Johnson & Johnson has a multi-billion dollar talc problem, and the company just admitted that the best solution is also a multi-billion dollar solution. The pharmaceutical giant, known as J&J for short, has proposed a new way to settle thousands of pending lawsuits alleging its talc-based products, including old baby powder, contain asbestos and cause ovarian cancer: a $6.475 billion payout over the next 25 years.
The new agreement will be a financial blow to J&J, which says its products are asbestos-free and do not cause cancer. However, when you consider the size of the company, this doesn’t seem so extreme. The $6.475 billion, which will again be paid out over several decades, represents only 7.8% of the $85.2 billion in sales Johnson & Johnson generated last year, 18.3% of its $35.2 billion net income or 42.8% of its $15.1 billion in sales. research and development expenses, SEC documentation show.
Even if you look at the face value of the latest potential talc agreement – approx. $8.4 billion, which is then discounted at 4.4%—the payout represents less than 10% of J&J’s 2023 revenue. Investors clearly saw the agreement as good news, with J&J shares up about 5% on Wednesday.
The Dear History of Talcum Powder Lawsuits
J&J’s proposed deal, if approved by plaintiffs with a 75% majority vote, would resolve 99.75% of the talc-based product claims that have plagued J&J for more than a decade, while preventing further claims. This is significant given how expensive some talc-related lawsuits have been for the company.
In 2021, a Missouri jury ordered J&J to pay approximately $2.1 billion to a group of 22 women who said asbestos in the company’s talc gave them ovarian cancer. This has spooked investors given that the total number of ovarian cancer claimants exceeds 50,000. J&J also agreed to pay $700 million to 42 states and Washington, D.C., to settle an investigation into the marketing of its talc products. Wall Street Journal reported in January, demonstrating the financial impact of talc-related lawsuits and investigations.
J&J did not immediately respond to LuckPlease comment on the proposed settlement.
Another attempt to bankrupt a subsidiary
If J&J’s new deal is approved by plaintiffs, it would also allow the company to resolve talc-related ovarian cancer cases through the bankruptcy of subsidiary LTL Management.
J&J’s two previous attempts to use Chapter 11 bankruptcy to settle talc cases were rejected by courts, which argued that the J&J subsidiary was not in sufficient “financial distress” to merit bankruptcy. But the company is now hoping to get the go-ahead from plaintiffs for this new deal before going to court to try a different, so-called “off-the-shelf” bankruptcy process.
And while J&J’s new deal has not yet been approved by the applicants, it has the support of the “vast majority” of them, J&J executives said during the company’s earnings conference call Wednesday.
Eric Haas, J&J’s vice president of litigation, told analysts he believes the deal is in the best interests of plaintiffs and should be confirmed by the bankruptcy court, noting that J&J has won about 95% of ovarian cancer cases that have gone before it. way. away, and a New Jersey judge recently decided to allow a re-evaluation of the plaintiffs’ expert opinions on the alleged carcinogenic properties of J&J’s talc-based products.
“If the plaintiff’s opinion fails the test, all ovarian claims must be denied. We fully expect this to be the outcome because the plaintiffs’ expert opinions are inconsistent with decades of research conducted by independent experts and government and regulatory agencies,” Haas said.
“Johnson & Johnson talc products are safe, do not contain asbestos, and do not cause cancer, and none of the talc-related claims against the company have any merit,” he added.
J&J recorded $2.7 billion of charges in the first quarter related to the new deal, raising its reserve for talc-related claims to about $11 billion.
Mesothelioma and other state consumer protection claims were not addressed in the $6.475 billion deal. Just last month, J&J and two subsidiaries were sued for the asbestos-related deaths of a mother and grandmother and were forced to pay compensation. $45 million. But J&J executives also discussed the hundreds of mesothelioma lawsuits that have weighed on the company during the earnings call, noting that they have settled all but 153 cases to date and have “in principle” agreements to resolve state-specific claims .