A federal court said Monday Johnson & Johnson (JNJ) can’t rely on a bankruptcy filing to resolve multibillion-dollar litigation related to its baby powder. In response, JNJ stock tumbled.
The decision upends Johnson & Johnson’s efforts to shift some 38,000 legal claims to the subsidiary it now calls LTL Management. J&J created the division and filed for bankruptcy in 2021, saying that would offer an easier route to resolution for thousands of people who claim the company’s baby and talcum powders led them to develop cancer.
Now, Johnson & Johnson says it’s planning to challenge the ruling. JNJ stock’s performance has been closely tied to litigation over the last several years.
“As we have said from the beginning of this process, resolving this matter as quickly and efficiently as possible is in the best interests of claimants and all stakeholders,” Johnson & Johnson said in a written statement. “We continue to stand behind the safety of Johnson’s Baby Powder, which is safe, does not contain asbestos and does not cause cancer.”
In afternoon trading on today’s stock market, JNJ stock skidded 3.1% near 163.
JNJ Stock: Not Financially Distressed
When the LTL division filed for bankruptcy, the company said it would provide a “backstop” in funding. That backstop would ensure Johnson & Johnson would pay the claimants, according to Reuters. But the court argued J&J only created that division to access the bankruptcy system. Further, that same backstop indicates LTL isn’t financially stressed, the court said.
“Applied here, while LTL faces substantial future talc liability, its funding backstop plainly mitigates any financial distress foreseen on its petition date,” the three-judge panel said in a filing.
Johnson & Johnson disagrees with the court’s assessment. Also, LTL initiated the bankruptcy filing “in good faith,” the company said. The news Monday sent JNJ stock tumbling below the lower edge of a flat base with a buy point at 181.4, according to MarketSmith.com.
“Today’s ruling does not reflect the facts established during the bankruptcy court’s trial regarding the appropriateness of LTL’s formation and filing, nor the Company’s intention to efficiently resolve the cosmetic talc litigation for the benefit of all parties, including current and future claimants,” J&J said.
JNJ stock fell further below its key moving averages on Monday.
Follow Allison Gatlin on Twitter at @IBD_AGatlin.
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