JNJ Johnson and Johnson

By Jonathan D. Rockoff and Sara Randazzo 

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 (December 18, 2018).

Johnson & Johnson faced continued concerns on Wall Street about the threat posed by lawsuits over the safety of the company's signature baby powder.

Shares fell 2.9% Monday, after dropping 10% Friday following news reports saying J&J knew for years some of its talcum powder contained asbestos. The slide continued even though J&J mounted an aggressive counterattack, including taking out full-page newspaper ads.

The plunge, which has cut J&J's market capitalization by $50.2 billion, illustrates the risk companies take fighting litigation tooth-and-nail, rather than settling. Companies sometimes calculate it is better to resolve sprawling litigation with one payout rather than face the expense and reputational damage of taking dozens of cases to trial.

J&J executives and lawyers have long insisted the signature powder is safe and asbestos-free. Settling would set a "really bad precedent when the science and facts [are] on our side," Chief Financial Officer Joseph Wolk said in an interview Monday.

Any acknowledgment that the powder isn't safe could imperil not just sales but the entire company's image, marketing experts say. The Johnson's franchise of soaps, shampoos and powders is one of the few brands to use the company's name. It rings up about $1.5 billion in annual sales.

Several analysts have minimized concerns about the lawsuits' potential financial impact. But the downside to J&J's steadfast defense has been repeated legal and public-relations hits.

"You're taking a product you used to associate with good health or being clean, and all of a sudden, you associate it with cancer," said Witold Henisz, a management professor at the University of Pennsylvania's Wharton School.

Several juries have ruled against the company in the 18 cases to go to trial in recent years, including a jury in St. Louis that in July awarded $4.7 billion in damages to 22 women and their families who blamed ovarian-cancer cases on asbestos in the baby powder. J&J has appealed the verdict, and other judgments against it.

Imerys SA, which supplied the talc in the powder at issue in the St. Louis case and was also named as a defendant, had agreed to settle before the trial began for an undisclosed amount.

"Imerys Talc America is committed to the quality and safety of its products, as evidenced by our quality testing results that consistently show no asbestos," the company said in a statement following the settlement.

J&J appeals have resulted in verdicts reversed, and the company has also won several trials while others ended in mistrials.

The overall record has persuaded the company and its lawyers that its aggressive defense is the right approach, according to Mr. Wolk. He said he expected J&J shares to regain value lost as investors refocus on the company's fundamentals. "We will recover from this recent downturn," he said.

The plaintiffs' strategy has shifted as the litigation has evolved. Earlier trials claimed Johnson's talcum powder itself caused ovarian cancer. In more recent cases, plaintiffs allege asbestos in the powder is to blame for mesothelioma, as well as for ovarian cancer.

The company said in a recent earnings report it faces 11,700 claims over its talcum-based body powders.

In dispute between the plaintiffs and J&J is whether the talcum powder actually contained asbestos and if it did, how that would cause a life-threatening disease. Plaintiffs' lawyers contend J&J had evidence that the powder could be harmful but hid those revelations from the public.

The American Cancer Society says some talc contains asbestos, a carcinogen, in its natural form, but that talc-based cosmetics products are supposed to be free of asbestos. Studies of talcum powder not focused on asbestos have found a small increase in risk of ovarian cancer if any risk at all, according to the organization.

The recent stock hit, J&J's worst two-day stretch since 2002, came after Reuters and then the New York Times reported the company knew testing from the 1970s to early 2000s sometimes found asbestos tainted its talc but failed to alert regulators or the public.

J&J says thousands of tests conducted by the company, health regulators and outside labs found the talc used in the baby powder was asbestos-free, and the company behaved appropriately.

J&J has sought to counter the articles. Ahead of their publication, the company established a website -- www.factsabouttalc.com.

Since Friday, Mr. Wolk and CEO Alex Gorsky have reached out to top investors to offer reassurance. "We don't see these folks selling," Mr. Wolk said of the investors.

J&J said after Monday's market close that its board had authorized the repurchase of up to $5 billion in shares.

Write to Jonathan D. Rockoff at Jonathan.Rockoff@wsj.com and Sara Randazzo at sara.randazzo@wsj.com

(END) Dow Jones Newswires

December 18, 2018 02:47 ET (07:47 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.