Greetings and welcome to today's Johnson & Johnson Investor Call. At this time, all participants are in listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. A question-and-answer session will follow the formal presentation. You may be placed into question queue at any time by pressing star one on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Jessica Moore. Please go ahead.
Thanks, Kevin. Hello, everyone. This is Jessica Moore, Vice President of Investor Relations for Johnson & Johnson. We appreciate everyone joining us on such short notice to review yesterday's announcement following the ruling from the U.S. Bankruptcy Court for the Southern District of Texas. Joining me on today's call are Joaquin Duato, Chairman and Chief Executive Officer, Joe Wolk, Executive Vice President and Chief Financial Officer, and Eric Haas, Worldwide Vice President of Litigation. Before we get started, please note that today's presentation contains forward-looking statements. You are cautioned not to rely on these forward-looking statements, which are based on current expectations of future events using the information available as of the date of this recording and are subject to certain risks and uncertainties that may cause the company's actual results to differ materially from those projected.
A description of these risks, uncertainties, and other factors can be found in our SEC filings, including our 2024 Form 10-K, which is available at investor.jnj.com and on the SEC's website. I'll now turn the call over to Joaquin.
Thanks, Jess, and thank you, everyone, for joining. Let me start by saying that we are disappointed in yesterday's ruling. That said, we expect continued success in litigating ovarian cancers in the tort system. We have been successful in 16 out of 17 ovarian cancer strikes in the last 11 years. The company will reverse approximately $7 billion of the previous reserve, as we have no intent to settle or pay plaintiff lawyers on such meritless claims. I want to be clear: this announcement by no means changes the company's focus, financial strength, and continued work to delivering life-changing innovation, medicines, and technologies to patients. We remain confident in our 2025 guidance as well as our 2025 to 2030 projections. With that, I will now hand the call over to Eric Haas.
Thank you, Joaquin. I would like to start by echoing my disappointment in the ruling from the U.S. Bankruptcy Court for the Southern District of Texas, dismissing the case in which over 85% of claimants voted in favor of the proposed plan that clearly was in their best interest. This litigation has been going on for 11 years, during which Beasley Allen, the firm leading the objections to the plan, admittedly lost every single case it brought to trial and has not provided or recovered a dime to its claimants in that time frame. Yesterday, in his decision, Judge Lopez found that Beasley Allen engaged in outright misconduct, most significantly by voting 8,000 claims with informed consent that it actually never obtained, and voting to reject the plan on behalf of 5,000 gynecological claimants to provide them with any recovery inside bankruptcy or outside of bankruptcy.
Yet the court inexplicably failed to exclude Beasley Allen's votes in assessing whether the requisite 75% voting threshold had been met. Instead, the judge criticized the methodologies of firms who followed standard, well-worn practices in voting to support the plan. If you disregard all the disputed votes and simply count those where claimants affirmatively responded, the percentage of votes in favor of the plan was approximately 88%, well in excess of the statutory threshold. Unfortunately, the court, in its decision, ignores the voices of those claimants. Our attempts to resolve this litigation through bankruptcy were not based on the belief that the talc claims had any merit whatsoever, but rather were aimed at securing a final resolution to put this matter behind us. With the bankruptcy option now foreclosed, we will return to the tort system to defeat the meritless claims and deny plaintiffs counsel of any recovery.
Contrary to the assertions repeatedly made by Beasley Allen during the bankruptcy proceeding, returning to the court to the tort system will not force us to accept a mass tort settlement. The plaintiffs bar had their opportunity to accept an unprecedented resolution. Instead, they squandered the moment, believing that we could be coerced into settling for egregiously large amounts outside of the bankruptcy system. They were and are sorely mistaken. In terms of next steps, we will immediately pursue our motions pending in the multi-district litigation to exclude plaintiffs experts, and that's what was known as the Daubert challenge, which has been fully briefed prior to our bankruptcy filing. The presiding multi-district litigation judge has ruled that we are entitled to redo the Daubert challenge because new revised federal rules clarify that the burden is on the plaintiff to prove the scientific validity of their proffered opinions.
