Judge to weigh if Texas AG can block Kenvue dividend over Tylenol

By Jonathan Stempel

(Reuters) -A Texas judge on Friday will consider state Attorney General Ken Paxton’s bid to block Kenvue from paying a $398 million dividend to shareholders and from marketing Tylenol as safe for pregnant women.

Paxton, a Republican, sued ​Kenvue on October 28, accusing it of concealing the risks to children when pregnant women use Tylenol.

Kenvue has repeatedly said Tylenol ‌is safe. The dividend payout is scheduled for November 26.

Judge LeAnn Rafferty in the Panola County courthouse in Carthage, Texas, near the Louisiana border, is expected to hold a hearing ‌at 9 a.m. CST (1500 GMT).

The lawsuit was filed five weeks after Republican President Donald Trump and U.S. Health and Human Services Secretary Robert F. Kennedy Jr. repeated the scientifically unproven claim that using Tylenol during pregnancy can cause autism.

Paxton has aligned himself with Trump’s agenda, and is challenging incumbent John Cornyn in next year’s Republican primary for a U.S. Senate seat.

The attorney general is also suing Johnson & Johnson, ⁠which made Tylenol for six decades, accusing it ‌of spinning off Kenvue in 2023 to shield itself from liability.

Johnson & Johnson has also defended Tylenol’s safety, and doctors and medical societies view acetaminophen products such as Tylenol as the best option for treating fever and pain during ‍pregnancy.

Concerns about Tylenol have been an overhang for Kimberly-Clark’s planned $40 billion takeover of Kenvue, which was announced six days after Paxton sued.

That merger would let the maker of Kleenex and Huggies diapers expand into higher-margin categories such as skin care and pain relief, by acquiring Kenvue brands including Band-Aid, Johnson’s Baby ​shampoo, Listerine and Neutrogena.

‘TSUNAMI OF ILLEGALITY’ IF PAXTON WINS

In court papers, Paxton said Kenvue must conserve cash because it risked insolvency if ‌forced to pay billions of dollars in Tylenol cases and international lawsuits claiming that baby powder containing talc causes cancer.

Paxton said the public interest supports an injunction because of “the wealth of evidence demonstrating that prenatal Tylenol exposure causes autism and ADHD.”

He also said the U.S. Constitution supports restricting Kenvue from touting Tylenol’s safety, because the First Amendment lets states regulate “misleading” commercial speech.

In September, the U.S. Food and Drug Administration told doctors to alert patients to what it said was growing evidence linking Tylenol to autism. Medical societies dispute a Tylenol link to autism.

The agency is ⁠considering new labels for Tylenol and generic versions.

Kenvue and J&J contended in court ​filings that giving Paxton what he wants “would constitute a tsunami of illegality that would tarnish the ​credibility of Texas courts.”

They said Rafferty has no jurisdiction over the spinoff because it occurred outside Texas and involved two New Jersey companies, and cited a May decision from the Texas Supreme Court that said state laws generally don’t apply elsewhere.

The ‍companies also said paying a dividend would ⁠not irreparably harm Texas because Kenvue is not insolvent.

Paxton, they added, cited no court that ever blocked manufacturers from talking about and selling products the FDA deemed safe, or blocked public companies from paying regular dividends.

“The state’s motion is a thinly veiled attempt to prop ⁠up a politician’s unfounded claims that lie well outside the mainstream of scientific thought, resurrect the Tylenol product liability litigation, generate headlines and ultimately enrich private plaintiffs’ lawyers,‌” the companies said.

Kenvue and J&J were likely referring to Keller Postman, a law firm helping Paxton in the ‌Tylenol case.

(Reporting by Jonathan Stempel;Editing by Noeleen Walder and Bill Berkrot)