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Overview

Tobacco and asbestos companies have been under massive pressure for more than 25 years as a result of a multitude of class action lawsuits. Unfortunately, once in the class action attorneys’ grasp, escape is extremely difficult. A major issue for sophisticated institutional investors and risk managers is the early identification of such candidates prior to broad recognition by the markets. Although there is rarely complete certainty, in this installment, we will identify a possible candidate. (Note the opinions expressed in this report are those of the writers, which are NOT part of the Ratings analytical area of the firm.) 

Background

The COVID-19 crisis was a major event over the past 10 years, necessitating significant efforts on the part of many segments of our national government. At the forefront were the efforts of the healthcare community in developing effective responses to the disease. Two vaccines emerged that limited the impact of the disease. Biotech companies Pfizer (rated strong investment grade) and Moderna won the race to develop vaccines for COVID by sidestepping some of the typical FDA approvals.

The Positives

On the positive side, with the support of the FDA and other government agencies, the vaccines were made readily available. As a result, many benefited from less acute symptoms stemming from COVID infections.

The Concerns

The major concern is that the vaccines were approved on an expedited basis and not put through the normal tests prior to their release, and some of the risks might not have been identified or properly disclosed.

The Symptoms

Both Pfizer’s and Moderna’s shares collapsed over the past three years, as shown below:

The Suits

Numerous suits have been filed against Pfizer and Moderna, primarily based on supposed inaccurate information on the effectiveness and risks of the vaccines:

Our Concerns

Our concern is that once class action suits start gaining momentum, containing the damage becomes extremely difficult. The latest iteration of this is the Johnson & Johnson talc powder situation, whereby J&J has had difficulty settling the suits:

“Johnson & Johnson is facing thousands of lawsuits alleging its talcum powders contained asbestos. These lawsuits say the asbestos in the company’s baby powders caused people to develop cancer, including ovarian cancer and mesothelioma.”

The Catalysts

What has changed over the past six months is that the current administration is set on making a break with the past and is willing to highlight the foibles of the prior administration. Perhaps this is best exemplified by the claim that Pfizer supposedly suppressed information about a vaccine breakthrough until after the 2020 election.

Conclusion

Entering the “killing fields” of class action lawsuits typically does not end well. Perhaps this is an area that requires some attention.