JNJ Johnson and Johnson

By Jared S. Hopkins 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (August 28, 2019).

Johnson & Johnson shares rallied Tuesday after a judge's order that the company pay for Oklahoma's opioid crisis allayed investors' worst fears.

While the $572 million ordered Monday by Oklahoma state court judge Thad Balkman marked the first time a court held the drug industry responsible for widespread opioid abuse, the amount is limited to just one year. Judge Balkman wrote in his opinion that the state didn't present "sufficient evidence" that justified additional time and resources.

The amount, to pay for addiction-abatement programs, was below expectations of more than $1 billion and significantly less than what the state requested, analysts covering the company said in interviews and written commentary. Several expect $572 million to be reduced after the company appeals the decision. The analysts said J&J's overall outlook remains promising, even with other opioid lawsuits unresolved.

Shares of J&J closed up 1.4% at $129.64 on Tuesday.

Larry Biegelsen, an analyst at Wells Fargo & Co., wrote in a note to clients after speaking with Johnson & Johnson management that the verdict is a "net positive" for the New Brunswick, N.J., company, because of how much less it was when compared with the $17.5 billion requested by the Oklahoma attorney general. Analysts at Raymond James Equity Research said they were disappointed with Judge Balkman's decision, adding that if J&J were skilled at convincing physicians to prescribe their drug, then its market share would be higher than 1%. Both analysts rate the company "outperform."

The amount represents a sliver of business for J&J, the world's largest health-care company, known for households goods like baby powder and Band-Aids. Last year's company revenue totaled $81.6 billion.

J&J said in a statement that it disagreed with the decision and promised an appeal, a process that could last years.

Analysts also cautioned against reading too much into how the decision might impact the more than 2,000 lawsuits that have been consolidated in federal court in Ohio and constitute the bulk of legal pressure against the industry. Analysts at Morgan Stanley said the verdict is "not definitively precedent-setting" and can't be used to imply the outcomes of lawsuits brought by other states or cities.

Other companies facing lawsuits nevertheless received a cold reaction Tuesday from investors. Teva Pharmaceutical Industries Ltd. closed down 9.6%, Endo International PLC fell about 13% and Mallinckrodt PLC shares fell about 16%.

Teva previously agreed to an $85 million settlement with Oklahoma. OxyContin-maker Purdue Pharma LP and its owners, the Sackler family, agreed to pay $270 million.

Some companies that are highly leveraged will be challenged to resolve litigation of this scale while retaining an ability to clean up their balance sheets, said David Amsellem, an analyst at Piper Jaffray & Co. Teva, Endo and Mallinckrodt all have large amounts of debt to pay down.

"The stocks are reacting to that," he said in an interview. "The challenge for these midsize companies, is how do you get any level of confidence that they can start to chip away at their debt levels for the foreseeable future?"

A Mallinckrodt spokesman declined to comment. Representatives for Endo and Teva didn't respond to requests for comment.

Endo recently said it agreed to pay $10 million to avoid an upcoming October trial in Ohio against two counties that is serving as a bellwether for the hundreds of others brought by cities and counties that have been consolidated in federal court. Allergan PLC is also in negotiations for a potential $5 million deal that would settle claims over its branded drugs but might not completely eliminate it from the trial, The Wall Street Journal has reported. Other companies are still slated to go to trial.

An Allergan spokeswoman said the company "hasn't yet reached a settlement."

Mallinckrodt is one of the country's largest makers of generic prescription opioids but it also makes raw materials for products that it sells to other companies, a type of business that J&J was found liable for in the Oklahoma case. Johnson & Johnson exited the opioid-ingredients business in 2016.

Mallinckrodt, which is domiciled in Ireland but operates in the U.S. from St. Louis, also lost a patent dispute Tuesday related to INOmax, its nitric oxide gas product.

(END) Dow Jones Newswires

August 28, 2019 02:47 ET (06:47 GMT)

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