Off Label. JNJ. Just Say No.

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Tuesday October 8th a Philadelphia jury ruled that JNJ pay $8 billion in punitive damages to a single individual.  The punitive damages come on top of a $680,000 judgement in this case.  The successful case argued that JNJ failed to inform consumers of side effects from the use of the company’s antipsychotic Risperdal.  Below, Jim Cramer weighs in on JNJ:



“What you have here is the ultimate headline driven stock.  It’s been a very bad stock to own.  Why?  Litigation.” -Jim Cramer, 10-11-19 “Squawk on the Street” CNBC.


Subsequent market commentary, and legal precedent, both indicate the likelihood of the court setting aside this out-sized judgement.  JNJ’s loss in this case, and the size of the punitive damages, highlight the following points:  JNJ’s legal battles over Risperdal have just began.  Currently the company faces more than 13,000 Risperdal cases.  The company is now battling waves of lawsuits on three fronts–suits from individuals, cites, counties, and stares.



JNJ faces more than 100,000 lawsuits on three fronts, talcum powder, opioids, and their antipsychotic Risperdal.  It seems questionable that anything like this can be accurately quantified, and thus labeled “manageable.”  The recent Bernstein upgrade of the stock reads as ill-fated, in light of the judgment awarded for just one Risperdal case just ended.  Total punitive damages were set at $8 billion, for a single individual.


These battles will create “headline” risk for years if not decades, and could prove extraordinarily expensive.  Think the March 24, 1989 Exxon Valdez oil spill in the once pristine Prince William Sound.  JNJ’s vulnerability is massive, totaling over 100,000 cases.  Their problems are exacerbated by what many feel is a public “hatred” for price-gouging pharmaceutical firms.


As a healthcare conglomerate, JNJ has long been viewed by investors as a “defensive” position.  Currently it pays 2.94% dividend.  Including that dividend, JNJ has returned -4.6% over one year, 17.4% over three, and 45% over five.  During those three and five year periods, the company was not facing lawsuits involving talcum power, opioids, or Risperdal.  Now it is, and it’s early days on all.


JNJ, Risperdal
Antipsychotic Risperdal and it’s maker on the firing line. Side effects can include breast enlargement in men/boys. Risperdal M- TABS 1mg disintegrating. Constant price increases have created “hate” by many Americans for pharmaceutical makers. Tuesday’s $8 billion dollar judgement seems to demonstrate said.


investing’s bone-simple at its’ core. Buy lower and sell higher. The problem is what lies in-between. What lies in-between is known as risk. Risk comes in two forms. You don’t want any of either.

“Market risk” can only be avoided by not buying. “Individual issue risk” can be selected and “managed” by knowing what and when you’re buying.  
And Johnson & Johnson?


Opioids have proved a problem whether prescribed, taken, or neither. No?  Then why are forty of fifty states already on-board and suing?  Who wants trouble? Is buying JNJ’s trouble really “defensive?”  Not everyone’s scheduled for court, tens of thousands of times. “Off Label. JNJ. Do Not Drive, Operate Heavy Machinery, or Invest…”


pills, medical
Pretty pills.  JNJ is a conglomerate; medical devices, consumer packaged goods, and pharmaceuticals. JNJ has long been viewed as a very safe and stable investment through times of trouble. Some suggest such even now, as the company faces tens of thousands of lawsuits on two fronts; opioids and talcum powder.  JNJ faces 14,000 cases just for the powder.  Their record on talc cases is mixed, including 11 losses since trials began in 2016.  Ask Bloomberg.


SJ covered JNJ as a potential stock pick in these volatile times.  Safe havens are nice, more so when they pay.  In “Gimme Shelter” we covered six so-called “safe haven” calls.  At that time our take on both Johnson & Johnson(JNJ) and 3M(MMM) was to avoid.  3M settled further down to a brand new 52-week low of $154.00 yesterday.  Despite JNJ’s size, dividend, and packaged consumer goods business, we felt it’s poor share price performance, and exposure to massive legal claims disqualified the stock as a smart, or safe, play.


