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Johnson & Johnson's (JNJ) Legal Problems Continue to Worry Investors

Christopher Vargas

Johnson & Johnson JNJ is set to report their third quarter results as pending lawsuits loom over the company. The pharmaceutical giant’s shares have barely moved in 2019 thus far, rising only 1.9%, but the stock has outpaced the broader large cap pharmaceutical market’s 0.8% decline.

The firm has seen its litigation challenges mount recently. A Philadelphia jury recently ruled that J&J should pay a whopping $8 billion to a man who claimed its anti-psychosis drug Risperdal caused him to develop gynecomastia (enlarged breasts). The lawsuits the company faces from over 100,000 plaintiffs have spurred uncertainty over the company and the large cap pharmaceutical industry as a whole. 

Litigation Looms Over Large Cap Pharma

As previously mentioned, Johnson & Johnson is facing lawsuits from thousands of plaintiffs over its product safety and marketing tactics. Juries and judges have ordered the health-care company to pay billions in recent trials that blame its signature baby powder and other products for health complications.

The large cap pharma company’s marketing tactics is accused of fueling the opioid addiction epidemic that still goes on today. Two Ohio counties recently settled with Johnson & Johnson and drug manufacturers like Allergen AGN and Endo International ENDP for lawsuits that accused the companies of fueling the opioid crisis. And back in August, an Oklahoma judge ordered the company to pay $572 million to the state for its contribution to the opioid-addiction epidemic.

In 2018, a St. Louis jury mandated for J&J to pay $4.7 billion to 22 women who alleged that they developed ovarian cancer because of their use of J&J’s signature baby powder. Johnson & Johnson appealed the decision and insists that their baby powder product is safe and does not cause cancer.

The recent amount of litigation the company is facing has skyrocketed from years ago. J&J was facing legal action from over 100,000 plaintiffs in the middle of 2019, up significantly from the roughly 8,500 plaintiffs it faced in October of 2011. Talcum powder lawsuit plaintiffs rose to 15,500 as of June, 30th 2019 from 1,400 in early 2016.

Possible Long-Term Effects

Investors are split over how this might play out for J&J in the upcoming months. Some believe that the pharmaceutical giant should settle some of the larger opioid cases so it can avoid long costly trials that would be largely publicized and be potentially detrimental to J&J’s reputation in the health care field. Furthermore, some lawyers believe that the longer the litigation is dragged on, the easier it would be for the plaintiffs to win their cases as potential groundbreaking developments in the case may be uncovered.

The $8 billion ruling the company was ordered to pay in Philadelphia can also spell further trouble for the business; it opens up the possibility of J&J having to deal with billion-dollar payouts for its roughly 13,000 Risperdal lawsuits. J&J’s legal team is likely to appeal the magnitude of the fine but the loss still represents a major liability.

J&J is facing litigation on a large scale for multiple products, and Wells Fargo WFC analysts estimate that the opioid litigation alone could cost the company $5-$10 billion to settle.

Takeaway

J&J is in jeopardy of potentially losing a groundbreaking case that can set off a domino effect in the rest of its other cases. Its reputation as a renowned health care company and billions of dollars in reparations are at stake in the upcoming months and as a result, investors are right to be worried about the staggering number of pending lawsuits the corporation is facing.

Our Q3 estimates forecast J&J to report a 2.44% drop in earnings to $2.00 per share while sales are expected to fall 1.31% to $20.08 billion. JNJ stock sits at a Zacks Rank #4 (Sell).

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