire circumstances.” He says that though the bank loses money in this process, it would lose nearly as much by foreclosing on the home and selling it in today’s market.

Option ARMS are turning out to be nearly as toxic as subprime loans. According to Lender Processing Services Inc., 32% of option ARMs were delinquent or in foreclosure as of Aug. 31, compared with 48% of subprime loans. But unlike subprime loans, which typically went to people who had weak credit, option ARMs were generally given to borrowers with good credit, including many seniors who had significant equity in their homes and wanted to refinance to take money out to pay bills. They were lured partly by “teaser” interest rates—sometimes as low as 1.5%.

One feature of option ARMS is that borrowers can select among three or four different payment choices. Many borrowers opted for the minimum payment, not realizing that by doing so, their loan balances and payments could jump over time because the payments didn’t even cover the monthly interest. Most elderly borrowers who were put into option ARMs “didn’t understand how it worked,” says Jennifer Sinton, deputy director of the Foreclosure Prevention Project at South Brooklyn Legal Services. “They’re some of the most abusive loans out there.”

Difficult to Modify

Option ARMs are proving difficult to modify. The most common way that banks modify troubled mortgages is to reduce the interest rate on the loan. But many option ARMs already have low rates, so there isn’t much room to reduce them further. And with home prices having plunged in California, Florida and many other markets where option ARMs were popular, a growing number of borrowers with these loans owe more on their mortgages than the homes are worth, even as principal payments keep rising.

Housing counselors say Bank of America is playing a leading role in dealing with option ARMs, since its settlement with state attorneys general last fall. And a key tool the bank is using, at least for seniors, is the reverse mortgage. To qualify for such a mortgage, a homeowner must be at least 62 years old.

Mr. Garcia decided to refinance his home in early 2006 and use the proceeds to renovate his three-bedroom house, which was purchased in 1970 for $23,000. At the time of the refinancing, the house was appraised at $465,000, with the mortgage broker recommending that Mr. Garcia take out $400,000. He used $70,000 on renovations and much of the rest to pay his wife’s medical bills. After he quit a post-retirement job as a construction worker to care for Mrs. Garcia, he dipped into those funds for day-to-day living expenses as well.

Mr. Garcia said he initially sought a fixed-rate mortgage, but agreed to take an option ARM because the broker convinced him the payments would be low for a long period of time. “He said it would go up only $100 per year for five years,” Mr. Garcia says. That turned out to be untrue, as the rate immediately began to adjust, based on market interest-rate benchmarks.

The mortgage, which was originated by a third-party lender and sold to Countrywide, offered four payment choices. The lowest of them, the only one Mr. Garcia says he could afford, was less than the interest on the loan, meaning the principal grew even as he made payments. After struggling to stay current, Mr. Garcia finally quit paying when the mortgage payment eclipsed the $2,600 a month he was receiving from California Public Employees’ Retirement System and Social Security.

Eviction Stayed

When a judge granted an eviction order in October of last year, Mr. Garcia contacted California Senior Legal Hotline in Sacramento. Lawyers for the group persuaded the judge to stay the eviction, basing their argument in part on the settlement agreement reached between Countrywide and several state attorneys general. Mr. Garcia’s case wasn’t subject to that settlement, however, because his home was already in foreclosure proceedings. Still, Bank of America’s Mr. Drawdy says the bank agreed to grant the reverse mortgage and write down the difference after hearing from the legal hotline group.

By GREGORY ZUCKERMAN

2011 was a year of surprises. An Arab revolution no one predicted. A downgrade of the U.S.’s formerly pristine debt rating. European debt troubles that threatened the future of the continent’s common currency.

Perhaps the biggest surprise of them all: The ability of the U.S. stock market to all but shrug off that turbulence, even as most foreign markets fell.

Sure, U.S. stocks sank at various parts of the year, including the period after the debt downgrade. But a late-year rally left major averages about where they began, as if the year was placid, not full of panic.

Last week, stocks fell 0.6% leaving the Dow Jones Industrial Average up 5.5% on the year. The Nasdaq Composite closed the year down 1.8%, and the Standard & Poor’s 500-stock index was flat (actually off 0.003%).

