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Johnson & Johnson tumbles on rating downgrade, after opioid ruling

Johnson & Johnson (NYSE: JNJ) continued the slide Wednesday after suffering a big loss in the previous trading session as investor mood remained downbeat in the wake of the court slapping a massive fine on the company in an opioid-related case.

Adding to the drugmaker’s woes, Moody’s on Wednesday lowered its outlook to negative from stable, while maintaining the Aaa rating. The rating agency believes that the ongoing opioid litigation might cause further damage to the company.

 US painkiller market is estimated to grow to $5.9 billion

According to Moody’s, in addition to the current lawsuit, Johnson & Johnson also faces social risks from cases related to its talc products, which will have an increasing impact on the company’s credit profile over the next one-and-half years. “The negative outlook reflects the potential for material litigation-related cash outflows that constrain J&J’s otherwise strong free cash flow or reduce the strength of its capital structure,” said a statement from the agency.

Also read: Teva’s Q2 results beat market expectations

Earlier this week, an Oklahoma court imposed a $572-million fine after finding Johnson & Johnson and its subsidiaries guilty of contributing to the health crisis facing the state due to the misuse of opioid medications. Soon after the landmark ruling, the company’s stock entered into a downward spiral and has lost about 4% since then.

A statement from the company said it is planning to appeal the order to the Oklahoma Supreme Court. The state is currently dealing with several hundreds of lawsuits filed by social groups and institutions, accusing the leading pharmaceutical companies of pushing opioid drugs into the market, breaching the safety norms.

Also see: Johnson & Johnson Q2 2019 Earnings Call Transcript

Purdue Pharma, the worst affected drugmaker, was earlier asked to pay $270 million in fine, while Teva Pharmaceuticals (TEVA) was awarded an $85-million fine. It is alleged that more than 4,000 persons died in the Oklahoma state in the last decade due to opioid-related health issues.

Other than the relatively large penalty, what makes the case of Johnson & Johnson critical is the Judge calling it “a kingpin company” that acted irresponsibly, motivated by greed.

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