Johnson & Johnson reports loss after taking $6.9bn charge over talc claims

Johnson & Johnson reported a first-quarter loss as it booked a $6.9bn charge linked to its proposal to settle tens of thousands of legal claims related to allegations its talcum powder caused cancer.

The world’s biggest healthcare products company said on Tuesday it was unfortunate that it had to pay claimants for what it described as “baseless scientific claims” but noted that protracted litigation was costly and “inherently uncertain”.

J&J said 60,000-70,000 talc claimants supported its proposal despite a push by a small group of plaintiffs’ lawyers to restrict their clients from voting on a settlement proposed in a bankruptcy scheme.

J&J disclosed the one-off charge in first-quarter results that showed the company made a net loss of $68mn despite generating better than expected sales in the three months to the end of March.

“Our proposal really aims to bring certainty in a very efficient manner,” said Joseph Wolk, chief financial officer.

“But curiously, we’ve got a small number of plaintiffs’ attorneys who don’t even want to give their claimants the right to vote.”

J&J shares fell 2 per cent when trading opened on Tuesday.

The company proposed an $8.9bn settlement this month to resolve long-running litigation alleging that its cosmetic talc products had caused tens of thousands of people to develop ovarian and mesothelioma cancers. If approved, the payout over 25 years would be one of the largest product liability lawsuits in US history.

J&J has said a settlement is only possible under the auspices of the bankruptcy system, which would protect the company against future talc claims, as well as current litigation.

But it faces opposition from several law firms representing talc claimants, which argue J&J’s latest proposal is an unlawful abuse of the bankruptcy system.

The US bankruptcy trustee, a division of the US Department of Justice, has also opposed J&J’s strategy arguing there are “slim to nonexistent prospects” for a successful reorganisation and any additional delay to cases brought by claimants would be “unconscionable”.

The settlement proposal by J&J marks the second time it has tried to use the bankruptcy courts to manage claims linked to cosmetic talc, a product it has sold for more than a century. In January an appeals court shot down the company’s attempt to use a strategy called the “Texas two-step”, whereby it had set aside $2bn in a trust to compensate claimants.

Under this strategy J&J created a unit, LTL, to house all talc claims and put it into Chapter 11. It then asked the judge to halt all civil court cases while a restructuring proposal and settlement could be put to claimants.

The US Court of Appeals for the Third Circuit dismissed the bankruptcy of LTL, finding that the unit was not in financial distress — a decision that put all the talc claims back into the civil court system.

Before any of the talc hearings could resume, J&J put its LTL subsidiary back into bankruptcy, arguing that it had addressed the concerns of the appeals court and had won support for a settlement from most claimants.

J&J will today ask a bankruptcy judge in New Jersey to again place a stay on all the lawsuits to enable it to finalise a restructuring plan.

The company is eager to resolve the uncertainty regarding the talc claims before it spins off its consumer health division in coming months.

J&J raised its full-year sales and earnings forecasts for 2023 on Tuesday after reporting a 5.6 per cent increase in sales to $24.7bn in the first quarter.