Predicting what 2012′s surprises will be is no easy task. Last year’s Sunday Journal outlook warned of rising interest rates and falling bond prices. But the experts were confounded: U.S. government bonds continued to rally.

We did get some predictions correct, such as anticipating China’s ability to rein in inflation without causing a severe economic downturn. It’s not clear whether Chinese leaders will continue to have such success in 2012, however.

Here are some possible surprises for 2012 and beyond, based on views of some leading investors and analysts:

Stock Strength

Most experts predict a slow slog for stocks in 2012, as the U.S. economy struggles and Europe works to avoid a recession.

But just as stocks did better than one might have expected in 2011, given all the turbulence, they again may surprise on the upside this year, argues Tobias Levkovich, Citigroup’s chief U.S. equity strategist.

His rationale: European leaders may do enough to address their nations’ debt issues that “fears subside,” he says. U.S. elections also could spur politicians to address the nation’s own fiscal imbalances.

And U.S. companies, sitting on record amounts of cash and tapping super-low interest rates, could step up their acquisitions, also helping the market. Mr. Levkovich says energy and telecom companies could see the most acquisitions.

Stocks are at their most inexpensive levels in decades, says Mr. Levkovich, who argues investors could be surprised by a stronger stock market than even his firm’s official forecast of 15%.

During the second half of the year, “I expect a historic reallocation trade out of safe-haven Treasurys into risk assets” such as stocks, says Joe Terranova, author of “Buy High, Sell Higher” and chief market strategist for Virtus Investment Partners.

James Paulsen, chief investment strategist at Wells Capital Management, says foreign markets may do even better than the U.S. in 2012, as fears of a global slowdown subside. He favors emerging-markets stocks.

Housing Rebound

Investors have been hoping for a real-estate rebound for five years, only to be disappointed. It could happen in 2012.

Housing-related shares have climbed more than 30% since the end of September, a sign investors are beginning to anticipate a possible rebound. Some of the largest and best-performing hedge funds have been buying shares such as Beazer Homes (BZH) and PulteGroup (PHM). (See this week’s Barron’s Insight for another view of the housing industry.)

Bears contend that many potential homeowners have become more comfortable renting, while noting enormous excess housing supply. But rental prices are soaring, which could push some to look for homes in 2012. And inventories of unsold homes are shrinking.

A bull market for housing prices is far off, according to Goldman Sachs, which expects a bottom for the market in 2013. But because investors try to anticipate shifts before they occur, these stocks could be strong in 2012, ahead of this change.

Oil Slips

Oil prices finished the year at about $100 a barrel amid predictions that prices will stay strong through 2012. Responding to U.S. economic pressure over its nuclear program, Iran last week threatened to close the Straits of Hormuz, a move that could shut off about 20% of world oil supply and push prices higher.

But markets didn’t move much after the Iran threat, suggesting the price of oil already assumes the potential for disruptions. If no such troubles materialize, prices could fall back.

If growthi continues to slow in China, along with other emerging-markets nations, that also could push prices lower. Oil production from Iraq could soar if the political and security situation in the country calms. That all would keep a lid on gasoline prices, giving consumers a lift.

Meanwhile, natural-gas prices have been tumbling for several years, amid the discovery of new supply in the shale regions of the U.S., as well as unlikely places such as Israel and Cyprus.

Such production should continue to ramp up in 2012, making it less expensive to warm homes.

Japan, U.S. Headaches

Japan has been piling up debts for years. They now amount to more than twice the nation’s annual output. Yet, investors have flocked to the nation’s currency, the yen, viewing it as a haven. That could end in 2012, says Gary Evans, author of the Global Macro Monitor blog.

“The yen will weaken significantly” unless the Japanese government really addresses deficit and debt issues, says Mr. Evans. “The trigger could be a disorderly default in Europe that could cause investors to reassess” the risk of the currencies and debt of various nations heretofore considered safe.

