J&J Shares Tumble After Judge Rejects $10 Billion Talc Settlement

Johnson & Johnson (NYSE: JNJ) saw its stock decline more than 5% on Tuesday following a U.S. bankruptcy judge’s rejection of the company’s $10 billion proposal to settle tens of thousands of lawsuits related to its talc-based products. The lawsuits, brought by more than 60,000 claimants, allege that J&J’s baby powder and other talc products contained asbestos and caused ovarian cancer.

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This marks the third time J&J’s bankruptcy strategy has been struck down in court. The proposed settlement aimed to resolve existing claims and prevent future litigation over similar allegations. However, with the latest legal setback, the company has announced that it will return to the traditional tort system to challenge and defeat what it calls "meritless" claims. J&J also confirmed that it does not plan to appeal the ruling.

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During a call with investors and analysts on Tuesday, the company emphasized that plaintiffs should not expect to secure a comparable settlement outside of the bankruptcy process. J&J argued that those opposing the deal—including attorneys representing some cancer victims and a government bankruptcy watchdog—had miscalculated in assuming that the company would negotiate a similar resolution outside of court.

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Opponents of J&J’s settlement strategy have long contended that the company is not in financial distress, a key criterion for seeking bankruptcy protections. They argue that the company’s repeated attempts to use bankruptcy filings to settle mass tort litigation should be dismissed.

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Following the court’s decision, J&J Chief Financial Officer Joe Wolk stated that the company would reverse $7 billion previously set aside for the bankruptcy settlement, indicating a shift in strategy. "Considering this was our best and final offer, we are reversing $7 billion in the reserve previously held for the bankruptcy plan," Wolk told investors.

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Despite the legal challenges, J&J has consistently maintained that its talc-based products are safe, asbestos-free, and do not cause cancer. The company stopped selling its talc-based baby powder in the U.S. in 2020, opting instead for a cornstarch-based alternative.

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Stock Performance and Market Outlook

Following the court ruling, J&J shares fell 5.4% in early trading, reaching $156.82. The stock is currently valued at 15.51 times its projected earnings over the next 12 months, according to data from LSEG. In comparison, rival pharmaceutical company Amgen (NASDAQ: AMGN) trades at 14.9 times its forward earnings, while Merck (NYSE: MRK) has a lower valuation at 9.7 times forward earnings.

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Despite the recent decline, J&J’s stock had gained approximately 14.7% year-to-date through Monday’s close, pushing its market capitalization to around $400 billion. The company reassured investors that it remains confident in its financial outlook, affirming its guidance for 2025 and its long-term growth trajectory.

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Ongoing Legal and Financial Implications

J&J’s ongoing talc litigation continues to pose a significant financial and reputational challenge. The company initially attempted to resolve these claims by transferring its talc liabilities into a subsidiary, LTL Management LLC, and then placing that subsidiary into bankruptcy. However, courts have consistently ruled against this strategy, arguing that J&J, a financially strong company, cannot use bankruptcy as a shield against legal claims when it is not in genuine financial distress.

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The court's rejection of the latest settlement plan means that J&J will now have to fight thousands of individual lawsuits in the traditional legal system, potentially leading to prolonged litigation and unpredictable financial consequences.

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While the company insists that the claims lack merit, previous jury verdicts have resulted in substantial awards for plaintiffs. In 2018, a Missouri jury ordered J&J to pay $4.69 billion to 22 women who claimed its talc-based products caused their ovarian cancer. The company has also faced other multimillion-dollar verdicts in different cases, although some have been overturned on appeal.

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Legal analysts suggest that J&J’s decision to litigate these claims rather than pursue another settlement could expose the company to further financial risks, including the potential for large jury awards. However, the company appears prepared for a lengthy battle and has signaled that it will not entertain further large-scale settlement discussions.

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Despite the immediate stock drop following the court ruling, some analysts believe that J&J’s long-term prospects remain strong, particularly given its diversified portfolio across pharmaceuticals, medical devices, and consumer health products. The company has reaffirmed its confidence in its financial guidance for 2025, indicating that it does not expect the talc litigation to have a material impact on its long-term growth strategy.

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Still, uncertainty surrounding the ongoing lawsuits could weigh on investor sentiment in the near term. Market participants will be closely watching how the company navigates the legal challenges and whether any future jury verdicts lead to significant financial liabilities.

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For now, J&J remains focused on defending itself against what it calls "unfounded" claims, while maintaining its position as one of the largest healthcare conglomerates in the world. Investors will be looking for clarity on the financial implications of these lawsuits and any potential settlements or rulings that could impact the company’s bottom line.

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