Weekly Healthcare Note: JNJ & Intuitive Surigcal

In the past week, Johnson & Johnson (NYSE:JNJ) lost a lawsuit relating to its vaginal mesh products and was asked to pay over $3.3 million in compensatory damages. ^[1] Meanwhile, Intuitive Surgical (NYSE:ISRG) stock plummeted more than 10% on February 28, after Bloomberg reported that the FDA is probing the safety of its da Vinci Surgical System. ^[2]

Johnson & Johnson

Last year, JNJ was hit with various product recalls including its now “phased out” vaginal mesh products and over 2,100 lawsuits were filed against the healthcare conglomerate alleging that it sold its vaginal meshes despite knowing its serious risks of scarring, pain, nerve damage and organ perforation, and also failed to warn patients. Last week, JNJ lost the first case of these lawsuits and has been asked to pay over $3.3 million in compensatory damages, even as punitive damages are now being considered by the New Jersey jury, which could be five times the compensatory damages according to New Jersey’s law. ^[1]

While the first $3.3. million will not impact JNJ’s deep pockets, it will be worrying if the judgment influences outcome of the other lawsuits because then the potential penalties could reach billions. This will certainly create a hole in JNJ’s cash reserves (JNJ has over $20 billion in cash & cash equivalents), and could have a significant impact on JNJ’s share price. However, this will not impact its ongoing business as the healthcare company has already phased out the product from its portfolio.

We are revising our price estimate for JNJ to reflect full year results and recent developments.

See our complete analysis for Johnson & Johnson

Intuitive Surgical

Intuitive Surgical’s stock has been on a roller coaster ride since we initiated coverage on the robotic surgical systems developer in December 2012. A known short selling research firm Citron Research released a scathing report against the medical device maker, citing a growing number of lawsuits and lack of clinical evidence to support its target price of $250-350. ^[3] The stock dropped more than 10% after the report was released. The stock gained some ground in January on the back of strong earnings and continued sales growth of da Vinci Surgical Systems (Read Intuitive Surgical’s Strong Sales And Growing Procedures Lifts Outlook). However, it lost most of these gains on February 28, after a Bloomberg report on  FDA surveying surgeons at major hospitals to list complications witnessed with the surgical system was released. ^[2]

However, we believe that the stock may have seen a knee jerk reaction and rather than looking at it as a negative factor, one should think that the FDA’s step can actually remove uncertainties about the future of such surgical systems in the U.S. The survey can help affirm benefits of reduced surgical complications, faster recovery process and lower hospitalization costs and justify the huge price tag for the robotic system. However, an opposite outcome could significantly hurt the future demand of the system.

See our complete analysis of Intuitive Surgical

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1. J&J Seeks to Avoid Punitives After Losing Mesh Verdict, Bloomberg, Feb 27 2013 [↩] [↩]
2. Intuitive Robot Probe Threatens Trend-Setting Surgeries, Bloomberg, Feb 28 2013 [↩] [↩]
3. Has the Halo Been Broken on Intuitive Surgical ?, Citron Research, Dec 19  2012 [↩]