The first time Johnson & Johnson faced a lawsuit due to its talc-based baby powder causing cancer was way back in 1999. Since then, the company has been dealing with litigation, trying its best to get away with it without having to pay much. The progress on the lawsuit is likely to be decided in January 2025 when a Houston judge will decide whether to approve JNJ’s latest offer.
Johnson & Johnson (J&J), formed in 1886, is a prominent American multinational corporation known for medical devices, pharmaceuticals, and consumer packaged goods. The company distinguishes itself in the market through its unwavering commitment to innovation, quality, and safety; complemented by a varied product offering in three key segments: pharmaceuticals, medical devices, and consumer health products.
In the pharmaceutical segment, J&J offers prescription drugs targeting immune diseases, cancer, neurological disorders, cardiovascular issues, and infectious diseases. The medical device line includes surgical instruments, orthopedic implants, wound care products, and diagnostic equipment. Lastly, the products under consumer health comprise over-the-counter medications like Tylenol, baby care products such as Johnson’s baby powder, skincare under the subsidiary Neutrogena, and first aid supplies like Band-Aid.
A doctor consulting with a patient, discussing treatment options for breast cancer.
The main revenue drivers are the sales of prescription medication and medical devices, in addition to consumer health products offered via retailers and distributors globally.
J&J caters to an extensive clientele, including healthcare professionals, hospitals, pharmacies, and individual consumers. While healthcare providers are the primary consumers of medical devices and pharmaceuticals for patient care, retail consumers mainly consist of individual health product buyers for personal use. Thus, by maintaining a significant presence in North America, Europe, Asia-Pacific, and emerging markets, JNJ has built a distinctive brand identity for more than a century.
Regarding the company’s talc lawsuit, there is a continuous back-and-forth battle that has frustrated plaintiffs. It is now taking a new legal argument to the court, using a strategy called the ‘Texas two-step’ where the liabilities resulting from the lawsuit will be transferred to a subsidiary with that subsidiary declaring bankruptcy, capping the amount of money the company has to pay.
There are many reasons to believe JNJ may well be successful this time. First, plaintiffs want to get over with the ordeal. According to the company’s CFO, 83% of the claimants are in support of the current offer. Bankruptcy court history suggests a 75% support of a deal is usually enough for the court to allow it to go ahead.
Moreover, a continuing battle is also likely to be a strain on both the plaintiffs as well as the Justice Department’s bankruptcy monitor. Both parties would want to get over with the issue as soon as possible.
The Houston court hearing is set to unfold in January 2025. Both sides continue to show hostility toward each other, refuting each other’s claims. But if JNJ is successful, it would cap the settlement damages at $8 billion thanks to the bankruptcy declaration of its subsidiary Red River Talc.
While a $8 billion payout may seem huge, it will finally help the company move past this horrible episode. Investors would probably breathe a sigh of relief as well. For almost 3 years now, the stock has traded sideways. A settlement could trigger a bull rally, restarting the bull run that the company has enjoyed for decades.
Johnson & Johnson is not on our latest list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 80 hedge fund portfolios held JNJ at the end of the second quarter which was 80 in the previous quarter. While we acknowledge the potential of JNJ as a leading investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as JNJ but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.