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Johnson & Johnson has offered an enhanced $6.5 billion settlement to tens of thousands of plaintiffs who claim its talcum powder products caused ovarian cancer, seeking to draw a line under the long-running legal battle.
In an update Wednesday, the world’s top-selling drugmaker said it would present the plan, which would pay out about $6.48 billion over the next 25 years, to more than 50,000 ovarian cancer claimants for a vote later this year . The deal would allow J&J to resolve all current and future ovarian cancer-related claims through a subsidiary’s bankruptcy filing if 75 percent of plaintiffs vote in favor.
The latest proposal would increase the total payout for all cases to $11 billion, a $2.1 billion increase over a previous offer, and represents J&J’s third attempt to resolve the ovarian cancer claims through bankruptcy proceedings to clarify.
The drugmaker’s two previous Chapter 11 bankruptcy filings were rejected by the courts. In both cases, J&J tried to use a controversial maneuver known as a “Texas two-step,” in which a subsidiary that has legal claims is spun off from the main company and files for bankruptcy to facilitate the settlement.
On this occasion, J&J first attempts to obtain consent from the plaintiffs before going to court. It uses a “ready-made” insolvency procedure that enables faster resolution if the companies have received sufficient support from creditors. J&J will give applicants the opportunity to vote on the plan over a three-month period before its subsidiary LLT Management goes through the prepackaged process.
J&J, which has repeatedly denied that its talc-based products cause cancer, said the new plan was “significantly different” from its previous attempts. Erik Haas, the company’s global vice president of litigation, said it was “the culmination of our amicable resolution strategy that we announced last October.”
“Unlike the previous cases, it is the voice of the plaintiffs – rather than the conflicting financial incentives of the small minority of plaintiff lawyers who are required to receive excessive legal fees outside of a restructuring – that will determine whether the plan can be implemented,” said Haas.
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 warrant Chapter 11 proceedings. The first bankruptcy case was dismissed for a similar reason.
J&J announced plans for a third attempt at bankruptcy last October. On Wednesday, J&J said it would explore alternative ways to resolve the dispute and await approval from plaintiffs. This included appealing the rejection of the previous bankruptcy plan, “aggressively litigating” plaintiffs who refused to settle, and taking legal action against people who made false and defamatory claims about the company’s products, as well as against law firms who supported them.
More than 99 percent of the lawsuits against J&J relate to ovarian cancer. However, the company also faces a small number of personal injury lawsuits alleging that its products caused mesothelioma, another form of cancer linked to asbestos exposure, which the company also denies.
J&J said it has already resolved 95 percent of those cases and reached agreements in principle to resolve claims from U.S. 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 the stock’s overhang.” Singh added that after discussions with industry experts, “we believe the plan should be implemented and be a catalyst for JNJ stock.”
In December last year, J&J moved the subsidiary’s registered office from an address in North Carolina to Texas, changing the subsidiary’s name from LTL to LLT.
J&J shares rose 3.6 percent in Wednesday morning trading in New York.