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J&J Said to Offer Implant Pact That May Reach $2 Billion

Johnson & Johnson (JNJ), which is fighting more than 10,000 lawsuits over its recalled hip implants, is negotiating a potential settlement with patients that may eventually total more than $2 billion, according to five people familiar with the matter.

J&J, the world’s biggest seller of health-care products, offered to pay more than $200,000 a case, according to the people, a deal which could exceed $2 billion if most plaintiffs accept the terms. Lawyers for hip recipients have so far rejected the offer as too low, the people said.

In 2010, J&J recalled 93,000 all-metal hips worldwide, including 37,000 in the U.S., saying more than 12 percent failed within five years. Patients who sued contend they suffer pain and are immobilized by joint dislocations, infections and bone fractures. They alleged metal debris from the hips causes tissue death around the joints.

The settlement talks probably won’t end until after the first trials of the lawsuits begin, starting next week, with more set for next month and May, according to the people, who asked not to be identified because they aren’t authorized to speak publicly about the talks.

“The company can’t afford to defend these lawsuits case by case,” said John M. Fitzpatrick, a defense lawyer at Wheeler Trigg O’Donnell LLP in Denver who isn’t involved in the matter. “J&J needs to shut this down. The only way they can do that is through a global settlement. Plaintiffs’ lawyers know that. That’s why everybody has to push to see what they can get.”

‘Litigation Strategy’

Lorie Gawreluk, a spokeswoman for J&J, declined to comment on the company’s “litigation strategy” or any settlement talks.

“DePuy believes the evidence to be presented at trial will show the company acted appropriately and responsibly,” Gawreluk said in an e-mailed statement about the JNJ unit which made the implants.

J&J, based in New Brunswick, New Jersey, said in a November filing with the U.S. Securities and Exchange Commission that it increased reserves “due to anticipated product liability litigation and costs associated with” the ASR hips. The company didn’t specify the amount of the increase.

JNJ rose 33 cents to $73.23 in New York Stock Exchange trading. The company said in January 2012 that it had spent about $800 million on hip recalls during the prior two years. J&J didn’t provide an estimate of its product-liability costs.

November Filing

J&J faced 10,100 suits over the hips through September, according to the November filing. Most pretrial collection of evidence has been consolidated in federal court in Toledo, Ohio, where 7,240 cases are pending, and California state court in San Francisco, where more than 2,000 cases are filed. Other cases have been filed in state courts around the U.S.

“At this time we have a significant number of trials set with the company and we are primarily focusing our efforts on trial preparation,” said Steven J. Skikos, co-lead counsel of a plaintiffs’ executive committee leading federal multidistrict litigation overseen by U.S. District Judge David A. Katz in Toledo.

“Any comment relating to settlement that does not come from leadership, the court, or from the company itself, is speculative and uninformed,” said Skikos, of Skikos Crawford Skikos & Joseph in San Francisco and Cleveland.

Attorneys involved in the litigation have reviewed more than 50 million pages of documents and have deposed more than 50 witnesses, according to Skikos.

Three Cases

The three cases going to trial in the next few months may offer lawyers guidance on potential liability and damages. The first proceeding starts Jan. 23 in state court in Los Angeles; the second begins next month in state court in Chicago; and a third is slated for May in federal court in Toledo, Ohio.

The negotiations will probably produce an accord that would compensate patients based on factors such as their age, the extent of their injuries and whether they had one or more surgeries to replace defective implants, according to the people.

In 2007, Merck & Co. set up a $4.85 billion settlement fund to resolve lawsuits over its Vioxx painkiller, which it pulled from the market in 2004 after a study showed it doubled the risk of heart attacks and strokes. Under that accord, a court- appointed administrator analyzed each claim, weighing such factors as a user’s age, their length of use, and health risks such as obesity or hypertension.

The J&J hips were made from a cobalt and chromium alloy used in two related models of hips -- the ASR XL Acetabular System, and the ASR Hip Resurfacing System. In announcing its recall, J&J cited unpublished data from the U.K. showing that within five years, 13 percent of ASR XL hips failed and needed to be replaced, and 12 percent of the ASR Hip Resurfacing System failed.

Preliminary Data

In March 2011, the British Orthopaedic Association and the British Hip Society said preliminary data put the ASR XL’s failure rate in the U.K. as high as 49 percent after six years.

Lawyers for patients claim that debris from the metal ball sliding against the metal cup causes tissue death around the joint and may increase the amount of metal ions in the bloodstream to harmful levels.

On Jan. 17, the U.S. Food and Drug Administration proposed tightening regulations for metal-on-metal implants, requiring manufacturers to conduct clinical studies before marketing the devices.

Under current regulations, companies need not show that the hips are safe and effective; rather, they must show they are “substantially equivalent” to devices already cleared by the FDA through the so-called 510(k) process.

Los Angeles

The Los Angeles court trial involves a lawsuit by Loren Kransky of Montana, a retired corrections officer who got an ASR hip implanted on Dec. 5, 2007. He had the hip replaced in February 2012. Claims by Kransky, 65, include failure to warn, negligent recall and manufacturing defect.

“Kransky asserts that his device released metal ions into his body and that as a result he developed elevated chromium and cobalt levels,” J&J said in a Nov. 21 court filing. The instructions with the implant “specifically warned that metal ions may be released from the hip implant into the body and that additional surgery may be required.”

A retiree and a military veteran, Kransky’s health conditions included “diabetes, neuropathy, arteriosclerosis and heart problems, some of which were determined to be associated with his exposure to Agent Orange while serving in Vietnam in the 1970s,” according to the filing.

Kransky’s case was chosen from those pending in the California Judicial Council Coordinated Proceeding before Judge Richard Kramer in San Francisco.

The Kransky case is Kransky v. DePuy, BC456086, Superior Court of the State of California (Los Angeles). The consolidated federal case is In re DePuy Orthopedics Inc., ASR Hip Implant Products Liability Litigation, 10-MD-2197, U.S. District Court, Northern District of Ohio (Toledo).

To contact the reporters on this story: Jef Feeley in Wilmington, Delaware, at jfeeley@bloomberg.net; David Voreacos in Newark, New Jersey, at dvoreacos@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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