J&J’s Proposed $5.5 Billion Talc Settlement May “Lift Remaining Overhang” On Shares, Says Guggenheim

Johnson & Johnson announced late Monday that it had reached an agreement to commit $5.5 billion to resolve most lawsuits alleging its talc products caused ovarian cancer. The settlement could end 15 years of litigation and “lift the remaining overhang” on J&J shares, according to one institutional trading desk.

The “comprehensive resolution,” as described by J&J, requires participation from law firms representing at least 95% of pending state and federal claims. The company faces roughly 76,000 lawsuits, though some Wall Street analysts expect that number could soon top 90,000.

J&J maintains that its talc products are safe and never contained asbestos. It stopped selling talc-based baby powder in the US in 2020 and globally in 2023 after repeated attempts to resolve the claims through bankruptcy court failed.

“Studies show talc is safe, does not contain asbestos, and does not cause cancer,” J&J wrote in the press release.

“After decades of litigation and full vetting of the science in an extensive hearing, plaintiffs effectively conceded their inability to prove specific causation by withdrawing their experts on the topic in two bellwether cases,” said Erik Haas, Worldwide Vice President of Litigation, Johnson & Johnson.

Haas continued, “In a watershed moment, the Court thereafter ordered plaintiffs to show why the remaining claims should not be dismissed, confirming what we have maintained for years: that these claims lack scientific merit and were sustained only by unreliable expert opinions that could not survive rigorous judicial review.”

Guggenheim Securities senior biopharmaceutical equity research analyst Vamil Divan wrote in a note that a “Potential Talc Settlement Could Lift Remaining Overhang on JNJ Shares,” adding, “It’s Not Over’ Til It’s Over, but This Time It May Actually Be Over.”

Divan added more color:

JNJ has announced an update on their ongoing talc litigation, with the company reaching a proposed settlement that would lead to them paying a minimum of $5.5Bn to resolve the outstanding claims related to the product potentially causing ovarian cancer.

We have lost count on the number of times the company has seemingly come close to resolving this issue but not being successful, but this time appears potentially different with law firms representing the MDL and state leadership supporting the resolution and apparently poised to recommend it to their clients, per the company.

JNJ also clarified to us that the minimum $5.5Bn commitment would be paid out on a claim-by-claim basis based on a grid that assigns a value to each claim based on numerous criteria, starting with $3Bn next year.

We would note that our investor discussions on talc have declined markedly over the past year as the company has delivered significant positive progress both commercially and with their pipeline, particularly in Innovative Medicine.

As a result, it is not clear to us how much of an overhang this talc litigation actually is on JNJ shares anymore. However, we believe expectations were still in the ~$10Bn range for what JNJ may need to pay to settle all of the outstanding ovarian cancer claims, so if this can be resolved for ~$5.5Bn then we think that should be received positively by the Street.

Analysts from Citi offered their take on the J&J development:

Another Proposed Resolution for Ovarian Talc, Hopefully the Last

Management has proposed another resolution of its ovarian talc litigation, potentially tying off 15 years of litigation. The resolution follows a July 22 court ordering that plaintiffs exhibit why the remaining talc claims should not be dismissed for inability to prove specific causation – “The order followed plaintiffs’ withdrawal of their specific causation experts in two bellwether cases, after a hearing that demonstrated their opinions were not based upon reliable scientific methodologies.” The resolution requires participation of at least 95% of the remaining claimants, with total payments of $5.5B including the first payment of no more than $3B in 2027, and no additional payments before 2028. While management has been at this threshold previously, with the inability of the plaintiffs to provide specific causation in these pivotal cases, it appears that this proposed resolution will be the final, successful one. We rate JNJ Buy.

J&J shares rose about 2% in premarket trading. The stock had gained nearly 29% for the year through Monday’s close.

Wall Street remains firmly bullish. Among analysts tracked by Bloomberg, 71.4% rate J&J a “Buy,” while the remaining 28.6% recommend “Hold.” None carries a “Sell” rating.