A U.S. bankruptcy court judge has rejected Johnson & Johnson’s proposed settlement plan concerning its talc-based baby powder, marking a significant setback for the company in resolving ongoing litigation related to its controversial product.

The ruling comes as part of the third bankruptcy case tied to J&J’s baby powder, a product that has been at the center of lawsuits alleging it caused ovarian cancer and mesothelioma. Red River Talc LLC, a J&J subsidiary, had proposed a prepackaged Chapter 11 bankruptcy plan worth $9 billion, aiming to settle thousands of claims linked to ovarian cancer and other gynecological cancers caused by talc-based products.

Judge Christopher Lopez of the U.S. Bankruptcy Court for the Southern District of Texas, Houston division, stated in a court filing that the process J&J used to solicit votes from personal injury claimants was flawed, leading to the rejection of the plan. This decision has now forced J&J to reconsider its strategy.

In response to the ruling, J&J announced it would not appeal the decision but would instead return to the civil legal system to “litigate and defeat these meritless talc claims.” The company also revealed plans to reverse around $7 billion from a previous reserve.

Despite the setback, Johnson & Johnson noted that it had settled 95% of mesothelioma lawsuits, as well as all state consumer protection claims and talc-supplier disputes. In a previous attempt to settle, a J&J subsidiary had proposed a $6.48 billion settlement over 25 years to address allegations that its baby powder containing talc contributed to ovarian cancer.

The lawsuits against J&J claim that its talc-based baby powder caused serious health issues, including ovarian cancer through long-term use for feminine hygiene and mesothelioma, a rare cancer linked to asbestos exposure.

The litigation has taken a toll on J&J’s sales, leading the company to halt the sale of talc-based baby powder in 2020. In 2022, J&J announced its plan to cease sales of the product globally.

J&J had initially proposed that the reorganization plan for Red River Talc would settle 99.75% of the pending talc lawsuits in the U.S. However, claims involving mesothelioma were to be addressed outside the bankruptcy plan.

Following the decision, J&J’s stock saw a decline of over 3% in pre-market trading on Tuesday.