J&J Falls Amid Reports Of Criminal Probe Into Talcum Powder

Shares of Johnson & Johnson (NYSE:JNJ) fell more than 4% on Friday amid reports that the drug giant is facing criminal investigation by the U.S. Department of Justice related to its talc-based products.

Bloomberg was the first to report the federal probe into whether J&J lied to the public about the possible cancer risks of its talc-based products and the company knew more details than it let on. According to the Bloomberg report, a grand jury in Washington is examining documents related to what J&J officials knew about the cancer risks.

Please note that in its SEC filing in February, J&J had stated that it received subpoenas to produce documents regarding the ongoing baby powder litigation from the Department of Justice and the SEC. Back then, the company had said that it was co-operating with the government agency.

J&J already faces more than 14,000 lawsuits for its talc-based products, primarily its baby powders. The lawsuits allege that its talc products contain asbestos, which caused many women to develop ovarian cancer.

J&J’s stock has risen 4% this year so far against a decrease of 1.5% recorded by the industry.

Though J&J has successfully defended a number of lawsuits related to its baby powders, there have been verdicts against the company. In August 2018, J&J was ordered by a Missouri court to pay $4.7 billion in damages to 22 women who made such allegations, affirming a St. Louis court jury’s verdict in July. J&J intends to appeal the case.

In December 2018, J&J stock lost significant value after a Reuters article stated that the company knew for decades that its baby powders contained asbestos. J&J has been consistently denying allegations. It has maintained in public statements that its talc products are completely safe and do not cause cancer. Per the company, independent tests by regulators, academic institutions and leading labs have proven that its talc-based products never contained asbestos.

The link between talc and cancer has been rumored for decades but remains scientifically unproven. Medical experts differ sharply on whether talc increases the risk of cancer in consumers who use it. The American Cancer Society notes that studies so far have produced mixed results, with some showing no link at all and some showing a slightly increased risk.

It has been suggested that a link between talc and cancer may be due to the fact that talc and asbestos often occur together in deposits and it gets inadvertently mixed.

The talc issue has been an overhang on J&J’s stock price for a while and is expected to remain so.

J&J will report before market opens on Jul 16. Management is expected to be flooded with questions on the investigations though chances are quite high that they will not comment on the same.

J&J currently carries a Zacks Rank #3 (Hold). Some better-ranked large-cap pharma stocks are Roche (OTC:RHHBY) , Novartis (NYSE:NVS) and Merck & Co., Inc. (NYSE:MRK) , all carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of Merck have gained 4.4% so far this year while estimates for 2019 and 2020 have risen 0.4% and 1.5%, respectively, over the past 60 days.

Roche’s earnings estimates have increased 0.8% for 2019 and 3.3% for 2020 over the past 60 days. The stock has risen 7.3% this year so far.

Novartis’ stock is up 2.8% this year so far. Earnings estimates have increased 0.7% for 2020 over the past 60 days.

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