We reaffirm that call here, following Monday’s conclusion of the Oklahoma opioid case.  On Monday JNJ was found guilty, in the judge’s words of “harming the health and safety” of plaintiffs.  JNJ alone took this case to verdict, lost, and was ordered to pay $572 million.  Co-defendants Purdue and Teva simply settled for a collective total of $270 million.


“We see little benefit in years of litigation and appeals.” –Purdue Pharma.


Monday, August 26th, the Cleveland County Oklahoma court found Johnson & Johnson guilty of contributing to the national opioid crisis by over-stating the benefits and under-stating the risks of it’s opioid medication, thereby endangering public health.  Oklahoma Attorney General Mike Hunter called JNJ the “Kingpin” in the crisis.  


“Those actions compromised the health and safety of thousands of Oklahomans.” –Judge.


Shares of JNJ and other opioid-involved companies rose on the smaller-than-expected financial judgement.  The Oklahoma case represents only the first among thousands of such cases in process.  On October 21st legal action concerning the opioid tragedy moves to the federal courts.  Ohio will be the first of 40 states, as it begins what’s known as an “MDL” or multi-district litigation, against drug makers and distributors.  This MDL involves 2000 plaintiffs, including cities and counties.


No mistake exists in JNJ’s choice in Sabrina Strong as the current lead spokesperson, in what will be years of very high-profile, highly-charged exposure for the company.  Why Strong?  She’s articulate and shows well on television.


High-profile investing authority Jim Cramer considers “Anything under a billion dollar fine” to be a good sign for Johnson & Johnson.  Yet his comment was not a call to buy.  His current thinking beyond that is unclear.  Tim Seymour co-host of CNBC’s “Fast Money” called JNJ a “buy.”


“Hey look–it’s Johnson & Johnson going to court.” “Again?”


the judgement Oklahoma Attorney General Mike Hunter stated that “The multiplier factor in the country is considerable.  There are two thousand plaintiffs in the MDL(Ohio), and fifty other states.  For those analysts to be characterizing this as a win, they need to go back to business school.”  Perhaps, but then attorneys are not analysts and analysts not attorneys.



JNJ lags the S&P 500 on every growth metric.  Yet it trades at a sky-high price to free cash flow of 39.3.  Cash flow is health.  Shares also trade on a trailing P/E of 21.3, vs. the benchmark’s 21.4(as of 5:42 AM 8-29-19.)  That’s known as full current price, and a premium historically. 


Purdue and Teva settled litigation in Oklahoma prior to any court decision.  The joint agreement totaled $270 million.  For it’s part Johnson & Johnson stated that it will appeal this ruling, and is open to a potential settlement in the up-coming federal cases.  Why not?  JNJ’s play to win proved much more expensive thus far.  In fact, guilty for JNJ proved four times more expensive than for either Purdue or Teva.  Does that demonstrate “good corporate governance?



Shares of JNJ are negative for every time frame; 5 day, 20 day, YTD, and longer.  Shares have lost -5.64% over 6 months, and -4.2% over 1 year.   With an auto-reinvested 2.93% dividend JNJ has returned -1.6% over 1 year, and 17.1% over 3 years.  That’s a 5.7% annual return.  That three year return has been without the opioid hangover, and only the beginning of the talcum powder litigation.  Each are just beginning to balloon.


Of our list of 14 companies involved in the opioid crisis only 3 are positive over both the YTD and 6 month periods; Allergan, Mickesson, and Wal-Mart.  Beyond those 3 only 2 others were positive on either time frame; CVS and Amerisource Bergen, the massive distributor.  Thus 10 of the 14 in our list of clearly involved companies are negative over both YTD and 6 month time frames.  Is this an accident?  Potential drug pricing legislation is also a factor.  


JNJ is an embattled company located on the front side of an ugly, sweeping, and highly-distasteful, opioids backlash.  Corporate legal action is never cheap.  Even the costs of winning will prove high, while the cost of losing could prove jaw-dropping.  Legal cases are notoriously unpredictable, and big pharma in particular is not publicly beloved.  Such is known as “single stock or issue risk.”  Managing risk is job one for all savvy investors.  Buying known problems is never wise, at any time.  In it’s current state we don’t call JNJ “defensive.”  Finding a better investment is not that difficult.  Good luck and good investing. 


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