Opioid Verdict: A Possible Victory for Johnson & Johnson and Loss for Everyone Else?

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Merrill Lynch has only a Neutral rating on Johnson & Johnson, and the firm said that the company’s appeal plans through Oklahoma’s intermediate courts and then potentially up to the U.S. Supreme Court could take three to five years. The firm’s own legal checks show that Johnson & Johnson’s strongest aspect of its case is that the state’s application of its public nuisance law violated the company’s legal due process and that this use was unprecedented and is therefore subject to future legal challenge. The firm sees no immediate ramifications here and that Johnson & Johnson could raise an additional $9 billion to $10 billion before losing a AAA rating and could raise another $40 billion to $50 billion before moving its rating down to BBB. Despite a Neutral rating, Merrill’s price objective is $150.

Credit Suisse has an Outperform rating and $156 target price on the stock. The firm believes that the Oklahoma court decision actually reduces some of the uncertainties and may even potentially help Johnson & Johnson shares ultimately to move higher. It pointed out that Oklahoma prosecutors had sought damages of $17 billion.

Morningstar issued a note on the matter saying that the $572 million verdict was lower than many had expected and that the appeals process should take several years and should fall to a lower dollar amount. Morningstar’s note said the firm believes that the company largely provided appropriate marketing support in its sales of opioid drugs. Morningstar continues to model about $1 billion in total opioid litigation costs for Johnson & Johnson.

Determining the outcome of all the outstanding cases tied to the opioid crisis is still very difficult to project. The decision against Johnson & Johnson was expected, but the dollar amount was an unknown prior to this verdict. Another consideration is that big cases such as this often take years to play out.

In many ways, the cases against the opioid makers look and feel a lot like the Engle tobacco case, which was against the cigarette makers (without the benefit of history to know the verdict). The key difference is that most smokers knew for years that they were killing themselves slowly by smoking. It seems that many opioid users were not aware of just how addictive the drugs were nor that they would contribute to their deaths or the years of problems.

Shares of Johnson & Johnson traded up 3.4% to $132.15 on Tuesday morning, in a 52-week range of $121.00 to $148.99. Other companies that have seen opioid exposure in cases were seeing big selling pressure in reaction to the ruling.

Teva Pharmaceutical Industries Ltd. (NYSE: TEVA) traded down 5.8%, at $6.99 in a 52-week range of $6.07 to $25.13.

Endo International PLC (NASDAQ: ENDP) was down 8%, at $2.67 in a 52-week range of $2.14 to $18.40.

Mallinckrodt PLC (NYSE: MNK) was trading down 10% to $3.80, with a 52-week range of $3.79 to $35.89.

Drug distributor McKesson Corp. (NYSE: MCK) shares were down 2% to $144.10, in a 52-week range of $106.11 to $150.82. It and other distributors reportedly have been in talks of a $10 billion settlement over its role in distributing opioids to doctors. Distributor Cardinal Health Inc. (NYSE: CAH) traded down 1.5% to $43.17 on Tuesday. Its 52-week range is $41.03 to $58.31.


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