The courtroom battle over J&J and Kenvue IPO Fraud Claims intensified this week after a federal judge refused to reconsider a prior decision allowing investors’ allegations to proceed. U.S. District Judge Zahid N. Quraishi ruled that Johnson & Johnson and its spinoff Kenvue Inc. failed to demonstrate any “clear error of law or fact” warranting dismissal of the securities fraud case tied to Kenvue’s 2023 initial public offering.

The pharmaceutical giant and its consumer health spinoff had urged the court to rethink its March ruling, arguing that the judge misapplied precedent, disregarded FDA labeling rules, and contradicted decisions in related multidistrict litigation and a 2015 Supreme Court case. But Judge Quraishi was unmoved, declaring that the companies’ arguments amounted to nothing more than disagreement with his prior findings.

Judge: “Disagreement Is Not a Basis for Reconsideration”

In his Tuesday opinion, Judge Quraishi said the court had correctly applied the Third Circuit’s materiality test to determine whether Johnson & Johnson and Kenvue’s alleged omissions were significant to investors. The companies’ failure to disclose key studies on phenylephrine — a common nasal decongestant — could have influenced reasonable investors’ decisions, the judge reaffirmed.

“The court found defendants’ statements were actionable because, in this case, they failed to disclose studies that concluded phenylephrine was not safe or effective,” Quraishi wrote. “Defendants were not required to reveal every study, but they were required to disclose at least some evidence that phenylephrine was not generally safe and effective.”

The judge added that the companies’ argument about conflicts with FDA regulations “missed the mark,” explaining that labeling phenylephrine as “effective” under FDA rules did not shield them from liability for allegedly concealing contradictory research.

Background: Kenvue’s $4.2 Billion IPO and the FDA’s Phenylephrine Ruling

At the heart of the case is Kenvue’s 2023 IPO, through which it raised $4.2 billion in an exchange offer allowing Johnson & Johnson shareholders to swap their stock for Kenvue shares at a discount. But investors later alleged they were misled — claiming the offering documents omitted material facts about an ongoing FDA regulatory review that could determine phenylephrine’s effectiveness.

That meeting before the Nonprescription Drug Advisory Committee (NDAC), held just months after the IPO, resulted in an FDA vote declaring phenylephrine ineffective when taken orally, contradicting years of corporate claims.

According to the class action, Johnson & Johnson and Kenvue failed to warn investors about the risk of this outcome and misled them by promoting the drug as safe and effective while knowing that internal and independent studies suggested otherwise.

J&J and Kenvue’s Push for Appeal Denied

In addition to seeking reconsideration, the companies had asked the court to certify three issues for interlocutory appeal, including whether companies must disclose every contrary scientific study when offering opinions on a product’s safety or efficacy.

Judge Quraishi rejected that too, calling the request a “mischaracterization of the court’s prior ruling.” He clarified that the decision did not require disclosure of all studies but found that omitting specific, significant evidence of phenylephrine’s ineffectiveness was materially misleading.

“Their disagreement with the court’s application of the materiality standard does not meet the threshold for appeal,” the judge wrote, firmly shutting the door on the companies’ procedural escape route.

Corporate and Legal Ripples

The fraud case lands amid a major corporate reshuffle: Kimberly-Clark Corp., maker of Huggies, announced this week its plan to acquire Kenvue — which was spun off from J&J in August 2023 — in a deal valued at $48.7 billion.

The investors behind the proposed class action are represented by Robert Prongay and Leanne Solish of Glancy Prongay & Murray LLP, and James Cecchi, Donald Ecklund, and Kevin Cooper of Carella Byrne Cecchi Brody & Agnello PC.

J&J and Kenvue are defended by Kristen Seeger, John Skakun, Christopher Lee, and Takayuki Ono of Sidley Austin LLP, and David Kott and Joseph Braunreuther of McCarter & English LLP.

Underwriters named in the suit include Paul Hastings LLP, represented by Isaac Ashkenazi, Barry Sher, Jennifer Conn, and Zachary Zwillinger.