Johnson & Johnson: Bankruptcy Court’s Talc Ruling Likely Extends Litigation but No Fair Value Impact

Johnson & Johnson JNJ plans to appeal the bankruptcy court’s rejection of the proposed $8.9 billion settlement regarding the talc cancer claims. While the pathway forward with close to 100,000 talc claimants is now less clear, we believe the total cost of resolving these claims is likely still close to the $8.9 billion established in the proposed settlement and already factored into our valuation. As a result, we don’t expect any major changes to the firm’s fair value estimate or wide moat rating.

With J&J having won close to 75% of the just over 40 talc cases that have rulings, we believe the firm is in a good position to settle the remaining cases, especially when these initial cases are likely selected by claimants as the best positioned. Additionally, with close to two thirds of claimants favoring the $8.9 billion settlement, we believe J&J has substantial support to reach a major settlement.

The bankruptcy court’s ruling against the settlement partly rested on an outlook that no immediate financial distress is present, but we expect J&J to navigate around this ruling. Beyond appealing the ruling, J&J will likely seek additional ways to work toward a settlement outside the bankruptcy pathway, litigate cases not participating in a settlement, and take legal action against authors of papers showing a link between talc powder and cancer.

The unique pathway of funding a subsidiary to deliver a quick full resolution to the talc claimants looks increasingly unlikely. While we don’t expect the cost of the overall litigation to substantially change, the timeline to legal resolution will likely drag on for at least another year but likely longer. However, with the talc product removed from the market and likely very little linkage between talc and other products, we don’t expect the continued litigation to affect the brand power of J&J and Kenvue KVUE.