We are confident plaintiffs cannot and will not meet this burden, which would effectively end the cases brought in federal court where the majority of the viable claims are filed. We also will continue to seek the disqualification of Beasley Allen, pursuant to another motion that is presently pending in the MDL, and we will continue to pursue our actions to expose the fraud committed by the so-called plaintiff experts in their made-for-litigation publications. With respect to the timing of these motions, we would expect rulings on each within the next six months. In the event any claims survive judicial review, we will take those cases to trial, where we expect to prevail, as we have done consistently through this litigation.
As Joaquin mentioned, we have won every case tried since 2019, including the last two trials tried in the year before we went into the bankruptcy case, and we expect the same success in future cases. With that said, I will now turn the call over to Joe.
Great. Thank you, Eric. Hello, everyone. Yesterday's ruling does not change the conviction of our company's financial position, whether it be for the guidance we issued for 2025 or the long term. As noted in the press release, given our success in the tort system trying these cases over the last decade and considering this was our best and final offer, we are reversing $7 billion of the reserve previously held for the bankruptcy plan. It is important to remember that last year alone, Johnson & Johnson generated approximately $20 billion in free cash flow, all while prioritizing significant organic and inorganic R&D investment. We continued our cadence of annual dividend increases and deployed over $30 billion in strategic acquisitions and partnerships since the beginning of 2024.
With recent pipeline advancements such as Tremfya for inflammatory bowel disease, Rybrevant plus Lazcluze, Icotrokinra, and Taris in Innovative Medicine, and our Pulsed Field Ablation portfolio and OTTAVA robotic surgical system in MedTech, we remain confident in the growth trajectory for our business going forward. With that, we are happy to take your questions by turning the call over to Kevin, who will provide instructions for those seeking to participate in the Q&A.
Thank you. We'll now be conducting a question-and-answer session. If you'd like to be placed into the question queue, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star one. One moment, please, while we pull for questions. Our first question today is coming from Chris Schott from JPMorgan. Your line is now live.
Hi . Thanks so much for the questions. Just had two here. Can you just review the timelines we should be thinking about as you, I guess, restart the litigation here and maybe specifically the next steps on that Daubert challenge? Then maybe just a bigger picture question. You did have a large percent of plaintiffs on board with the terms of the prior settlement. Is there any interest in going back to some of those groups of plaintiffs to look for some sort of settlement or deal, or is there no longer an interest in going down that path, and this will purely be going through the courts from here? Thank you.
Chris, thanks. Great questions. This is Eric Haas. With respect to the timeline, and in particular with respect to the Daubert motion, we are starting that timeline today. We are providing notice to the court of the pending motions in the multi-district litigation, including the Daubert motion, but also the motion to disqualify Beasley Allen and other motions, including our motion to seek litigation financing disclosures from the court. In terms of how long before there will be decisions on those motions, we do expect that to be in the relative near term insofar as briefing and adjudication goes. These motions already are fully briefed. They're pending. They were stayed by the bankruptcy case, and we would expect the court to be able to issue a ruling within six months.
Once we have those rulings, clearly, they will provide us further guidance with respect to how the case will proceed thereafter. As I noted, we are very confident in our position on the Daubert challenges, particularly under the new Rule 702. The court allowed us to redo the Daubert challenge for the very reason that that appropriate standard under the new rule was not applied in the prior Daubert motion practice and decision. Therefore, we have the opportunity to redo it, and we do believe that plaintiffs cannot meet the burden that they're required to show in order to prevail and move forward with the case.
I'm wondering if it's helpful for the audience if you explain the difference in the new standard.
Yeah. I think very succinctly, the rule of evidence Rule 702 was clarified. It wasn't changed in terms of what its intended import was. However, certain courts had been interpreting the rule to allow a more lenient standard for plaintiffs in determining whether or not they have met their burden of moving forward with expert opinions. What the new rule does is say, "Hey, this is a very important phase of the case because the judge, not the jury, should determine whether or not the expert opinions have scientific validity, and the plaintiffs have the burden of proving that they do." That rule was revised because previously, as in this case, judges were allowing expert opinions to go to the jury when they did not have the proper gating threshold screening by the court. The rule that is now in place requires that threshold analysis.
