Investment website Seeking Alpha, which features stock market insights and financial analysis provided by investors and industry experts, featured an article on Johnson and Johnson’s (JNJ) recent loss in California court over allegations that its talc products cause ovarian cancer. The $417 million verdict was in favor of 63-year-old Eva Echeverria, who developed ovarian cancer after 50 years of using J&J’s products such as Johnson’s Baby Powder and Shower to Shower for feminine hygiene.
This is the sixth jury in three states to have found J&J’s products responsible for the development of a woman’s cancer and the company guilty of failing to warn consumers of this risk. Four Missouri juries delivered verdicts totaling more than $300 million.
The author of the Seeking Alpha article points to the fact that with Johnson and Johnson facing losses in multiple states, the litigation against the company should be taken seriously by investors. He does some math for investors, showing why he believes JNJ is a strong sell. There are approximately 4,800 talc cases filed in courts across the country.
He says, “The largest award was $417 million and the smallest was $55 million; the lion’s share of the awards comprise punitive damages. The mid-point was $72 million in total. If J&J lost only 10% of its outstanding cases (480) and paid the mid-point of $72 million it could potentially cost the company about $34 billion. Given the size of the punitive damages in prior cases J&J’s potential liabilities could be staggering.
At quarter-ended July 2, 2017, J&J had cash of about $13 billion. It also generate $8.8 billion of cash flow from operations through the first six months of the fiscal year. Annual run-rate cash flow would be around $17 billion. To cover $34 billion in new liabilities would take [i] existing cash plus [ii] another six quarters of operating cash flow.”
One comment on the article declared: “…America’s law system is crazy but crazy will kill JNJ if they will need to pay this for all cases….”
The author replied, “The Shock Exchange’s interpretation is that the large punitive damages could indicate that jurors believe [i] JNJ knew about the link between ovarian cancer and talc and [ii] still made a commercial decision to sell the product and convince people to use it for them and their children. If that is the case then JNJ was crazy for doing so.”