Healthcare ETFs Looked Pale on Reports J&J Knew About Asbestos in Baby Powder
This article was originally published on ETFTrends.com.
Healthcare sector-related ETFs appeared sickly Friday as Johnson & Johnson (JNJ) dragged down the segment in response to reports that the company knew for decades that its baby powder contained asbestos.
On Friday, the iShares U.S. Pharmaceuticals ETF (IHE) declined 3.0% and the Health Care Select Sector SPDR ETF (XLV) decreased 3.2%.
Healthcare stocks retreated after Reuters reported that the pharma giant knew for decades that the cancer-causing asbestos were found in its Baby Powder.
JNJ shares plunged 9.6% Friday on the revelation, briefly testing its long-term support at the 200-day simple moving average. JNJ is also the top component holding in many healthcare-related ETFs, including 11.9% of IHE and 11.2% of XLV.
In an examination of company memos, internal reports and other confidential documents, Reuters found that J&J known about the presence of trace amounts of asbestos in its products from as early as 1971. The company commissioned and paid for studies conducted on its Baby Powder franchise and hired a ghostwriter to redraft findings in a journal.
J&J denies any wrongdoings and said “any suggestion that Johnson & Johnson knew or hid information about the safety of talc is false.”
“This is all a calculated attempt to distract from the fact that thousands of independent tests prove our talc does not contain asbestos or cause cancer,” Ernie Knewitz, J&J’s vice president of global media relations, told Reuters.
Some believed the knee-jerk selling may have been an overreaction.
“In our opinion litigation overhangs are real, and we do not minimize the situation, but the stock pull back does seem over done to us,” BMO Capital Markets analyst Joanne Wuensch told Reuters.
Nevertheless, the company has been battling a number of claims, and the recent findings from Reuters could add further fuel to the fire that could continue to affect the company.
“We believe it is highly unlikely the company’s exposure to this talc issue will even come close to the $40 billion in lost market cap today,” J.P. Morgan analysts said, referring to effect of the sharp decline in JNJ share price on the company's market capitalization.
J.P. Morgan believed that talc was not an issue that would quickly go away and expected shares to trade at a lower multiple pending further clarity.
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