Johnson & Johnson (JNJ) - Get Johnson & Johnson Report shares plunged the most in more than 15 years Friday following a report that said the company knew for decades that its iconic baby powder sometimes contained asbestos and failed to alert authorities.
Reuters reported Friday that Johnson & Johnson knew both its raw talc and finished powder tested positive for traces of asbestos, a carcinogen, citing documents linked to a court case that saw a jury in Missouri award $4.7 billion to 22 women who said that the products contained asbestos and caused them to develop ovarian cancer. Reuters also said the company tried, unsuccessfully, to influence plans by U.S. regulators to reduce the amount of asbestos that could legally remain in some cosmetic talc products.
"The Reuters article is one-sided, false and inflammatory," Johnson & Johnson said in an emailed statement to TheStreet. "Simply put, the Reuters story is an absurd conspiracy theory, in that it apparently has spanned over 40 years, orchestrated among generations of global regulators, the world's foremost scientists and universities, leading independent labs, and J&J employees themselves."
"Johnson & Johnson's baby powder is safe and asbestos-free. Studies of more than 100,000 men and women show that talc does not cause cancer or asbestos-related disease," the statement added. "Thousands of independent tests by regulators and the world's leading labs prove our baby powder has never contained asbestos."
Johnson & Johnson shares were marked 10.1% lower at $132.90 each following publication of the Reuters story, a move that wipes out all of the stock's year-to-date gains -- and $39.5 billion in market value -- and pushes it to the bottom of the Dow Jones Industrial Average I:DJI .
Analysts at JPMorgan, however, said it was "highly unlikely the company's exposure to this talc issue will even come close to the ~$40 billion in lost market cap today", noting that the $21 billion set aside by Pfizer Inc. (PFE) - Get Pfizer Inc. Report to compensate for damages from its fen-phen diet drug.
"We note that all issues reported were previously disclosed as part of talc litigation discovery. As we think about the risk to JNJ here, we see today's move as an over-reaction, especially from a longer-term perspective," said JPMorgan analyst Chris Schott. "At the same time, talc does not seem to be an issue that is going to resolve quickly for JNJ and we would expect shares to trade at a lower multiple pending further clarity on the company's exposure to this issue (which could be an extended period of time)."
The Missouri jury award in the case, which was granted in July, included $550 million in compensatory damages and $4.14 billion in punitive damages, according to a statement from the attorneys representing the plaintiffs. The company faces more than 9,000 cases over body powders containing talc, according to its latest quarterly filing with the Securities and Exchange Commission, and has consistently denied that its products are dangerous or contain asbestos.
Johnson & Johnson is in the midst of five appeals to similar verdicts linked to its products, even after the U.S. Food & Drug Administration said a study found "no asbestos fibers or structures in any of the samples of cosmetic-grade raw material talc or cosmetic products containing talc."
Save 66% with our '12 Days of Holiday Deals' Sale. Join Jim Cramer's Action Alerts PLUS club for investors and get our best deal of the year. Click here for details or to sign up.