Japan’s bonds also could tumble, as local investors, such as the nation’s largest public pension fund, continue to slow their buying and foreign investors avoid buying the debt. It all could pressure Japanese shares and add instability to an already-volatile global markets.

Something even more troubling: A 2012 currency and debt selloff in Japan could lead to worries about something similar in 2013 for the U.S., another nation with heavy debts but seen as a harbor recently in the global rough seas.

John Brynjolfsson, who runs hedge fund Armored Wolf, says the Chinese currency, the yuan, will even emerge as a strong competitor to the euro and U.S. dollar.

Treasury Troubles

In recent years, analysts predicted problems for U.S. Treasury securities. Despite that, bonds kept rallying, as investors sought safety. Today, conventional wisdom is that these bonds are a good place to park cash, given turbulent global markets. That might signal time to lighten up.

Certainly, it’s hard to get much lower than a yield of 1.878% for the benchmark 10-year Treasury. (Bond yields move in the opposite direction of price.)

If signs of inflation arise, perhaps if the U.S. economy demonstrates stronger-than-expected growth, a selloff could result. Or investors could simply shift to investments with better outlooks and dump one that may not even top inflation.

“In this new climate of European debt concerns, I haven’t heard anyone suggest shorting Treasurys,” says Mr. Terranova, a sign of an end of the bull market. He, however, is anticipating a selloff of Treasurys that “will be a once-in-a-generation” investment opportunity.

Write to Gregory Zuckerman at gregory.zuckerman@wsj.com

Next year, you’ll likely pay more for your workplace health benefits, but you may have to read the fine print to figure out where the bite will come.

As companies head into open-enrollment season, when they let employees pick their plans for next year, many firms say they are reluctant to boost health-care premiums too sharply at a time when wages are stagnant. Instead, workers can expect to pay significantly more for such out-of-pocket items as deductibles, co-payments and other fees.

Employees’ charges next year are expected to jump 10.1% from 2008, to an average of $1,880, according to a recent projection by Hewitt Associates, a benefits consulting firm. By contrast, health-care premiums are expected to rise 7.8%, after posting double-digit percentage gains in four of the last five years. In 2008, out-of-pocket costs also increased 10.1%.

Workers are generally on the hook for various fees whenever they visit a doctor, fill a prescription or go to a hospital. These costs can vary depending on the type of health plan they choose. Hewitt says the average employee spends only about five to 15 minutes on open enrollment, and nearly two-thirds of workers select the same option they picked the previous year. So many people may not notice any new charges, which often aren’t as obvious as changes in premiums. Of course, they’ll probably figure it out once they start getting bills.

Lauralee Schiraga, a nurse from Brewster, Mass., says she was surprised when she was billed $250 last month for a breast biopsy that had been done to check on a suspicious mass. Around the same time, she got another $250 charge, this time for an endoscopy ordered by her doctor after she had digestive problems. She called her health insurer and was told the bills were her co-payments for the out-patient procedures.

“It never occurred to me for one second they would charge me $250 for an outpatient procedure,” says Ms. Schiraga, who says she could only afford to send $50 initially to each hospital. “I was beside myself.” Afterward, when she closely reviewed the benefits information from her employer, she found the co-payment listed in the middle of a page full of small text. Next year she plans to set aside money for such expenses.

Employers say another reason they are raising fees at a faster pace than premiums is fairness: Higher fees place a greater cost burden on workers with the highest expenses. Forcing employees to pay charges out-of-pocket also makes them more aware of how expensive medical services really are, some employers say.

“Folks don’t know how much things cost,” says Robert Meyer, vice president and co-owner of Johnstone Supply of Atlanta, a wholesaler of heating and cooling equipment. “Health care is one of the few things your average consumer doesn’t shop for.”

Starting last month, Johnstone sharply increased the maximum employees are required to pay out-of-pocket for self-injectable drugs, such as the rheumatoid arthritis treatment Enbrel. It raised co-payments only slightly, and didn’t boost employee premiums. Johnstone also began for the first time requiring all of its workers to pay a deductible, which will be $2,500 for an individual. The company plans to offset the cost of deductibles through health-reimbursement arrangements, which are tax-advantaged accounts that allow employers to set aside money for workers’ health expenses.

