What To Make Of Johnson & Johnson’s $4.7 Billion Verdict For Talc Products

by Trefis Team
Johnson & Johnson
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Johnson & Johnson (NYSE:JNJ) was recently ordered by a jury in Missouri to pay $550m in compensation and an additional $4.14 billion in punitive damages, in a case related to its talc products. The company was previously able to get a relief in a similar case last year, where a woman alleged that she developed ovarian cancer after using J&J’s talc products, and it will be interesting to see if the company gets a similar relief in this case, given it plans to appeal the verdict. Talc products are part of J&J’s Consumer Healthcare segment, of which Skin Care and Baby Care products generated revenues of over $6 billion in 2017. We have created an interactive dashboard analysis ~ How Higher Litigation Expenses Can Impact Johnson & Johnson? You can adjust the litigation expenses to see the impact on the company’s earnings.

Higher Litigation Expenses Can Lead To A Double Digit Decline In Our Earnings Estimate

The amount of $4.7 billion set by the jury is very high, and pertains only to this case of 22 women. There are over 9,000 lawsuits against J&J for its talc products, including the baby products. The company plans to appeal against the recent judgement, and even if the judgement were to be upheld, it will likely see a reduced amount for punitive damages, as seen in other cases historically. J&J’s overall litigation expenses have been fairly high over the past few years. The company spent $2.5 billion in 2017, $806 million in 2016, and $141 million in 2015 (which includes gains from the litigation settlement agreement with Guidant for $600 million). However, some of these expenses were related to the medical devices segment. It will be interesting to see how this figure trends in the coming years given the pile of lawsuits related to the talc products. Looking at the recent verdict, if J&J were to pay the entire amount of $4.7 billion, it would result in approximately a 20% decline in the expected GAAP earnings, as shown in the scenario on the interactive dashboard. Note that we usually highlight the adjusted earnings for pharmaceutical companies. In this case, we are using the GAAP earnings estimate, only to show the impact of litigation expenses, which are otherwise added back to GAAP income along with other items, to arrive at the adjusted earnings.


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