Johnson & Johnson’s talc crisis will linger for years. Investors erased $40 billion of its market value on Friday, after Reuters revealed the U.S. healthcare giant knew for decades its baby powder was sometimes tainted by asbestos. The company says the story is an “absurd conspiracy theory” as “every method available to test J&J’s talc for asbestos has been used by J&J, regulators, or independent experts, and all of these methods have all found that our cosmetic talc is asbestos-free.” If history is a guide the market may have over-reacted, but lawsuits and brand damage don’t easily dissipate.
J&J faces thousands of lawsuits from users that claim the company’s talc resulted in health problems. In July, a jury in Missouri ordered the company to pay $4.7 billion to 22 women who claimed their ovarian cancer was caused by asbestos in J&J’s products. The market had shrugged off that decision. The company’s stock by Thursday had risen nearly 5 percent since January, giving it a market capitalization of almost $400 billion.
Lopping off 10 percent of that may be an overreaction. Investors tend to panic when multibillion-dollar settlements become likely. Drugmaker Merck lost $27 billion, or 27 percent of its market value, when it pulled painkiller Vioxx in 2004 after studies linked it to heart attacks and strokes. The company ended up settling most cases for under $5 billion. Likewise, investors have discounted a $15 billion liability at Bayer for lawsuits that claim a weedkiller made by Monsanto, the U.S. company it acquired this year, caused cancer, according to Bank of America Merrill Lynch. The bank believes the payout will probably be somewhere below $5 billion.
The legal bills won’t abate anytime soon. Merck was still dealing with Vioxx-related litigation more than a decade after the drug was pulled from the market. But the hit to J&J’s reputation may be the most difficult to fix. In the 1980s, seven people died after taking Tylenol painkillers that had been laced with cyanide. The company’s response to that tragedy – recalling 31 million bottles, taking out advertisements warning customers, and introducing tamper-proof packaging – became a staple business-school lesson in reputation-buffing. If the company really sat on troubling data relating to a product used on babies around the world, it might end up being taught as a counter-example.
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