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Johnson & Johnson has offered an improved $6.5bn settlement to tens of thousands of plaintiffs claiming that its talcum powder products caused ovarian cancer, in its latest attempt to draw a line under the long-running litigation.
In an update on Wednesday the world’s largest drugmaker by revenues said it would put the plan, which would pay out about $6.48bn over the next 25 years, to a vote by the more than 50,000 ovarian cancer claimants later this year. The deal would allow J&J to resolve all current and future claims relating to ovarian cancer through the bankruptcy filing of a subsidiary company, if 75 per cent of plaintiffs vote in favour.
The latest proposal would bring the total payout across all cases to $11bn, an increase of $2.1bn on a previous offer, and marks the third attempt by J&J to resolve the ovarian cancer claims through bankruptcy proceedings.
The drugmaker’s two previous Chapter 11 bankruptcy filings were rejected by the courts. In both cases J&J attempted to use a controversial manoeuvre known as the “Texas two-step”, in which a subsidiary facing legal claims is spun out from the main company, and files for bankruptcy to facilitate the settlement.
On this occasion, J&J is seeking first to win approval from claimants before going to court, using a “pre-packaged” bankruptcy process, which allows for a speedier resolution if companies have won sufficient support from creditors. J&J will give claimants the opportunity to vote on the plan over a three-month period before putting its subsidiary LLT Management through the 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 attempts. Erik Haas, the company’s worldwide vice-president of litigation, said it was “the culmination of our consensual resolution strategy that we announced last October”.
“Unlike the prior cases, it is the vote of the claimants — and not the conflicting financial incentives of the small minority of plaintiff lawyers who stand to receive excessive legal fees outside of a reorganisation — that decides whether the plan may proceed,” Haas said.
A judge rejected J&J’s second bankruptcy attempt in July last year, after concluding that the subsidiary was not in sufficient “financial distress” to merit a Chapter 11 process. The first bankruptcy case was dismissed for a similar reason.
J&J announced plans for a third attempt at a bankruptcy process last October. On Wednesday J&J said it would pursue alternative ways to resolve the litigation while awaiting approval from claimants. Those included appealing against the dismissal of its previous bankruptcy plan, “aggressively litigating” against plaintiffs who refused to settle, and taking legal action against people who presented false and defamatory claims about its products and law firms that assisted them.
More than 99 per cent of the lawsuits facing J&J relate to ovarian cancer. However it is also facing a small number of personal injury lawsuits over claims that its products caused mesothelioma, a different form of cancer linked to asbestos exposure, which the company also denies.
J&J said it had already resolved 95 per cent of those cases, and had 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 J&J’s proposed plan “which removes one aspect of overhang on the stock”. Singh added that following conversations with industry experts “we believe that the plan should go through and be a catalyst for JNJ’s stock”.
In December last year, J&J moved the registered headquarters of the subsidiary from an address in North Carolina to one in Texas, changing the name of the subsidiary from LTL to LLT as part of the process.
J&J’s share price was up 3.6 per cent in Wednesday morning trading in New York.