Getty Images

Linda Hoffman and her granddaughter, Riley Bulnes, 4, pick up prescriptions from a Publix Supermarket in Miami, Florida.

Higher costs can prompt some people to forgo care that may be needed. A forthcoming survey by human-resources consultant Watson Wyatt Worldwide, which tallied 2,487 American workers this spring, found that cost concerns had driven 17% of them to skip a recommended doctor visit. The same percentage had failed to fill a prescription or had skipped doses.

If you are choosing your workplace health plan soon, here are some things to watch.

Paying Your Share

For services such as doctor visits, hospital stays, outpatient procedures and imaging scans, keep an eye out for higher co-payments. These can kick in whether you are in a traditional preferred provider organization plan, which offers more coverage for care provided by preferred doctors, or a health-maintenance organization plan, which traditionally requires participants to use approved physicians for nearly all services.

Also be alert for shifts from flat co-pays to co-insurance charges, which typically require you to pay a percentage of the total cost of a service and often take far more out of your wallet.

Briggs & Stratton Corp., a Milwaukee-based maker of small engines and lawn mowers, has done away with most co-payments in its main plans — a standard preferred-provider organization and a high-deductible option. In the standard PPO, workers pay 20% for all medical services with providers in the plan’s network, including doctor visits. That comes with an in-network, out-of-pocket annual maximum of $5,500 for an individual and $11,000 for a family. “There’s a much better case for shopping around” among medical providers if employees are paying a percentage of the cost of care, rather than a flat co-pay, says R. Craig Reynolds, the corporate director of employee benefits.

Fees can be structured in different, and sometimes confusing, ways. Some employers’ plans may demand a co-payment for each day you’re in the hospital, while other plans levy a fee for each stay. Ken Goulet, president of WellPoint Inc.’s commercial business unit, warns that in certain employer plans, a hospital admission may require a co-payment, and then separate co-insurance charges for services during the hospital stay. “Don’t just think, ‘Wow, a $200 co-pay, this is great,’” he says. “It may not just be a co-pay.”

Some employers also are raising the maximum workers are responsible for paying in out-of-pocket costs each year. One tricky twist is for the annual deductible not to count toward that cap, sharply increasing the total you could spend.

Taking Your Medicine

Keep a close eye on your medications. Most employees by now are accustomed to paying less for generics than for brand-name drugs. But if your employer tweaks the design of the drug benefit, the changes may have a substantial impact on your costs, or even knock your drug off the approved list altogether. In a recent employer survey by the Kaiser Family Foundation and the Health Research & Educational Trust, 41% of those offering health benefits said they were very or somewhat likely to increase workers’ drug expenses in the next year.

Drugs injected in a doctor’s office, which are often high-priced medications for such diseases as cancer, are one area to watch. Some plans that have lumped these in with the co-pay for physician visits may now charge separately for the medicine.

Eric Smith, a middle-school technology teacher in Dalton, Ga., who gets his health benefits through a state agency, has to pick a new HMO this fall because his plan will no longer be offered next year. He expects his premiums to go up by about $12 a month. But his drug costs will rise much more sharply, by more than $50 a month, mainly because of two brand-name medicines he takes that aren’t on the state’s preferred list; he says cheaper alternatives didn’t work as well. “That just negated my raise this year,” he says.

Filling Your Needs

Check for coverage of any care you know you will need; don’t assume it is included. Some employers looking to limit costs may trim certain benefits, though this isn’t expected to be widespread. Consultants say they’ve seen some clients cut back in areas including physical therapy and speech therapy. You should watch for limits on equipment such as hearing aids and prosthetics.

Once you’ve done your due diligence on the coverage options, decide what’s best for you. You may opt for a plan with more out-of-pocket charges and a lower premium. At the most extreme, there are high-deductible plans paired with health-savings accounts, a model being pushed by many employers but slow to catch on with workers. The key is to understand the real costs and coverage you get with each of the plan options.

