Why Johnson & Johnson shares surged after $572m opioid court reverse

It's a big number, but even the most optimistic of analysts had expected a lot worse

Johnson & Johnson shares jumped despite opioid court ruling against eh firm (AFP/Getty)

Johnson & Johnson’s shares ought to be drowning after the court ruling that’s just been handed down against it.

A judge in Oklahoma found the conglomerate, which makes everything from drugs to consumer products, ran a “false and dangerous” campaign that fuelled the state’s opioid addition crisis, imposing a penalty of $572m (£467m) with more potentially to follow to cover the costs of treatment, for example.

That’s a huge number. Worse still, for J&J, it could very easily be the first of many similarly huge numbers. The phrase “landmark ruling” has been bandied about because on the face of it the case looks like the sort of damn breaker that could lead to a deluge.

It is the first finding of liability against an industry participant. There are many more similar such cases waiting to be heard in courtrooms up and down the US.

So why, with the issue of opioids set to be one of the hot buttons of forthcoming Presidential campaign, did the company's shares jump on a jet ski and join the other opioid linked pharma companies in a pool party?

As ever, it’s all about expectations. The fact is that the markets had feared much, much worse.

It’s worth recalling that Oklahoma had asked for $17bn. While that might have proved a stretch, even the most optimistic of analysts thought the company would face a bare minimum hit of $1bn. Twice that might still have represented a tolerable result.

With all this going on, investors had taken a dim view of J&J shares, and no wonder. You’re hardly going to get into a taxi if you know there’s a car wreck just around the corner.

With the ruling ending up far less onerous than investors in J&J and other opioid related stocks had feared, they suddenly started to look like bargains. Billions of dollars duly poured in and the shares headed north.

This is a firm that has had its reputation trashed during the course of the case. The reports of its proceedings have looked awful. Imagine trying to defend what’s emerged about the company’s practices during the court cases at a time when the opioid crisis is barely out of the news. It’s barely off US TV full stop, having become the subject of endless scripts for endless TV cop dramas.

In the real world, the world that healthcare and law enforcement workers confront daily, the names of drug companies are probably spat out, particularly at the drug treatment centres across the US, which are dealing with the horrific consequences of the country’s poppy fetish.

But when it comes to the markets? The corporate losses are now more quantifiable, and crucially manageable, and there’s still the prospect of an appeal which J&J promises to pursue aggressively.

Oklahoma’s attorney general Mike Hunter described the ruling as: “A major victory for the state of Oklahoma, the nation and everyone who has lost a loved one because of an opioid overdose.”

In some respects it is. It does still matter.

But Wall Street’s response raises a question: Who should find the pill harder to swallow, J&J or the opioid industry’s opponents?