No Changes to J&J After Oklahoma Opioid Case Ruling

In one of the first state opioid cases, an Oklahoma judge ruled against Johnson & Johnson (JNJ), awarding the state $572 million, well below the over $17 billion the state was seeking in damages. The amount is lower than many had expected, and J&J still plans to appeal the case. We expect the appeals process to take several years, and on appeal, we believe the amount will fall lower as we believe J&J largely provided appropriate marketing support around its opioid drug sales. Overall, we don't expect any change to our fair value estimate or moat rating for the company based on the ruling, and we continue to model in $1 billion in total opioid litigation costs for J&J.

The next steps in the opioid litigation process include other state cases and a likely long appeals process. Following the Oklahoma ruling, we expect an Ohio case will represent the next important step in determining the magnitude of the overall opioid litigation. The lack of early settlements by opioid drugmakers in Ohio (like Purdue's settlement in Oklahoma) suggest this state could be less sympathetic to the plaintiffs. Also, regardless of the outcome in Ohio, we expect the ruling will be similarly appealed, setting up a process that will likely take several years to complete.

The strong balance sheet at J&J likely entices many plaintiffs to target the firm. Within the opioid litigation landscape, plaintiffs are targeting several industries and firms for potentially causing addiction and overdoses of these powerful drugs. However, J&J holds one of the strongest balance sheets and most robust streams of cash flows, which makes it a larger target than many of the smaller specialty drug firms that carry much weaker financial positions. Even though J&J's opioid sales represent a small fraction of the overall prescriptions of opioid sales (less than 1% of state paid opioid prescriptions), we believe the deep pockets of J&J have made the firm a larger target than its opioid sales would suggest.