I think a good analogy or a good reference point in terms of how that plays out in litigation is the recent Tylenol litigation before Judge Cote in the Southern District of New York. As you saw in that case, Judge Cote required that the parties come forward with their evidence in support of their allegations of causation, and then she applied the appropriate scrutiny, putting the burden on plaintiffs, and she determined that those cases should not proceed. Many of the same players that participated in that multi-district litigation before Judge Cote are players in this litigation before us, and we would expect the same outcome.
Eric, could you comment also on the second part of the question from Chris?
Yes. The second question goes to whether or not we have an interest in settling because, Chris, to your point, virtually every one of the plaintiff law firms that had asserted claims in this matter supported our proposed resolution in bankruptcy, the one exception mainly being Beasley Allen and the Beasley Allen law firm. The difference now is that when we go back to the MDL, we are not inclined to, at this point in time, enter into settlement agreements with any of the counsel or enter into any attempt to have a mass tort resolution because it really does not achieve the objectives that we sought to obtain by going into bankruptcy. We went into bankruptcy to resolve both the current and the future claims, and that only can be done in the bankruptcy proceeding.
Now that we're back into the tort system, we believe that it is more effective, more efficient, in the end, more productive for us to proceed with the process afforded by the MDL and to allow that adjudication to play out. If any of the cases survive the MDL, we will try those cases. We've won all but one of the cases we've tried, and we would expect to continue to have that same track record.
Thank you. Next question today is coming from Shagun Singh from RBC. Your line is now live.
Great. Thank you so much. I was just wondering if you can talk about how many cases are outstanding. I think previously you'd indicated that in the tort system, it would be more expensive over time, and it could take many years. Any latest expectations on cost and timeline there? I have a follow-up.
That's an excellent question because what it really does is implicate what we learned from the bankruptcy process. When we went into bankruptcy, you may recall in 2021, there were 40,000 outstanding, well, 40,000 claims that had been filed as of that point in time. Since then, as you've probably seen through a number of the filings and reported in the press, the claims that were at issue in the bankruptcy were upward to 90,000 claims asserted. What we learned in that process, because the plaintiff law firms in the bankruptcy effectively were fighting with each other over what were valid claims, we learned the vast majority of those claims that had not been filed were time-barred or otherwise non-compensable. Indeed, Beasley Allen has taken the position that any claim that is asserted for a cancer other than ovarian cancer is non-compensable in the tort system.
He took that position very strongly in the bankruptcy. What that means is that we are going back into the mass tort system with an expectation that the claims are going to be the same number as when we left because the claims that came out of the woodwork while we were in bankruptcy largely will be those time-barred, non-compensable claims.
Got it. Just as a follow-up, it just seems like the landscape has gotten very litigious, not just for J&J, but other companies out there. There is a nutrition-related case for Abbott as well. I think in your press release, you talked about junk science fueled by third-party litigation financing, including from foreign sovereign wealth funds. I'm just wondering if there is a broader theme to consider here. I do not know if there is anything, any thoughts you can share on the landscape. That would be appreciated at a high level. Thank you.
That is another excellent question. It goes again to the learnings that came out of the bankruptcy. The quick answer is yes. There is another theme to really focus on and that we will be pursuing both through litigation and through our efforts in interacting with the administration and Congress. What was revealed during the bankruptcy was the worst of the mass tort litigation model. What the record showed was this case was a lawyer-driven tort. It was conceived by a sole practitioner without any science to support the claims. That sole practitioner went out and marketed the claims to large mass tort firms, including Beasley Allen in particular, who joined with the sole practitioner to foment fake science, which was then used to deceive the public and juries.
Those firms then secured hundreds of millions of dollars, hundreds of millions of dollars in third-party litigation financing, including, as we noted, from the structured finance company Fortress that is owned by the sovereign wealth fund from Abu Dhabi. That raises serious, serious public policy concerns and raises real questions with respect to the influence of foreign entities on our judicial process. Further, that financing was then used to buy attorney advertising, which flooded the media with the false narratives that we are now facing. Indeed, at their peak, we were facing 113 attorney ads per hour. Fueled by those ads, the mass tort bar then was able to aggregate tens of thousands of claims, which, as I just noted, the majority of which we now have learned are time-barred and non-compensable.
