The plunge in Johnson & Johnson's stock price following a report suggesting the company knew about asbestos in its baby powder is overdone and "excessive," Wells Fargo told clients Friday.
Wells Fargo, which said it still believes J&J's stock will outperform despite the allegation, said the selling based purely on the outcomes of any talc litigation is likely overstated.
"Based on prior high-profile product liability cases in drug and device sectors, we believe any potential settlement should be manageable for JNJ," analyst Larry Biegelsen wrote Friday. "Even if all 11,700 talc cases settled for $280,000 per case (the highest per case settlement amount among the cases we've tracked), the total liability to JNJ would be $3.3 billion. With over $19 billion of cash and marketable securities at the end of the third quarter, we continue to see the talc litigation as manageable for the company."
J&J shares sank as much as 11.9 percent on Friday after Reuters reported that the company knew for decades that its iconic talcum power contained asbestos. Reuters said its review showed that from 1971 to the early 2000s, J&J executives, mine managers, doctors and lawyers were aware the company's raw talc and finished powders sometimes tested positive for small amounts of asbestos. Though the problem was discussed, it was never disclosed to regulators or the public, Reuters reported.
Johnson & Johnson offered the following statement in response to the Reuters report:
"The Reuters article is one-sided, false and inflammatory. Simply put, the Reuters story is an absurd conspiracy theory, in that it apparently has spanned over 40 years, orchestrated among generations of global regulators, the world's foremost scientists and universities, leading independent labs, and J&J employees themselves," the company said in a statement. "Johnson & Johnson's baby powder is safe and asbestos-free."
The Reuters report represents the latest in a string of talc-related headaches for the company, which prides itself on the safety and family-friendly reputation of its products.
A jury in St. Louis concluded in July that the consumer drugmaker should pay $4.69 billion in damages to 22 women and their families who brought a tort suit. Johnson & Johnson said it was "deeply disappointed" with the jury's decision.
Citigroup analyst Amit Hazah noted that every court case decision that has been appealed has been overturned in Johnson & Johnson's favor.
"While we want to steer clear of giving a strong prediction on the outcome of the ongoing talc litigation given its breadth and complexity, we do want to note that response from management," Hazah wrote. We'd "highlight the robust cash generation capabilities of the company ... the product category itself" makes up less than 0.02 percent of total J&J sales.