Summary
- A big question for every Johnson & Johnson's shareholder takes on ever more significance.
- Johnson & Johnson's NOTE 11 — LEGAL PROCEEDINGS to its latest 10-Q describes tens of thousands of pending product liability claims; this review summarizes key points.
- Johnson & Johnson is in that exceptional situation where, despite its past achievements, litigation risk undermines its investment thesis.
- Johnson & Johnson's DePuy hip implant lawsuits are winding down, however, a diverse group of other claim families are standing by to take up any slack.
- Johnson & Johnson's talcum powder related claims are highly damaging to the company's reputation; a pending motion puts this to a definitive test.
Johnson & Johnson (JNJ) has accumulated an array of adverse jury awards based on sundry liability claims. This article investigates this phenomenon and addresses its significance for JNJ shareholders. Part 1 surveys JNJ's portfolio of product liability claims and addresses its first definitive test, its pending Daubert motion to block baby powder talc suits.
Part 2 addresses the definitive test posed by JNJ's outstanding opioid claims. It examines the specific financial costs of JNJ's litigation storm contrasting its disclosures to those of Abbott (ABT) and AbbVie (ABBV).
A big question for every Johnson & Johnson's shareholder takes on ever more significance.
In a 2017 review I approached JNJ's vast portfolio of liability lawsuits focusing on two primary tranches of claims, those relating to its DePuy hip replacement devices and its baby powder talc claims. At the time, I noted:
Recently, an SA commenter was carping about how (s)he thought significant litigation was grounds for selling a stock. A riposte challenged: would you drop Johnson & Johnson (NYSE:JNJ) for such a reason?
The sense of this second comment was that JNJ was above such consideration.
Is it? Should it be?
After reviewing JNJ's litigation issues in 2017, I concluded:
...JNJ's ongoing products liability exposure ...[i]s a minor net negative for the stock. I concur with management's assessment that such exposures may be material for particular reporting periods but are not material to the company overall.
I have since made a broader study of JNJ's litigation profile which has grown in the interim. In this two part article, I update my 2017 posting for the purpose of testing the referenced questions from 2017.
Part 1 provides an updated overview of JNJ's product liability claims. On a positive note for JNJ shareholders, I am glad to report that JNJ's hip claims are gradually winding down as JNJ settles them at significant, but readily manageable cost. The more tricky baby powder talc claims are in the hands of god, with the federal court system ruling on a pending Daubert motion standing in for the deity, as hereafter described.
Part 2 of this report will examine JNJ's substantial liability exposures beyond talc and hip. It is in this expanded arena of liabilities where JNJ investors face more significant concerns; this second part also reviews the financial impact of claims as revealed by JNJ's accruals and their impact on the overall company.