What happens in cases like ours is that all these claims are thrown into the litigation. From a pure cost perspective of litigating those claims, when they're backed by litigation financing, it becomes a very challenging prospect for any company in the United States. That is an issue that is not specific to Johnson & Johnson. It is an issue that is cross-industry and is facing every single company in the United States. It is an issue that needs to be addressed at both the federal and the state level. We will be seeking to do what we can to further that effort in both forums.
Thank you. Back to Shugan's first question. You answered the number of cases. She had asked specifically the expense to try as well as the timing of how long it could take.
Yeah. Again, I go back to the earlier answer. The expectation is that we will be able to address the vast majority of the claims in the MDL through the Daubert proceeding. If so, the expenses of this case should be rather confined and for the relatively short timeframe. To the extent that we are forced to litigate cases that are otherwise not resolved at, for example, the state court level, we will adjudicate those on a case-by-case basis. Those are the litigation expenses that we would expect to occur in the regular course of business. Right now, we are accruing a reserve for those amounts, but we anticipate there will be nowhere in the range of what we were otherwise proffering to settle this case in order to obtain finality in the near term through the bankruptcy proceeding.
Thank you. Next question is coming from Larry Biegelsen from Wells Fargo. Your line is now live.
Good morning. Thanks for taking the question. Eric, you mentioned earlier that the benefit of bankruptcy was to eliminate the tail risk of future cases. How do you address that through the tort system? Why can't you address the voting issue and go through bankruptcy again? Thanks for taking the question.
Good questions, Larry. We can address the tail risk through the tort system to the extent that we get the rulings that we anticipate getting through the MDL on the Daubert challenges because that would put an end to the claims from a substantive perspective. There is a way to end this litigation. Just by going back to the tort system does not mean that we will be here forever. Quite to the contrary, we anticipate that we will be able to, in the relative near term, make significant inroads or, if not, completely resolve the matter. It is only to the extent that certain cases survive those types of substantive challenges that we will then be adjudicating those remaining cases on a case-by-case basis into the future.
At that juncture, we would, again, look at those cases as we look at any other case that we litigate in the regular course of business. We have litigation all the time, and we make the appropriate reserves. The other thing to keep in mind is the historical track record here. Having won 16 out of 17, we fully anticipate to continue to win at the same rate. In doing so, there will come a point in time when plaintiffs realize this is not where they want to invest their money.
The second part about addressing the voting issue and going through bankruptcy again?
Bankruptcy would remain, Larry, a viable potential option. Practically speaking, this was our third effort at a resolution. There comes a point in time when we have to make a decision what is in the best interest of the company, whether to try yet another bankruptcy and secure a full and final resolution in the relative near term or proceed in the tort system. Based upon our experience, we now believe that proceeding in the tort system is actually the better alternative than attempting to, again, go to the bankruptcy system in an effort to reach a vote and secure finality to that process.
I mean, what this has shown, what the process has shown, Larry, is that when a mass tort such as this, there are so many constituents involved, and there is such a challenge in bringing all those constituents to a table to get a consensus view, many courts, like Judge Lopez, appear to be of the view that you need 100% complete unanimity with respect to the proposed plan. By the very nature of what we've seen, that's a very challenging thing to achieve. Based upon our analysis, it's our reasoned view that we will have, at this juncture, more success in the tort system than ever.
Thank you. Next question is coming from Matt Miksic from Barclays. Your line is now live.
Hi. Thanks so much for taking the question and hosting the call. Maybe a follow-up on this line of questions I think everyone is trying to reconcile. Where you were with settlements and subsequently putting the current claims behind you and how that can progress. To your comment about the ongoing litigation expense, starting to accruing at a level nowhere near the current reserved amount for the settlement, some sense of, do you expect this to run for another three years, five years, seven years to reach the objective that you described, which is at some point, the percentage of wins and the sort of cases that are presenting themselves will start to just dissipate because it'll become apparent that there really, at the core, were not any basis for many of these claims. Appreciate it.
