If I ran a hedge fund — now there’s a thought! — I would be loading up right now on shares of Johnson & Johnson. After rising nearly 25 percent from the end of May until Dec. 13, the stock suddenly plummeted, giving back almost all of the gains in five trading days. As 2018 comes to a close, it’s down 9 percent for the year.
The stock’s abrupt drop was due to a Reuters story, published on Dec. 14, that alleged that the company was aware that its best-known product, its talcum powder, contained “small amounts of asbestos," and had kept that knowledge a secret. For years, Johnson & Johnson has fought lawsuits claiming that its talcum powder caused ovarian cancer. But before the asbestos revelation, the company had handled them in stride, in large part because the scientific evidence was weak. Crucially, large-scale epidemiological studies failed to show that women who used talcum powder had a higher incidence of ovarian cancer than women who didn’t. Of the 40 or so cases that have been decided so far, Johnson & Johnson says it had emerged victorious in 35 of them, either because the cases were thrown out, the company won at trial, or a trial loss was overturned on appeal. (It has also settled one case.)
But earlier this year, Mark Lanier, a flamboyant Houston plaintiffs’ lawyer, using J&J documents unearthed in discovery, tried a case in which he argued that the real cause of his clients’ cancer wasn’t the talc but the asbestos hidden in the talc. He also argued that the company should be punished for its decades-long failure to reveal its presence. After a six-week trial, and a mere eight hours of deliberation, a jury in St. Louis awarded his 22 clients $4.7 billion. Of that amount $4.1 billion was punitive damages.
As the mass tort defense lawyer Nathan Schachtman told the New York Times, asbestos “puts the defense in a much more difficult position; you get a much higher degree of indignation from juries." After the Reuters story ran, my Bloomberg Opinion colleague Max Nisen noted, “If a $4.7 billion jury award becomes standard, J&J’s liability could theoretically climb above $100 billion."
But as Nisen also pointed out, that worst-case scenario is unlikely. For one thing, such eye-popping damages are rarely upheld by appeals courts and Missouri has a law that caps punitive damages. Still, analysts at Bloomberg Intelligence have estimated that J&J may eventually have to pay out as much as $20 billion to get rid of what has become a significant mass tort for the company, with over 12,000 talc cases on various dockets.
With all due respect, I seriously doubt J&J will wind up paying anywhere near that much to the talc litigants. Why? Because whether or not the company’s talcum powder contains asbestos, and whether or not it hid that fact from the public, the science remains firmly on J&J’s side. And this is one mass tort where I’m convinced the science is going to win.
This is not to say that asbestos isn’t a carcinogen. It most certainly is. That’s why it was banned as a material in insulation and fireproofing products. The most common cancer it causes is mesothelioma, a horrible disease that essentially suffocates its victims. Studies have also shown a “causal association between occupational exposure to asbestos and ovarian cancer."
It also seems likely that at least some talc has been sold to the public, whether by Johnson & Johnson or another company, with trace amounts of asbestos. That’s because talc and asbestos, both minerals, can often be found in the same mine. Finally, the J&J documents that have been made public unquestionably show that the prospect of asbestos contamination in its talcum powder was, as the New York Times put it, “a concern inside the company for decades."
So far, this combination of facts sounds like a slam dunk for the plaintiffs, doesn’t it? But they can’t obviate another compelling fact, the one I mentioned earlier: There is no evidence that women who use talcum powder are any more likely to get ovarian cancer than women who don’t.
In both California and New Jersey, judges have tossed out cases on exactly this basis. In a 2016 New Jersey decision, Judge Nelson Johnson was withering in his appraisal of the scientific evidence presented by the plaintiffs. Their lawyers, he wrote, had failed to “address meaningfully" such factors as “laboratory studies on talc, cancer biology and animal studies."
As for the epidemiology, Johnson & Johnson introduced three “cohort studies" — which searched for an increased risk of ovarian cancer among talc users — totaling 191,090 women. Those studies found no link. The plaintiffs’ “case-control studies" — which looked backwards at women who already had ovarian cancer, seeking a possible cause — had a total of 18,384 participants. Judge Johnson labeled the plaintiffs’ studies “narrow and shallow" in his decision.
The point is, even if J&J’s talcum powder did contain trace amounts of asbestos, something the company denies, the science strongly suggests it does not cause widespread incidents of ovarian cancer. Juries can often be swayed by damning-sounding corporate documents. But judges, particularly appeals court judges, tend to be more impressed by what the science says.
In June, there will be what’s called a “Daubert hearing" in a federal court in New Jersey to evaluate the expert witnesses for each side, and the science they are relying on. If Johnson & Johnson’s scientific evidence prevails, it will probably put an end to the plaintiffs’ bar’s dreams of a $20 billion payday.
A few days after Reuters published its article, Lanier called into CNBC’s Squawk Box program for an interview. In it, he implicitly laid out the tactics he plans to use to force Johnson & Johnson to settle with him. He was going to build every case around the presence of asbestos in talcum powder. He wanted the stock to keep tanking because it put pressure on the company. If Johnson & Johnson didn’t negotiate a settlement, he threatened, “the company is going to continue to have problems that will cost it two, three, four, five times what it should." If it did come to the table, the money it paid out would be manageable, he promised.
None of his tactics, you’ll note, have anything to do with the science. Because the science isn’t on his side.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners. Joe Nocera is a Bloomberg Opinion columnist covering business.