Johnson & Johnson Files for Bankruptcy Over Talc Lawsuits for the Third Time

Johnson & Johnson JNJ, via its subsidiary called Red River Talc, for the third time, filed for voluntary bankruptcy to resolve thousands of lawsuits related to its talc products. Red River Talc has filed for Chapter 11 bankruptcy to equitably resolve all of JNJ's present and future talc-related claims in a bankruptcy court in the Southern District of Texas.

JNJ faces more than 62,000 lawsuits for its talc-based products, primarily its baby powders. The lawsuits allege that its talc products contain asbestos, which caused many women to develop ovarian cancer. JNJ insists that talc-based products are safe and do not cause cancer. JNJ has permanently discontinued the sale of its talc-based Johnson's Baby Powder.

So far this year, JNJ's shares have risen 4.7% compared with the industry's 23.5% increase.

Image Source: Zacks Investment Research

JNJ's Two Failed Bankruptcy Attempts

Johnson & Johnson's subsidiary, LTL Management, which was established to manage claims in the cosmetic talc litigation, filed for voluntary bankruptcy twice in New Jersey. However, both the bankruptcy filings were rejected by courts stating that J&J was not in enough financial stress to qualify for bankruptcy.

JNJ's New Plan and 3rd Bankruptcy Filing

In May 2024, LTL Management proposed a new plan committing to pay claimants a present value of approximately $6.5 billion to be paid over 25 years, which could resolve 99.75% of all pending talc lawsuits against the company.

J&J said that Red River filed the bankruptcy case after it received support from around 83% of current claimants for the proposed bankruptcy plan. This exceeds the 75% approval threshold required by the U.S. Bankruptcy Code to secure confirmation of the proposed plan. Red River also increased its settlement commitment by $1.75 billion to approximately $8 billion.

Several Rulings Against JNJ in Talc Lawsuits

Several juries have ruled against Johnson & Johnson in talc lawsuits over the years. In one such ruling, in 2018, JNJ was ordered by a Missouri court to pay $4.7 billion in damages to 22 women who made such allegations, affirming a St. Louis court jury's verdict given earlier. Though the verdict was reduced to $2.1 billion by an appeals court in June 2020, it still rejected J&J's appeal to overturn the 2018 jury verdict. JJohnson & Johnson paid the award, which, including interest, totaled approximately $2.5 billion. In April 2023, J&J offered to pay $8.9 billion over a period of 25 years to completely resolve its cosmetic talc litigation.

JNJ believes that resolving the claims via the civil law system would take years and incur significant costs for the company. The talc lawsuits have also hurt the company's goodwill and reputation. It believes that resolving the litigation through this proposed reorganization plan would be more efficient and would compensate claimants on time.  However, some attorneys of the claimants feel Johnson & Johnson is manipulating the bankruptcy process so that it can delay jury trials and also underpay the claimants. However, the higher settlement offer and a high percentage of claimant support may improve JNJ's chances of success after the previous two failures.

JNJ's Zacks Rank and Stocks to Consider

J&J currently has a Zacks Rank #3 (Hold).

Lilly beat estimates in each of the last four quarters, delivering a four-quarter average earnings surprise of 69.07%.

The Zacks Consensus Estimate for Pfizer's 2024 earnings has risen from $2.38 to $2.62 per share in the past 60 days, while that for 2025 has risen from $2.74 per share to $2.85 per share. Pfizer's shares have risen 2.2% year to date.

Pfizer beat estimates in each of the last four quarters, delivering a four-quarter average earnings surprise of 69.82%.

Estimates for Bayer's 2024 earnings have risen from $1.35 to $1.38 per share over the past 60 days. For 2025, earnings estimates have risen from $1.42 to $1.44 per share over the same timeframe. Year to date, Bayer's stock has declined 13.4%.

To read this article on Zacks.com click here.