McDonald’s Corp., for instance, offers its 18,000 eligible U.S. employees three different PPOs. The most popular is the one with the highest premiums, but no deductible and a flat co-pay for doctor visits. The plan with the lowest premium comes with a $1,000 deductible for a single employee and a company-funded health-reimbursement arrangement. In the middle is a plan with a $250 deductible and a 20% co-insurance charge for in-network doctor visits. McDonald’s offers online tools to help employees choose. Says Bob Wittcoff, the company’s senior director of global benefits: “One size does not fit all.”

Write to Anna Wilde Mathews at anna.mathews@wsj.com

Printed in The Wall Street Journal, page D1

By JONATHAN D. ROCKOFF, JEANNE WHALEN and CHRISTOPHER WEAVER

News that a counterfeit version of the cancer drug Avastin was found in the U.S. highlights a rising threat: fakes of costly injectable therapies, rather than simple pills, such as Viagra.

The Food and Drug Administration recently alerted doctors and other health-care providers about the risk of “non-FDA-approved injectable cancer medications,” including unauthorized versions of Herceptin, Rituxan and Neupogen, that were being marketed and sold to clinics and “most likely were administered to patients.”

Genentech/Associated Press

A vial of Avastin

Genentech/Associated Press

A counterfeit vial of Avastin

On Jan. 13, the FDA also alerted British drug maker AstraZeneca PLC to “a number of cases of illegal importation of oncology drugs into the U.S.,” including AstraZeneca’s injectable cancer drug Faslodex, according to the company.

The FDA said this unapproved Faslodex was “most likely” administered to patients. AstraZeneca said it has “no evidence” that the illegally imported drug entered the legitimate supply chain in the U.S. or elsewhere.

A spokeswoman for Amgen Inc., maker of Neupogen, said it isn’t aware of any counterfeits of its products on the U.S. market and is cooperating with an FDA investigation of illegal imports of an unidentified product, not approved for sale in the U.S., that is being sold on the Internet and directly to clinics.

In the past, most drug-counterfeiting incidents have involved pills such as the erectile-dysfunction medicine Viagra, the most commonly faked drug, according to its maker, Pfizer Inc., with more than 9.5 million bogus tablets seized last year. Increasingly, however, complicated therapies like Avastin, which is given intravenously, are being faked, drug makers say.

Injectable drugs have become increasingly attractive to counterfeiters, in part because they often fetch a higher price than regular pills. Avastin, made by Roche Holding‘s Genentech unit, costs $2,400 a vial.

Hugh Pullen, associate director for European government affairs at Eli Lilly & Co., said the faking of such products is a “growing phenomenon” and something Lilly is “looking at very closely.”

Counterfeiters “are going after anything and everything, from patented to non-patented, expensive to inexpensive,” said John Clark, Pfizer’s chief security officer. Last year, counterfeit Viagra accounted for 85% of the seized fake Pfizer drugs, down from a high of 95% when counterfeiting emerged as a serious threat in the late 1990s.

The number of reports of counterfeited injectable biological drugs, such as Avastin, is still small. But they have more than doubled to 4% of the world-wide total of reported counterfeiting incidents between 2009 and 2005, according to the most recent data collected by the Pharmaceutical Security Institute, a nonprofit group that works on behalf of drug makers. A third of the counterfeit injectables were cancer treatments.

In 2009, the group identified 2,003 drug-counterfeiting incidents world-wide, based on law-enforcement actions, regulators’ warnings and company announcements that fake drugs had been discovered.

The faking of injectable drugs is particularly worrisome to health-care providers because they tend to be life-savings medications for conditions such as cancer, rather than so-called lifestyle drugs, such as Viagra.

In the case of Avastin, the discovery of counterfeits has prompted clinics and hospitals in the U.S. to scrutinize their supplies. So far, the FDA says it hasn’t received any reports of cancer patients injured by the counterfeit Avastin.

The agency has warned 19 medical clinics, most in California, that they may have bought counterfeit Avastin. Connie Jung, an official in the FDA’s drug compliance office, described the threat as limited.

“This only affects a small subset of cancer patients” whose doctors purchased the illegitimate drugs, she said.

