It was a short and dramatic plunge for Johnson & Johnson (JNJ). The stock lost over 10% of its value following a Reuters report that supports allegations from plaintiffs who claim they’ve obtained cancer due to using asbestos-contaminated Baby Powder.
The document published on Friday, December 14th, 2018 serves as a catalog for all the asbestos-related information relevant to the popular cosmetic item for children (Baby Powder). The first mention of asbestos being present in the talcum powder stretches back to 1957 when a lab referred to the talc JNJ used as having “fibrous” and “acicular,” or needle-like, tremolite, which is one of the six minerals that are classified as asbestos when in its natural form.
Over time, various pediatricians reached out to the company in regard to the potentially hazardous material, but the overall theme of the document shows the company deemed the amount of asbestos as being too small and insignificant to negatively affect health. Reuters points out that the World Health Organization considers no amount of asbestos healthy, but it also doesn’t state which year the organization came up with this consensus.
SmarterAnalyst did some investigating and found a 1998 research from the WHO stating “Exposure to chrysotile asbestos poses increased risks for asbestosis, lung cancer and mesothelioma in a dose-dependent manner. No threshold has been identified for carcinogenic risks.” Though this may be the first suggestion that no amount of asbestos could be ingested without risk of cancer, the article alleges JNJ didn’t tell the FDA about three tests by three different labs that showed “rather high” levels of asbestos in its talcum powder between 1972 and 1975.
This issue came to a head in 1999 when Darlene Coker found out she was dying from mesothelioma, which is a cancer that is caused by asbestos exposure. After finding personal injury attorney, Herschel Hobson and filing a claim in 1999, the case went nowhere, as Coker and her lawyer were without the proper evidence. Now J&J is being forced to share documents with the lawyers of some 11,700 plaintiffs who claim the powder has caused cancers – with a high number of them being women who suffer from ovarian cancer.
The documents reveal over a course of thirty-some-odd years, the company was aware of small amounts of asbestos in the product, decided it was acceptable and even wagered (and won) with U.S. regulators for approval to keep investigators from reporting on the science of talc. A snippet of a 1973 report shows a photo of what Reuters says it’s a JNJ memo to government regulators, which suggests the advantage of this would be to “minimize the risk of possible self-generation of scientific data which may be politically or scientifically embarrassing.”
The most recent update in the saga includes a verdict in which 22 female plaintiffs succeeded with a claim that the Baby Powder and Shower to Shower talc (a brand the company sold off in 2012) caused them ovarian cancer. They reported having regularly used J&J talc products for deodorant. History shows J&J often appeals when the company has been deemed liable. This time J&J says it will appeal the recent verdict. The jury awarded these women $4.7 billion in July of this year.
JNJ fired back (the same day as the Reuters report was published) with a statement claiming the article was one-sided, false and inflammatory. It claims its product is safe and asbestos-free and that studies of more than 100,000 men and women showed talcum does not cause cancer or asbestos-related disease. The statement goes so far as to say thousands of independent tests by regulators have found the powder never contained asbestos. JNJ says Reuters repeatedly refused to meet with company representatives to review the facts, but the Reuters article claims JNJ declined to comment further for the article and that for more than two months, the cosmetic company turned down repeated requests for an interview with JNJ executives. Furthermore, the report stated on Dec. 8, JNJ offered to provide an expert for an interview, but did not follow through by the night before the report went to print. J&J’s statement lists reasons why the report was negligently executed, including that J&J has always cooperated with the U.S. FDA and other global regulators, offering whatever data requested.
What do analysts say?
Analysts are highly unfazed by the report or the drop in the stock price. Wells Fargo analyst Larry Biegelsen says the stock was oversold because the litigation is still manageable and the amount of money for a settlement would not hurt the company’s bottom line.
“There are currently 11.7K talc cases pending, up from ~9K in mid-2018 and ~5K a year ago. Based on prior high profile product liability cases in drug and device sectors, we believe any potential settlement should be manageable for JNJ. Even if all 11.7K talc cases settled for $280,000 per case (the highest per case settlement amount among the cases we’ve tracked), the total liability to JNJ would be $3.3B. With over $19B of cash and marketable securities at the end of 3Q18, we continue to see the talc litigation as manageable for the company. As such, we believe the stock is oversold based on today’s news,” Biegelson said.
Cowen analyst Joshua Jennings is in the same boat, referring to the erosion of the market cap as an “overreaction.”
“…A $25B figure would equate to a $2.14M settlement for each of the current 11,700 claimants or a $250k payment to a higher claimant count of 100k. We view these scenarios as aggressive, based on what we know today, especially given the burden of proof we’d expect necessary to demonstrate the onset of cancer being directly tied to the use of talc baby powder,” Jennings asserted.
The analyst reiterates an Outperform rating for the stock with a price target of $155 per share, which currently shows an upside of nearly 17%. (To watch Jennings’ track record, click here)
It seems analysts believe this corporate giant chews up lawsuits and spits them out. TipRanks finds out of the nine analysts who report on JNJ stock, 6 are bullish and 3 are sidelined. The Street sees the potential for upside here as being around 13% with a consensus price target of $150.86. (See JNJ’s price targets and analyst ratings on TipRanks)