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Johnson & Johnson has awarded an enhanced $6.5bn settlement to tens of thousands of plaintiffs who claimed its talcum powder products caused ovarian cancer.
In an update Wednesday, the world's largest drugmaker by revenue said it would put a plan to pay about $6.48 billion over the next 25 years to a vote of more than 50,000 ovarian cancer claimants later this year. If 75 percent of plaintiffs vote in favor, the deal would allow J&J to settle all current and future claims related to ovarian cancer through the subsidiary's bankruptcy filing.
The latest proposal would bring the total cash in all events to $11bn, $2.1bn more than the previous offer, and marks J&J's third attempt to resolve ovarian cancer claims through bankruptcy proceedings.
The drugmaker's previous Chapter 11 bankruptcy cases have been dismissed by courts. In both cases J&J attempted to use a controversial maneuver known as the “Texas two-step,” in which a subsidiary facing legal claims exits the parent company and files for bankruptcy to facilitate a settlement.
In this case, J&J uses a “pre-packaged” bankruptcy process to seek approval from claimants before going to court, which allows for a faster resolution if companies have enough support from creditors. J&J will give claimants a chance to vote on the proposal within a three-month period before putting its subsidiary LLT management through a pre-packaged process.
J&J, which has repeatedly denied that its talc-based products cause cancer, said the new plan “differs significantly” from its previous efforts. “This is the culmination of our consensus settlement strategy that we announced last October,” said Eric Haas, the firm's vice president of global litigation.
“Unlike previous cases, it is the claimants' vote — not the disproportionate financial incentives of minority plaintiffs' attorneys who receive exorbitant legal fees outside of restructuring — that determines whether the plan can proceed,” Haas said. .
A judge rejected J&J's second bankruptcy attempt in July of last year, ruling that the subsidiary was not sufficiently “financially distressed” to qualify for Chapter 11 proceedings. The first bankruptcy case was dismissed for the same reason.
J&J announced plans for a third attempt at bankruptcy proceedings last October. On Wednesday, J&J said it was pursuing alternatives to settle the case pending the claimants' approval. That includes appealing the rejection of its previous bankruptcy plan, “aggressively prosecuting” plaintiffs who refused to settle, and taking legal action against people who made false and defamatory claims about its products and the law firms that helped them.
More than 99 percent of the cases J&J faces are related to ovarian cancer. However, it faces a small number of personal injury lawsuits claiming its products caused mesothelioma, a different form of cancer linked to asbestos exposure, which the company also denies.
J&J said it has already settled 95 percent of those cases and has agreements in principle to settle claims brought by US states and talc suppliers.
Shagun Singh, an analyst at RBC Capital Markets, said in a note that he was “encouraged” by J&J's proposed plan, which “removes one aspect of the overhang in the stock”. “We are confident that the plan will be executed and will be a catalyst for JNJ shares,” Singh added, following discussions with industry experts.
In December last year, J&J moved the subsidiary's registered headquarters from an address in North Carolina to an address in Texas, changing the subsidiary's name from LTL to LLT as part of the process.
J&J shares rose 3.6 percent in morning trading in New York on Wednesday.
