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Here's Why Johnson & Johnson Dropped 4% Today

By Brian Orelli, PhD - Jul 12, 2019 at 5:28PM

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The healthcare giant is reportedly under investigation by the Department of Justice.

What happened

Shares of Johnson & Johnson ( JNJ 2.23% ) closed down 4.15% on Friday after Bloomberg reported that the U.S. Department of Justice (DOJ) is investigating the healthcare conglomerate as to whether the company lied about possible cancer risks from its talcum powder.

So what

Bloomberg cited unnamed sources, but it seems likely that the report of the investigation is real -- unlike press reports of potential mergers by unnamed sources, which only sometimes come to fruition.

The news adds to the seemingly never-ending saga of Johnson & Johnson's talcum powder products. Last year, plaintiffs won a $4.69 billion award over claims that the products caused ovarian cancer. And in December, Reuters reported that Johnson & Johnson knew for decades that its talcum powder products contained asbestos.

Johnson & Johnson noted in February that the DOJ and others had asked questions about the talcum powder products, but the disclosure was rather brief: "The Company has received preliminary inquiries and subpoenas to produce documents regarding these matters from Senator Murray, a member of the Senate Committee on Health, Education, Labor and Pensions, the Department of Justice and the Securities and Exchange Commission."

Bloomberg claims the DOJ's inquiry is a criminal investigation and that a grand jury is examining documents related to claims that company officials knew about carcinogens in the products.

Front of a courthouse building.

Image source: Getty Images.

Now what

Johnson & Johnson is scheduled to release second-quarter earnings on Tuesday, but it seems likely the company won't comment on the investigation other than to say it's cooperating with officials.

While a criminal investigation adds fuel to the fire, investors should be watching the more than 14,000 civil lawsuits, which are likely to be a bigger financial issue for Johnson & Johnson.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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