Yahoo Finance J&J (JNJ) Down as Court Rejects Bankruptcy Claim in Talc Lawsuits
Shares of J&J JNJ were down 3.7% on Jan 30 after the Third U.S. Circuit Court of Appeals dismissed the bankruptcy filing ofits subsidiary LTL Management LLC, which had been assigned all its talc litigation claims.
The J&J subsidiary is now prevented from transferring over 38,000 claims for its talc-based products out of trial courts and into a bankruptcy court. These lawsuits allege that J&J’s talc products contain asbestos which causes cancer.
The panel members of the federal court unanimously agreed that the company employed the use of a “Texas Two-Step” strategy. Under this strategy, a company uses Texas law to split an existing company in two, creating a new subsidiary meant to shoulder the lawsuits. The strategy intends to avoid potentially massive lawsuit exposure as the subsidiary absorbs such liabilities and evades them by immediately filing for bankruptcy. In J&J’s case, the court believes that LTL Management was established to escape from liabilities pertaining to its talc-product lawsuits.
The court also stated that the LTL Management was solely created to file for Chapter 11 (bankruptcy) protection. The court concluded the argument against the J&J subsidiary by stating that only a debtor in financial distress can seek protection under bankruptcy laws.
Per the precedent passed by the Appeals court, LTL Management is backed by J&J, an entity that carries a triple-A-rated payment obligation and holds billions in cash reserves, which has ample financial resources to fulfill such claims.
Shares of J&J have lost 6.0% in the past year against the industry’s 9.8% rise.
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J&J has stated that it will appeal to the above ruling. Management continues to maintain its stance that talc-based products are safe for use and do not cause cancer. J& has halted sales of its talc-based products in the country and previously said it would transition to an all-cornstarch-based portfolio.
Last year, a bankruptcy court judge had allowed the J&J-subsidiary’s petition to use Chapter 11 protection. As a result of the above decision by the Appeals court, LTL Management cannot seek backing under the bankruptcy laws.
There have been verdicts against J&J in its talc lawsuits. J&J has been ordered to pay hefty fines in this regard. In this regard, J&J was ordered by a Missouri court in 2018 to pay $4.7 billion in damages to 22 women who made such allegations. Though the verdict was subsequently reduced by an appeals court to $2.1 billion in 2020, it still rejected J&J’s appeal to overturn the 2018 jury verdict.
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Zacks Rank & Stock to Consider
J&J currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the overall healthcare sector include Novo Nordisk NVO, Sanofi SNY and 2seventy bio TSVT, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
In the past 30 days, estimates for Novo Nordisk’s 2022 earnings per share have increased from $3.25 to $3.40. Earnings estimates for 2023 have risen from $4.03 to $4.18 during the same period. Shares of Novo Nordisk have risen 39.2% in the past year.
Earnings of Novo Nordisk beat estimates in three of the last four quarters and missed the mark just once, witnessing a surprise of 3.09%, on average. In the last reported quarter, NVO delivered an earnings surprise of 2.38%.
Estimates for Sanofi’s 2022 bottom line have increased from $4.16 to $4.32 in the past 30 days. Earnings estimates for 2023 have increased from $4.31 to $4.41 during the same period.Shares of Sanofi have declined 6.6% in the past year.
Earnings of Sanofi beat estimates in each of the last four quarters, with the average surprise being 9.50%. In the last reported quarter, SNY delivered an earnings surprise of 9.85%.
In the past 30 days, estimates for 2seventy bio’s 2022 loss per share have narrowed from $8.76 to $8.16. Loss estimates for 2023 have narrowed from $5.16 to $4.99 during the same period.Shares of 2seventy bio have declined 31.2% in the year-to-date period.
Earnings of 2seventy bio missed estimates in three of the last four quarters and beat the mark just once, witnessing a negative surprise of 21.83%, on average. In the last reported quarter, TSVT’s earnings missed estimates by 1.15%.
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