Johnson & Johnson proposes $6.5 billion deal to settle talc cancer lawsuits

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Johnson & Johnson has offered an enhanced $6.5 billion settlement to tens of thousands of plaintiffs who claimed its talcum powder products caused ovarian cancer, in its latest attempt to put an end to a long-running lawsuit.

In an update on Wednesday, the world's largest drugmaker by revenue said it would put the plan, which would pay out about $6.48 billion over the next 25 years, to a vote by more than 50,000 ovarian cancer claimants later this year. The deal will allow Johnson & Johnson to resolve all current and future claims related to ovarian cancer by declaring a subsidiary bankrupt, if 75 percent of plaintiffs vote in favor.

The latest proposal would bring total awards in all cases to $11 billion, an increase of $2.1 billion from the previous offer, and represents the third attempt by Johnson & Johnson to resolve ovarian cancer claims through bankruptcy proceedings.

Courts rejected the drugmaker's previous Chapter 11 bankruptcy filings. In both cases, Johnson & Johnson attempted to use a controversial maneuver known as the “Texas move,” in which a subsidiary facing legal claims is separated from the parent company and files for bankruptcy to facilitate settlement.

On this occasion, Johnson & Johnson first seeks the approval of claimants before going to court, using a “pre-packaged” bankruptcy process, which allows for a faster resolution if companies receive sufficient support from creditors. Johnson & Johnson will give claimants the opportunity to vote on the plan over a three-month period before putting its LLT Management subsidiary through a pre-arranged process.

Johnson & Johnson, which has repeatedly denied that its talc-based products cause cancer, said the new plan is “significantly different” from its previous attempts. This was “the culmination of the consensual resolution strategy 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 conflicting financial incentives of the small minority of plaintiffs’ attorneys who would receive excessive legal fees outside of the reorganization — that decides whether the plan can move forward,” Haas said. .

A judge dismissed Johnson & Johnson's second bankruptcy attempt in July last year, after concluding that the subsidiary was not in sufficient “financial distress” to merit Chapter 11 proceedings. The first bankruptcy case was dismissed for a similar reason.

Johnson & Johnson announced plans for a third attempt at the bankruptcy process last October. Johnson & Johnson said on Wednesday that it would pursue alternative methods to resolve the lawsuit while waiting for the claimants' approval. These actions included appealing the denial of a previous bankruptcy plan, “aggressively filing lawsuits” against 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 lawsuits Johnson & Johnson faces are related to ovarian cancer. However, it also faces a small number of personal injury lawsuits over allegations that its products caused mesothelioma, a different form of cancer linked to asbestos exposure, which the company also denies.

Johnson & Johnson said it has already settled 95 percent of those cases, and has agreements in principle to resolve claims brought by US states and talc suppliers.

Shagun Singh, an analyst at RBC Capital Markets, said in a note that she was “encouraged” by Johnson & Johnson's proposed plan that “removes one aspect of the stock's backlog.” Singh added that after talks with industry experts, “we believe the plan should happen and be a catalyst for JNJ stock.”

In December last year, Johnson & Johnson moved the registered headquarters of the subsidiary from an address in North Carolina to an address in Texas, and changed the name of the subsidiary from LTL to LLT as part of the process.

Johnson & Johnson's stock price rose 3.6 percent in morning trading on Wednesday in New York.