Johnson & Johnson (J&J) shares plunged 5% in pre-market trading on Tuesday after a U.S. bankruptcy judge rejected the company's $10 billion proposal to settle tens of thousands of lawsuits alleging its talc products caused cancer. This marks the third failure of J&J's bankruptcy strategy to resolve its mass talc liabilities, dealing a significant blow to the healthcare giant's efforts to put the controversy behind it.

The ruling by Judge Christopher Lopez of the U.S. Bankruptcy Court in Houston dismissed J&J's latest attempt to use Chapter 11 bankruptcy to end the litigation. The judge found that the company used a flawed process to solicit votes from personal injury claimants, with at least half of the votes cast deemed invalid. J&J had claimed support from 83% of the roughly 93,500 injury claimants who voted on the proposed settlement.

In response to the court's decision, J&J announced it would not appeal the ruling and instead return to the civil court system to fight the talc claims. "As we have repeatedly stated, in the absence of plan confirmation, we will vigorously present our case in the tort system," the company said in a statement. J&J also plans to reverse about $7 billion of its previous reserve related to the litigation, signaling its confidence in defeating the claims through individual trials.

The news has rattled investors, with J&J's stock price dropping sharply. The company faces over 60,000 lawsuits alleging its baby powder and other talc products contained asbestos and caused ovarian cancer. J&J has consistently maintained that its products are safe and do not cause cancer, having stopped selling talc-based baby powder in the U.S. in 2020.

Despite the setback, J&J executives remain optimistic about the company's financial outlook. During a conference call with investors, Chief Financial Officer Joe Wolk stated, "We remain confident in our 2025 guidance and long-term outlook." The company will now focus on litigating individual cases in the tort system, a process that could potentially take years and lead to significant legal expenses.