The source of the fake drug hasn’t been determined, but European and U.S. authorities said Wednesday they were looking into its path from a supplier in Switzerland through a Danish wholesaler and then to a British wholesaler, before a Tennessee company sold it in the U.S.

Britain’s Medicines and Healthcare Products Regulatory Agency said it found that 41 out of 167 packs of counterfeit Avastin the British drug wholesaler bought from its Danish counterpart already had been sold to the U.S. The agency quarantined the packs that remained at the British company.

The FDA identified the British wholesaler supplying the U.S. as Quality Specialty Products, which it said may also be known as Montana Health Care Solutions. The company couldn’t be reached for comment.

While experts say the U.S. drug supply remains safe, unapproved drugs can enter through purchases from Internet pharmacies or unauthorized suppliers. In the absence of a monitoring system, they then can make their way undetected through the network of wholesalers and distributors that furnish medicines to doctors and conventional pharmacies.

“We don’t have any system in place for authenticating drugs in the U.S.,” said Allan Coukell, director of medical programs at the Pew Health Group, who co-wrote a report last year on counterfeit and adulterated drugs. He said federal laws don’t require the tracking and tracing of medicines, though companies are developing a plan, and California has a law that starts taking effect for manufacturers in 2015 .

Last year Europe adopted legislation requiring each pack of drugs to carry a unique serial number. When the legislation comes into force in 2016, pharmacists and hospitals will be required to scan the bar code to ensure the product is legitimate.

Many drug makers have taken their own steps to curb counterfeiting. Pfizer has a global security team including former U.S. Federal Bureau of Investigation and Turkish narcotics agents, Hong Kong police and U.K. law-enforcement personnel to conduct undercover purchases and do other investigations. It shares the results with authorities in various countries.

China and Jordan now are investigating the counterfeiting of Pfizer drugs based on a company investigation, the company’s Mr. Clark said.

When three counterfeiters in an Asian country began selling fake versions of its drugs, Abbott Laboratories arranged a sting by forming fake businesses, said Doug Frazier, head of Abbott’s protection group. He declined to identify the country but said Abbott arranged for local law enforcement to arrest the suspects.

Because they are often administered in hospitals, by nurses or doctors, injectable drugs are harder to sneak into the supply chain than pills, industry experts say. Britain’s MHRA said the Avastin counterfeiting marks only the second time it has come across counterfeit injectable medicines in the legitimate supply chain. A spokeswoman for the European Medicines Agency called it “very rare.”

Nevertheless, hospitals and clinics attempting to “cut corners” might buy drugs from “more of a gray-market distributor than might be wise,” said Mark Davison, an industry consultant and author of the book “Pharmaceutical Anti-Counterfeiting: Combating the Real Danger from Fake Drugs.” He pointed to a case from the early 2000s when counterfeit Epogen, an injected anemia drug, made its way into Florida’s health-care system.

Typically, counterfeiters target doctors through email spam campaigns or “fax blasts” offering discounts on drugs administered at their offices or in hospitals, said Thomas Kubic, the Pharmaceutical Security Institute’s president and chief executive.

Foreign distributors, posing as legitimate drug wholesalers, may team up with local salespeople to recruit new physician customers, Mr. Kubic said. Those wholesalers usually get conventional drugs from legitimate Indian or Chinese generic drug manufacturers that make compounds that are not approved in the U.S.

The Danish Medicines Agency appears to have been the first regulator to notice the counterfeit Avastin. It reported to Britain’s MHRA on Dec. 15 that a Danish wholesaler had purchased the fake medicine from a Swiss company and then sold it to a U.K. firm, according to British and Danish drug regulators. After finding that counterfeit packs had been sold to the U.S., the MHRA said, it told the FDA on Dec. 22.

The MHRA said there is “no evidence” that British patients received counterfeit Avastin, but that it is still investigating the matter. It added that it doesn’t know where the fake product was produced.

The FDA collected the suspect vials and, working with Genentech, confirmed through testing that they were counterfeit, said the FDA’s Ms. Jung. After receiving the confirmation this week, the agency decided to warn doctors and hospitals about the fakes, she said.

