Regulatory Risks in the Pharma Sector: Kenvue and J&J Under Texas Scrutiny

The pharmaceutical sector, long insulated from the volatility of consumer goods markets, now faces a new frontier of regulatory risk. At the center of this storm is Texas, where aggressive enforcement actions against unregistered foreign businesses have escalated, culminating in a high-profile lawsuit against Johnson & Johnson (J&J) and its spinoff, Kenvue. This case, which alleges deceptive marketing and liability-shifting practices, underscores a broader trend: Texas is tightening its grip on foreign entities operating within its borders, with significant implications for investors.

The Kenvue-J&J Case: A Microcosm of Texas's Enforcement Strategy

On October 28, 2025, Texas Attorney General Ken Paxton filed a lawsuit against J&J and Kenvue, accusing them of concealing risks associated with Tylenol use during pregnancy, including potential links to autism and ADHD. The suit also alleges that J&J spun off Kenvue in 2023 to shield itself from future litigation, a claim that highlights the state's scrutiny of corporate restructuring strategies. While the companies argue that the FDA has not established a causal link between acetaminophen and neurodevelopmental disorders, the lawsuit has taken a novel turn: Paxton sought to block Kenvue from paying a $398 million dividend to shareholders, arguing the funds might be needed to cover liabilities if Texas prevails. Though a judge rejected this request, the case took another twist when a separate ruling forced Kenvue to register in Texas or face a business ban, citing its failure to comply with foreign entity registration requirements.

This dual-pronged approach-targeting both corporate conduct and compliance with state registration laws-reveals Texas's strategic enforcement priorities. By leveraging its authority under the Texas Business Organizations Code (TBOC), the state has demonstrated a willingness to impose operational restrictions on even the most powerful multinational corporations.

The Broader Regulatory Landscape: Penalties for Noncompliance

Texas's foreign business registration requirements, codified under the TBOC, mandate that all foreign entities transacting business in the state must register with the Texas Secretary of State. Failure to do so results in severe consequences: unregistered entities lose the right to sue in Texas courts, face civil penalties equal to all fees and taxes owed, and risk injunctions halting operations. For most entities, the base registration fee is $750, with late fees accumulating at $750 per year of delinquency according to state law. These penalties are not theoretical; in October 2025, a Texas judge ruled that Kenvue must register or face a suspension of its business activities, a decision that could set a precedent for future enforcement actions.

The state has also introduced legislation to further tighten oversight. Senate Bill 17 (SB 17), enacted in September 2025, restricts real estate acquisitions by entities from designated countries (China, Russia, Iran, and North Korea), imposing civil penalties of at least $250,000 or 50% of the property's market value, whichever is greater. While this law primarily targets real estate transactions, it reflects a broader political climate in Texas that prioritizes economic sovereignty and national security concerns.

Investment Implications: Navigating a High-Risk Environment

For investors, the Kenvue-J&J case and Texas's regulatory framework highlight two critical risks:
1. Operational Vulnerability: Unregistered foreign businesses face immediate operational restrictions, including the inability to litigate in Texas courts. This creates a double bind: companies must either comply with registration requirements or risk losing their ability to defend themselves against state-initiated lawsuits.
2. Financial Exposure: Penalties for noncompliance are not limited to fines. The threat of asset freezes, as seen in Paxton's attempt to block Kenvue's dividend, adds a layer of financial uncertainty. For companies with significant Texas operations, the cost of noncompliance could outweigh the benefits of operating in the state.

Moreover, Texas's recent legislative moves, such as proposed bills to establish a state-level foreign investment review committee (HB 5007/SB 2117), suggest that regulatory scrutiny will only intensify. These measures, modeled after federal CFIUS protocols, could subject foreign-owned pharmaceutical firms to additional pre-market reviews, further complicating entry strategies.

Conclusion: A Cautionary Tale for Global Corporations

The Kenvue-J&J case is emblematic of a larger shift in Texas's regulatory posture. By combining aggressive enforcement of registration requirements with targeted legal actions, the state is sending a clear message: foreign entities must either comply with its rules or face operational and financial consequences. For investors, this underscores the importance of due diligence in assessing regulatory risks, particularly in sectors like pharmaceuticals, where corporate conduct and compliance are under heightened scrutiny. As Texas continues to assert its authority over foreign businesses, the lesson is clear: in the Lone Star State, the cost of noncompliance is no longer a hypothetical-it is a tangible threat.