Credit rating agency Moody's revised Johnson & Johnson's ratings outlook to negative based on potential litigation-related cash outflows that can reduce the strength of the company's capital structure.
The rating agency revised the company's outlook after it was ordered to pay $572 million in an opioid lawsuit filed by the state of Oklahoma. The state's attorney general accused the pharmaceutical juggernaut of contributing to the U.S. opioid epidemic by aggressively marketing its opioid painkillers.
The New Brunswick, N.J.-based pharmaceutical giant is appealing the decision, and the ultimate payment, if any, may be less than the one ordered.
Johnson & Johnson has a senior unsecured rating of Aaa and commercial paper rating of Prime-1. Moody's Senior Vice President Michael Levesque said the company's "Aaa rating continues to reflect an excellent business profile and outstanding financial flexibility including annual free cash flow after dividends in excess of $9 billion and cash on hand above $15 billion."
The rating agency expects that talc and opioid litigation risks, along with increasing regulatory efforts targeting drug pricing, will put pressure on Johnson & Johnson's current credit rating.
Analysts at Moody's expect that growth of the company's pharmaceutical business will slow because of competitive pressure, and litigation risks will constrain cash flow over a number of years.
Moody's said Johnson & Johnson will continue to have robust credit metrics due to its conservative financial policies and expects the company's adjusted debt/EBITDA ratio to remain at about 1.5x or lower.