Write to Jonathan D. Rockoff at jonathan.rockoff@wsj.com, Jeanne Whalen at jeanne.whalen@wsj.com and Christopher Weaver at chistopher.weaver@wsj.com

By MELANIE LEFKOWITZ

A cluster of new businesses and ventures, many of them anchored by large condominium buildings, is drawing more shoppers and residents to a slowly gentrifying stretch of West 116th Street in Harlem.

My Image Studios, a 20,000-square-foot entertainment venue and African and Latino-themed cultural center, plans to open on the ground floor of the Kalahari condominium building at 40 W. 116th St. this summer. Inside 1400 Fifth Ave., at the corner of 116th Street, more new businesses are expected or have opened, including a lounge known as Bleu Violin, and BBRAXTON, an upscale men’s salon that reopened in the space last year.

Meanwhile, more development is planned for the thoroughfare, a wide two-way street six blocks north of Central Park.

L+M Development Partners, which built the Kalahari Condominiums, hopes to begin construction within a few months on two new buildings: a proposed 85-unit building on West 116th, across the street from the Kalahari, and a mixed-income building with about 110 “affordable” rentals on West 117th, says Stephen Kliegerman, president of Halstead Property Development Marketing, who is working with L+M.

“It’s so convenient to Midtown Manhattan and the Upper East and Upper West sides, it’s kind of a natural extension of both those neighborhoods,” Mr. Kliegerman says. “We continue to see better and better retail filling in as there’s more and more residential activity.”

The developers are also planning to include retail space in the new construction, and are talking to “some pretty high-profile retailers,” Mr. Kliegerman added.

Central Harlem has been seeing a boom in recent years, brokers and developers say, as more and more lower Manhattanites are drawn by new luxury development, an increasing number of restaurants and higher-end shops and relatively low prices.

According to data from StreetEasy.com, the median sales price for homes in Central Harlem in the fourth quarter was $481,680, essentially unchanged from the same quarter in 2010. By comparison, the median sales price for all of Manhattan was $797,956 in 2011′s fourth quarter, a 9.3% drop from the same period in 2010.

“We’ve had a lot of Upper Eastsiders, Upper Westsiders and even some from downtown moving up to Harlem because they realize they get a lot more value for the money, and many of them now realize what a fun place it is,” says Karen Shenker, a senior vice president and associate broker with Corcoran Group, who lives in the Kalahari.

The Kalahari and other new buildings, including the 32-unit Graceline Court, at 106 W. 116th, both of which opened in 2008, have brought more activity to the street. Yet West 116th has been more resistant to transformation than the intersecting stretch of Frederick Douglass Boulevard, which has seen a surge of popular and upscale shops and restaurants, such as Harlem Tavern, a restaurant and beer garden, and Harlem Shambles, a boutique butcher shop that opened late last year.

West 116th “reminds me of the old 14th Street…the mixture of old ethnic cultures and mid- to lower-range retail stores,” says Nobu Otsu, who moved his five-year-old Harlem wine shop, the Winery, about a block from Frederick Douglass to West 116th about 18 months ago. Though Mr. Otsu still considers Frederick Douglass, where he plans to open a sushi restaurant later this year, a more appealing strip for retail, he anticipates improvement.

“I wouldn’t expect 116th Street to be the same as Frederick Douglass Boulevard, but I would say that street will be a much more refined and pleasant place to shop,” he says. “That’s going to happen, absolutely. As with 14th Street, it’s getting to be a much nicer shopping street.”

Brenda Braxton, who reopened BBRAXTON last year after temporarily closing for financial and personal reasons, says that although her business has grown as the area develops, she may have to relocate because gentrification has not kept pace with rising rents.

“A lot of new buildings are going up and a lot of businesses are coming up, but I’ve also seen a lot of business come and go,” she says, including the Ginger restaurant, also formerly in 1400 Fifth Ave. “The main challenge is that the rents are so high, and there aren’t enough upscale clients just yet in order to keep it going.”