Johnson & Johnson (JNJ) - Get Johnson & Johnson Report shares traded lower Wednesday after a jury in Pennsylvania ordered the consumer healthcare giant to pay $8 billion in damages linked to side effects from its antipsychotic drug Risperdal, opening the potential for similar suits around the state.
Jurors in the Philadelphia Court of Common Pleas said Tuesday that Johnson & Johnson needed to pay the $8 billion in punitive damages on top of a $680,000 compensatory judgement from 2018 for failing to warn Risperdal user Nicholas Murray of the risks of gynecomastia, a condition in which men can develop enlarged breasts.
"This award is grossly disproportionate with the initial compensatory award in this case, and the Company is confident it will be overturned," the company said in a statement following the verdict, which is vowed to appeal. "This decision is inconsistent with multiple determinations outside of Philadelphia regarding the adequacy of the Risperdal labeling, the medicine's efficacy, and findings in support of the company."
Johnson & Johnson shares were marked 0.72% lower in the opening minutes of trading Wednesday to change hands at $130.89 each, a move that would extend their six-month decline to around 4%.
While likely to be reduced on appear, given the huge discrepancy in compensatory and punitive damage awards, the ruling has not only raised the prospect of similar jury verdicts in the state, but also raises the increasing costs associated with litigation risk for the Dow component ahead of its third quarter earnings next week.
Earlier this month, Johnson & Johnson agreed to pay $20.4 million, including damages and legal costs, to Cuyahoga and Summit counties in Oho, but admitted no culpability in a national crisis that is estimated to have killed more than 400,000 people over the past two decades.
The settlement follows a similar agreement with a court in Oklahoma that saw the group pay $572.1 million in damages for the misleading marketing and promotion of its Nucynta and Duragesic painkillers.
A further 14,000 lawsuits remain outstanding linked to allegations that talc in its iconic baby powder contained carcinogenics that ultimately lead to users developing ovarian cancer and mesothelioma.
Still, the group is only one of two U.S.-listed companies with a triple-A credit rating, and has more than $15.2 billion in cash and equivalents on its balance sheet, two conditions that would comfortably cover pending litigation costs.
"J&J appears ready to consider alternatives to resolve the litigation overhang in a cost-effective manner, including settlements or extending cases through the appeal process," said BMO Capital Markets analyst Joanne Wuensch in a recent client note. "When the company reports 3Q19 earnings in October 15, we do expect some litigation commentary but mostly we look to the strengthening fundamentals."