Johnson & Johnson posted a loss for the first quarter as it recorded a $6,9bn charge related to its proposal to settle tens and thousands of legal claims relating to allegations that its talcum-powder caused cancer.
The largest healthcare products company in the world said that on Tuesday, it was unfortunate to have to pay claimants who made what it called “baseless scientific allegations”, but that long-term litigation is expensive and “inherently unpredictable”.
J&J reported that 60,000 to 70,000 talc claimants backed its proposal, despite the efforts of a small group plaintiffs’ attorneys who wanted their clients barred from voting on an agreement proposed as part of a bankruptcy scheme.
J&J revealed the one-off cost in its first-quarter results, which showed that the company had a net loss in the amount of $68mn in spite of generating sales better than expected in the three-month period ending in March.
Joseph Wolk said, “Our proposal aims to provide certainty in an efficient way.”
“But, curiously, there are a few plaintiffs’ lawyers who do not want to grant their claimants the vote.”
J&J’s shares dropped by 2.8% on Tuesday.
This month, the company offered a settlement of $8.9bn to settle a long-running lawsuit alleging that their cosmetic talc had caused thousands of people cancers such as ovarian or mesothelioma. The payout would be the largest in US history if approved.
J&J said that a settlement was only possible through the bankruptcy system. This would protect J&J against future claims for talc, and current litigation.
It faces opposition from law firms that represent talc claimants who argue J&J’s latest proposal is unlawful abuse of bankruptcy.
The US bankruptcy trustee (a division of US Department of Justice) has also opposed J&J’s strategy, stating that there are “slim or nonexistent” prospects for a successful restructuring and that any further delay in cases brought by claimants is “unconscionable”.
J&J’s settlement proposal marks the second attempt to use bankruptcy courts to handle claims related to cosmetic talc. The company has been selling the product for over a century. The company was unsuccessful in its attempt to use the Texas two-step strategy, where it set aside $2bn to compensate claimants.
J&J used this strategy to create a new unit called LTL that would house all claims relating to talc and place it in Chapter 11. The company then requested that all civil cases be halted until a restructuring plan and settlement can be presented to the claimants.
The US Court of Appeals of the Third Circuit dismissed LTL’s bankruptcy, determining that the unit wasn’t in financial distress. This decision returned all talc-related claims to the civil courts.
J&J’s LTL subsidiary declared bankruptcy before any hearings on talc could be resumed. J&J claimed that they had listened to the concerns raised by the appellate court and received support from the majority of claimants for a settlement.
J&J is asking a New Jersey bankruptcy judge to once again put a stop to all lawsuits so that it can finalise its restructuring plan.
Before it spins off the consumer health division, the company wants to clear up any uncertainty surrounding the talc claim.
J&J increased its sales and earnings estimates for the full year 2023 after reporting an increase of 5.6 percent in sales to $24.7bn during the first quarter.