Johnson & Johnson shares surge after Speak’s settlement supply

A bottle of Johnson & Johnson baby powder is displayed on a table in this photo illustration on November 12, 2021 in San Anselmo, California.

Justin Sullivan | Getty Images

Johnson&Johnson Shares rose Wednesday after the company proposed paying $8.9 billion to settle thousands of claims that its baby powder and other talc products caused cancer.

More than 60,000 applicants have pledged to support the proposed order, which would require bankruptcy court approval, the company said in a securities filing late Tuesday.

J&J stock closed nearly 4.5% higher on Wednesday. The company’s market value is more than 430 billion US dollars.

The pharma giant also said its subsidiary LTL Management had filed for Chapter 11 bankruptcy protection again after its first attempt faced legal challenges. The subsidiary is shouldering tens of thousands of talc claims to reduce J&J’s litigation and settlement losses.

Some attorneys representing plaintiffs in the Talk lawsuits called J&J’s proposal a “significant victory” in a legal battle that has spanned more than a decade.

On Wall Street, some analysts were also encouraged by J&J’s move, despite uncertainty over the proposal’s ultimate outcome.

JPMorgan analyst Chris Schott described the proposed settlement in a note Thursday as positive for the company. He said the bank viewed ongoing Talk headlines as the “larger backlog” for the company compared to an actual comparable.

The proposed $8.9 billion settlement also matches JPMorgan’s estimate of $8 billion to $10 billion, Schott noted.

A note Thursday from Morgan Stanley analyst Terence Flynn was similarly supportive of J&J’s move. But Flynn said he’s awaiting clarity on how the 60,000 plaintiffs relate to the 40,300 plaintiffs cited in J&J’s most recent 10-K filing and the approximately 37,500 pending lawsuits in the company’s Talk cases.

It’s also unclear whether the proposed settlement will be approved in the bankruptcy court, Bank of America analyst Geoff Meacham noted Thursday. Meacham highlighted J&J’s legal issues surrounding LTL Management’s bankruptcy filing.

A judge confirmed J&J’s ability to employ the Chapter 11 strategy in February 2022. But the US Circuit Court of Appeals for the 3rd Circuit reversed the ruling in January this year, saying neither LTL nor J&J had a legitimate need for bankruptcy protection because they were not in “financial distress.”

Bernstein analyst Lee Hambright acknowledged that there were “many issues” to resolve if J&J settled Talk’s liability in bankruptcy court. But he added that the firm believes “this is a creative approach that could actually work.”