Why did Johnson & Johnson lose $45 billion in one day?

Johnson & Johnson, the pharmaceutical giant that produces medical devices and consumer products such as the famous Johnson’s baby powder, has been fighting litigation related to the safety of its talc-based products. A Reuters investigative report published last week has rattled investors and raised questions about the company’s transparency.

What’s in the report?

The Reuters report says that as far back as four decades, the company knew and concealed the fact that its products sometimes contain traces of asbestos.

The mineral substance is classified as a carcinogenic that has been linked to ovarian cancer and other illnesses by the US Department of Health and Human Services, the US Environmental Protection Agency (EPA) and the International Agency for Research on Cancer, according to the National Cancer Institute. The EPA banned all new uses of asbestos in 1989. It is only allowed to be used in the US as long as it does not exceed 1 per cent of the product.

J&J may face lawsuits reaching $20 billion as a result of the findings, according to Bloomberg Intelligence analysts. Prior to the Reuters report, J&J was ordered in July to pay $4.69bn to women who claimed the company’s products containing asbestos led to them developing ovarian cancer. The pharma company is also facing hundreds of millions of dollars in litigation related to artificial hips it sold that hurts patients.

How did the report affect J&J?

Shares of J&J plunged as much as 12 per cent on Friday before closing down 10 per cent, wiping out more than $45bn of the company’s market capitalisation.

How did J&J react to the report?

In a rebuttal statement, the company said the Reuters article is “one-sided, false and inflammatory”, adding that Johnson’s baby powder is “safe and asbestos-free”. The company claimed studies show talc does not cause cancer or asbestos-related disease.

J&J said Reuters ignores tests by the company, regulators, independent labs and academic institutions that have shown its talc does not contain asbestos. The company also said the Reuters article overlooks the fact that J&J has cooperated with the US Food and Drug Administration and other global regulators.