Thank you. That is exactly the calculus that we have gone through and the conclusion that we have reached. With respect to current claims, we were willing to settle with the current claimants in order to get a final resolution which included the future claimants. We do not believe these claims have any merit. We believe we are in a better position based upon the admissions that were secured through the bankruptcy proceeding now than we were before we went into bankruptcy. As a consequence, we are feeling more confident with respect to our ability to resolve these claims through the tort system. It really does not make sense for us to be viewing this as an opportunity to resolve the current claimants. I mean, that was part of a package deal designed to get finality.
Now, from our perspective, the more efficient, effective way to resolve this is, as noted, through the Daubert proceeding followed by adjudicating the cases on a one-off basis. As you note, achieving the same track record that we did before we went into bankruptcy. At some point, this tort system will drop off in our view because it just doesn't make sense for plaintiffs to be pursuing a losing battle.
Thanks, Matt. Kevin, we have time for one more question.
Thank you. Our final question today is coming from David Risinger from Leerink Partners. Your line is now live.
Yes. Thanks very much. Thanks for taking my questions. First, could you discuss to what degree future individual trials will occur via the federal MDL and their judges versus state courts which are at risk of occurring in what are known as judicial hellholes as characterized by the American Tort Reform Foundation? I ask the question because local judicial hellhole courts are known for delivering outsized headline awards which are typically subsequently dramatically reduced on appeal. Second, could you comment on taking the leadership stance that you are today on behalf of the pharmaceutical industry and industries beyond pharmaceuticals to stand up to meritless product liability claims? It seems important that J&J is actually taking this stance given the fact that drug companies' stock multiples are generally discounted due to the risk of facing such meritless product liability lawsuits permanently going forward. Thanks very much.
I love the question because it's near and dear to my heart. If I don't answer it fully, just prompt me. In terms of judicial hellholes, couldn't agree with you more. It's a significant problem with the U.S. judicial system. You do make a very poignant point insofar as the use of the appellate process. This case bears that out because even where we lose at the trial court level, we have won consistently at the appellate court level. The sad truth here in the United States is that we no longer have a trial court system that works for U.S. businesses. As a consequence, when courts are allowing junk science to go to juries and jurors are not making reasoned decisions based upon a full and fair evaluation of the evidence, what we're left with is effectively litigating in the appellate courts.
I think you may have seen that not only in this case, but as a trend throughout the country. That requires judicial reform. We need the right judges at the state court level to make the right determinations about what issues should be going to the jury. It requires reform with respect to the process and procedures around the judicial system. Absent such reforms, this country is going to be facing a significant threat with the ability of business to continue and to operate in a way that this country needs businesses to operate in order to do all those things that we want to achieve. I could not agree with you more in that respect.
In terms of industry leadership, we have and we intend to continue to lead not only in the pharmaceutical industry, but on behalf of businesses throughout the country to address the issues that we are facing as a nation with respect to the mass tort plaintiffs for egregious abuse of that process. Look, what we're facing here are extraordinary outsized verdicts that disregard what the scientific determinations are made by the U.S. agencies, whether it's the FDA or the EPA. Those verdicts, time and time again, are putting extraordinary strain on not just our company, but other businesses' operations and diverting capital, productive capital from those businesses to plaintiff lawyers' pockets where they generate no return on capital, and it's just wasted expense. This country cannot continue to sustain that level of abuse. We are taking the lead. We think it's important.
We think it is an important role for a company like us to take. We are proud to do so.
Thank you very much.
Thanks, Dave. Thanks to everyone for your questions and your continued interest in our company. We apologize to those that we could not get to because of time, but do not hesitate to reach out to the investor relations team with any remaining questions that you may have. I will now turn the call over to Joaquin for some brief closing remarks.
Thank you, Jess. Thank you, Eric, and our litigation team for the work in this bankruptcy and also for your leadership in bringing civil justice reform into the U.S. to create an environment that fosters innovation and growth. As you have heard today, the focus of Johnson & Johnson is unchanged. We are disappointed about these results, but we have strong conviction in our path forward, and we remain confident in our 2025 guidance and our 2025 to 2030 projections. We believe that the science, as it should, will persevere. Thank you for participating. We will end this call.
Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.