Legal issues are a constant of corporate life, especially in health care. That is especially true for Johnson & Johnson, one of the largest and most sprawling health-care companies, with products ranging from baby shampoo to cancer drugs and surgical staples. 

J&J faces major liability risk from lawsuits over a possible link between asbestos in its talc products and cancer. A Reuters investigation released Friday alleged the company was both aware of and worried about the presence of small amounts of asbestos in its baby powder for decades, but didn’t disclose it. The resulting 9 percent plunge in J&J’s stock was the firm’s largest since 2002, and it erased more than US$30 billion from the company’s market value.  (J&J subsequently released a statement calling the report “one-sided, false and inflammatory.”)

It’s not clear why this report drove a sell-off when a July verdict that could result in a US$4.7 billion payment to talc plaintiffs didn’t. But it is a reminder of J&J’s enormous downside, even if the worst outcomes remain unlikely for the company. 

J&J has been fighting talc lawsuits for years and this Reuters report isn’t the first evidence to suggest that the company knew about about the possible presence of asbestos in its products.Embedded Image

But it does paint a fuller picture – with now public supporting documents – of the extent of the firm’s knowledge of and concern about the issue. It’s not a pretty one. The risk to J&J is reputational as well as financial, and comes as the company works to maintain growth at its consumer unit after taking a hit from quality-control issues. Any new information will likely be used in lawsuits and may spark even more litigation on top of the thousands of actions already in progress. 

If a US$4.7 billion jury award becomes standard, J&J’s liability could theoretically climb above US$100 billion. But the company is appealing that verdict and has won reversals on multiple others.

J&J’s historic success in defending itself against talc lawsuits, and the uncertainty of the tie between talc use and cancer suggest that its ultimate damages will be far less than the worst-case scenario. Bloomberg Intelligence puts the more likely total bill at $10 billion to $20 billion. Spread out over multiple years, that’s a drop in the bucket for a company that pumps out the top end of that range in revenue on a quarterly basis.

But juries and the stock market are unreliable, and it’s now apparent that this issue is one of the few things that can disrupt an otherwise very steady health-care giant.