A closely-watched talc trial in California goes against Johnson & Johnson ( JNJ ), adding to uncertainty about whether tens of thousands of other plaintiffs suing the company will sign J&J’s proposed $8.9 billion settlement offer or try to bide their days in court. Jim Cramer believes the biopharmaceutical company was “very optimistic” about winning. “The prosecution system is stacked against them,” Jim said. Still, he added, “I’m sure J&J is a great American company, I’m sure they’ll see through this. … They need to be a little more realistic about what they’re saying.” Jim’s discussions with J&J’s legal team convinced him that there could be a path to victory in what we believe is an important case. But on Tuesday, J&J was ordered to pay $18.8 million after jurors found in favor of Emory Hernandez-Valdez, 24, who claimed in his lawsuit that he developed mesothelioma, a deadly cancer linked to asbestos, from exposure to J&J talc products. Ultimately, we’re not sure how the decision will affect J&J’s separate bankruptcy filing in federal court for a new subsidiary, LTL Management, where the company has muted its exposure to talc litigation. In bankruptcy proceedings, there is often a delay in the hearing of new cases. But Valdez’s claim was allowed to proceed because of his ill health. JNJ YTD Mountain Johnson & Johnson YTD Performance The verdict is “very significant,” according to Moshe Memon, partner at Levy Konigsberg LLP, which has won significant verdicts in talc suits against J&J on behalf of its clients. “Decisions like the Valadez case advance the cause of resolving telco liability far beyond bankruptcy filings,” Memon said. J&J has said more than 60,000 claimants support its latest settlement of $8.9 billion to be paid over 25 years. However, there are some 40,000 others who object. A 75% supermajority support of the claimants would set a clear path to victory in the LTL case. Johnson & Johnson released an official statement after the ruling in Valdez’s favor, saying it plans to appeal. “We thank the judges for their efforts but intend to pursue an appeal based on the trial judge’s erroneous rulings,” J&J said Wednesday. J&J has vehemently denied that its now-discontinued talc products ever contained asbestos or caused cancer. The next step in the year-long legal saga in the LTL bankruptcy proceedings is expected to come before U.S. Chief Bankruptcy Judge Michael Kaplan’s court in early August. If Kaplan rejects the bankruptcy proposal, J&J will go back into the tort system. In that case, the company “intends to aggressively fight the claims,” ​​according to Eric Haas, global vice president of litigation at J&J, who spoke during Thursday’s second-quarter earnings call. “We feel very confident in our ability to prevail in the majority of claims as we have done in the tort system in the past,” he added. J&J reported strong second-quarter profit and revenue on Thursday. While the stock reflected on positive financial results — and added to those gains on Friday — the talc issue is still an overhang. Even so, J&J received some price target increases on Wall Street on Friday. One was from Stifel, which raised its PT to $175 per share from $165 and maintained its hold rating. Another was Credit Suisse, which moved from $170 to $175 and maintained its neutral rating. SVB Leerink raised its PT to $190 from $186 and reiterated its Outperform Buy rating. Hours after Thursday’s Q2 release, we reaffirmed our 1 rating and $195 price target on the stock. Encouraged by the company’s strong operating results and management’s update on its Kenvue (KVUE) divestment, we remain cautious on the telco landscape. Haas added during the call that “we do not anticipate additional individual actions” outside of the bankruptcy of the Valadez case. However, Memon expects more litigation ahead: “There will be claimants and plaintiffs who want their day in court and who will take their cases to trial.” In that scenario, J&J would likely go down the path of resolving talc legal disputes, which has historically been the end of most such cases, he explained. J&J subsidiary LTL Management filed for Chapter 11 bankruptcy to protect itself from telco litigation, settling thousands of lawsuits filed against the company. The agency, which was created to stop talc liabilities, proposed an $8.9 billion settlement to be paid in installments over 25 years to claimants. Looking ahead, there is concern that Tuesday’s decision in California could force other plaintiffs to opt out of the settlement. We believe the company will only be under pressure and have a better way forward as to what investors should do next when there is more clarity on the proposed talc compensation plan. The Bottom Line Uncertainty surrounding the fate of the bankruptcy is preventing us from adding to our J&J position. However, Jim said this is a problem “for the stock, not for the company.” Outside of the telco saga, J&J’s business fundamentals are very strong. Jim likes fast-growing J&J for its AAA balance sheet and strong product pipeline, which he believes are long-term catalysts for the stock. The spin-off of J&J’s consumer health division into Kenvue, which went public in May, should create more value for shareholders over time. High-growth pharmaceutical and medical technology businesses remain as the new J&J. The Canview separation is expected to be completed before the end of the year. (Jim Cramer’s charitable trust is long JNJ. See here for a complete list of stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you’ll receive a trade alert before Jim makes a trade. 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In this photo illustration, a container of Johnson & Johnson baby powder is shown on April 05, 2023 in San Anselmo, California.
Justin Sullivan | Getty Images
A closely-watched talc trial in California argues against that. Johnson & Johnson ( JNJ ), adding to uncertainty about whether the tens of thousands of other plaintiffs suing the company will sign J&J’s proposed $8.9 billion settlement offer or try to bide their days in court.
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