Johnson & Johnson stock slumped Tuesday after a judge rejected its $10 billion proposal to settle thousands of lawsuits claiming its baby powder and other talc-based products caused cancer.
A bankruptcy judge in Texas dismissed J&J's case, saying the company used a flawed process to solicit votes from claimants, Leerink Partners analyst David Risinger said in a report. J&J says it will return to the civil court system "to defeat merciless talc claims."
This is the third time Johnson & Johnson's bankruptcy strategy has been tangled up in court. The health care giant faces more than 60,000 claimants who say its talc products contained asbestos and caused them to develop ovarian cancer.
Johnson & Johnson stock fell 7.6%, closing at 153.25. Shares broke out of a cup base on March 4, but Tuesday's move put J&J shares about 9% below that entry. Savvy investors are encouraged to cut their losses when a stock falls 7% to 8% from its buy point.
Bankruptcy Efforts Fail
Johnson & Johnson stopped selling its talc-based baby powder in the U.S. in 2020 and switched to a cornstarch-based product abroad, according to Reuters. The company says its products are safe and do not contain asbestos.
Still, to deal with the tens of thousands of claims against it, J&J shifted its talc-related liabilities to a subsidiary. That subsidiary then filed for Chapter 11 to move the lawsuits to bankruptcy court, the Wall Street Journal reported. But the efforts raised eyebrows with bankruptcy typically reserved for insolvent companies that wouldn't otherwise survive.
In this third attempt, Johnson & Johnson said it had enough votes from the injury claimants to move ahead with the bankruptcy. But Judge Christopher Lopez in Houston said thousands of them received an "unreasonably short voting time." At least half of the votes "cannot count," he said.
Leerink's Risinger kept his outperform rating on Johnson & Johnson stock.
He noted the company recently reaffirmed its projection for operational sales to grow at a compound annual rate of 5% to 7% from 2025 to 2030.
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