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Why Johnson & Johnson's Stock Rose After Ordered to Pay $572M Fine In Opioid Outbreak Verdict

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An Oklahoma judge has found Johnson & Johnson liable for fueling the state’s opioid epidemic, the first time a major company has been held accountable for its part in the national crisis. Here Comes the Judge Judge Thad Balkman of Cleveland County District Court ruled that Johnson & Johnson “had intentionally downplayed the dangers and oversold the benefits of opioids,” and provided 60% of the ingredients found in addictive substances like oxycodone. This was the first major trial of a pharmaceutical company for its role in the creation and spread of the opioid crisis. Pay Up Oklahoma’s Attorney General says more than 6,000 of the state’s residences have died of opioid-related overdoses since 2000, and thousands more residents suffer from addiction. The state of Oklahoma was seeking a $17 billion judgment against Johnson and Johnson, in order to pay for addiction treatment, but the judge didn’t see enough evidence to justify that pay out. Johnson & Johnson plans to appeal the verdict. Temporary Relief Johnson and Johnson’s stock prices actually jumped 4%, and other drug manufacturers like Endo International also saw a bump, likely because the fine was lower than the $2 billion fine some Wall Street analysts were expecting, as $572 million was only about 4% of the company’s net profits from last year. Bigger Picture Johnson & Johnson and other drug manufacturers shouldn’t get too comfortable, as this was only one state’s judgment, as 2,000 cities and counties have similar cases and investigations underway, and a federal opioid trial is to begin in Cleveland, Ohio in two months. Now that a legal precedent has been set, it is very likely that even more states will feel emboldened to take action, and it is not inconceivable that Johnson & Johnson could be looking at billions in damages. And they won’t be alone, as the Ohio Federal investigation, which is being seen as a litmus test, is also investigating the role retailers such as Walmart and Rite Aid had in the spread of opioids. Shareholders are also starting to become wary of companies involved with opiods, as back in May, a CVS shareholder proposal requested that legal fees resulting from the sale of opiods be factored into the compensation packages of executives. The motion did not pass. -Michael Tedder Photo by Adobe