Johnson's baby powder causes cancer

Baby powder affair stirs dust at Johnson & Johnson

The American health company is vehemently defending itself against allegations that its baby powder contains carcinogenic asbestos. This offensive strategy could pay off. But only if there is really no doubt in the group about the harmlessness of baby powder.

The baby powder affair of the health company Johnson & Johnson, which has been smoldering for around five years, has reached a new dimension. After the Reuters news agency and the New York Times claimed at the end of last week that the company had known, contrary to its claims, that baby powder containing talc was contaminated with asbestos, the share price fell by 10% on Friday and then by 3% on Monday . The market value has thus lost around $ 45 billion in two days and is now at $ 350 billion. It is the sharpest drop in stocks (measured as a percentage) since the share price fell in 2002.

Massive counter-campaign

The group reacted to the allegations raised in the media reports with a massive counter-campaign. He has commented on the allegations in several communications and rejected them as a conspiracy theory; In addition, the group has been providing information on its baby powder and its raw material talcum on a special website for years and has responded to the allegations there.

Price slide after baby powder affair

Cumulative percentage changes
Johnson & Johnson shares

In the last few days, full-page advertisements were placed in major national daily newspapers. The CEO and CFO have also turned to the media and especially the business press and made their point of view clear in interviews. The baby powder, which the company has sold for decades, was never contaminated with carcinogenic asbestos and therefore could not cause cancer.

The J&J management also made targeted contact with major shareholders in the group. On Monday, J&J also tried to reassure investors by saying that they would stick to the sales and profit forecast for the group for the year as a whole. In addition, J&J offered investors the prospect of buying back shares worth $ 5 billion, a measure that should support the share price, which is under pressure. J & J's offensive strategy in terms of baby powder showed initial success on Tuesday: The group's share price stabilized.

J&J has already proven in recent years that it is not ready to give in even a step in the baby powder affair. More than 11,000 individuals are now suing the Group in hundreds of lawsuits; Most claim that the baby powder was the cause of the cancer that broke out in them. Many of the plaintiffs are women who have used the powder for vaginal hygiene. So far, J&J has not settled the lawsuit through an agreement in any of the cases, but has usually let it come down to a court hearing in an unusually offensive strategy.

Mixed results

The legal record is mixed. In some cases, judges dismissed the case for various reasons. In other cases the plaintiffs lost. Every now and then, however, J&J also suffered defeats: In July, for example, a jury in St. Louis, Missouri, found it proven that the baby powder was the cause of the plaintiffs' cancer and set the damages to be paid by J&J at 550 million . $ and a corresponding fine, also payable to plaintiffs, of $ 4.14 billion. J&J has already appealed, and it can be assumed that in this case too, as in many cases before, the fine will be massively reduced.

The investigative media reports of the last few days could give the wave of lawsuits a new boost. The reports are essentially based on internal company documents. Any injured party could now assume that the likelihood of an advantageous outcome to a lawsuit is much higher than before. In any case, the price slump of the last few days can be interpreted as meaning that the lost market value corresponds to the amount of penalties and compensation payments that has now become probable, as well as lost sales.

The Tylenol case

Against this background, the question arises why J&J does not simply take a low double-digit billion amount in hand, settle the lawsuits once and for all with a cash payment and remove the baby powder from the range. There would be enough money. And baby powder has only contributed a small percentage to Group sales in recent years. Wouldn't an end with horror be better than horror without end?

After all, J&J has already demonstrated, like a textbook, how a health care company averted a potentially image-damaging disaster: After an unknown person added cyanide to the pain reliever Tylenol from J&J and put it back on the shelves in the early 1980s, seven died after taking the manipulated pills in the United States People. J&J immediately had all Tylenol containers removed from all stores in the United States and developed a more difficult-to-manipulate pill container. J&J took these costly measures, although the company was clearly in no way responsible for the deaths.

An admission of guilt

But this is exactly where the difference to the baby powder case lies. If J&J were to take the powder off the market and consent to the settlement of lawsuits and any compensation payments, it would amount to an admission of guilt. And that would be a serious damage to the image of a health company whose name is emblazoned on a wide range of products. In this respect, J&J is currently choosing the right strategy - but only under the premise that the baby powder is actually not carcinogenic.