The Chapter 11 filing on Sunday is
designed to short-circuit more than 2,000 lawsuits against Purdue and its
owners.
By Jef Feeley and Steven Church | September 16, 2019 at 10:07 AM
(Bloomberg) –Purdue
Pharma LP filed for bankruptcy with a more than $10 billion plan to settle
claims that it fueled the U.S. opioid epidemic by illegally pushing sales of its
addictive OxyContin painkiller.
The Chapter 11
filing on Sunday in White Plains, New York, is designed to short-circuit more
than 2,000 lawsuits against Purdue and its owners, the
billionaire Sackler family. The settlement calls for the Sacklers to hand over
Purdue to a trust controlled by the states, cities and counties that have sued
to recoup billions of dollars they spent battling opioid addictions and
overdoses.
Officials
originally envisioned raising as much as $12 billion with the plan, which is
backed by more than two dozen U.S. states and territories, along with many
cities and counties that sued Purdue. In an emailed statement, Purdue officials
reduced the potential settlement amount to more than $10 billion.
The company listed
as much as $10 billion in assets, including $1.2 billion in cash, and $1
billion in debts in its Chapter 11 filing. Purdue officials said Sunday the
costs of dealing with waves of opioid suits made a bankruptcy inevitable, and
the company projected it will spend about $263 million on legal and related
professional costs in 2019.
The Sacklers
guaranteed they’ll pay a minimum of $3 billion toward the settlement, with most
of the sum generated by selling Purdue’s U.K.-based drugmaker Mundipharma.
The family has
rejected calls by some state attorneys general to boost their guarantee to $4.5
billion. Of the 48 states that have court actions pending against the company
in some forum, half have refused to sign on to the settlement. States that
aren’t satisfied with Purdue’s proposal will get a chance to voice their
opposition before a bankruptcy judge approves the accord.
The plan calls for
Purdue officials to set up a trust responsible for operating the company, which
would generate money that governments could use to bolster drug treatment and
policing budgets. That entity, run by trustees appointed by a bankruptcy judge,
also will oversee payouts to state and local governments that sued.
“This unique
framework for a comprehensive resolution will dedicate all the assets and
resources of Purdue for the benefit of the American public,” Steven Miller, the
drugmaker’s board chairman, said in an emailed statement.
To make its plan
work, the company said it will soon ask the judge overseeing the case to halt
lawsuits brought by local and state governments that are not part of the
current deal. Typically, such government regulatory actions are allowed to
continue while a company is in bankruptcy, while private lawsuits are halted.
Who gets what
The court that will
oversee Purdue’s case has the thorny task of trying to figure out how to
apportion monies generated by the plan among thousands of states, cities and
counties seeking reimbursement for tax dollars spent on the crisis.
That allocation “will
be one of the main tasks in the case,” Miller said Sunday. Lawyers for cities
and counties have created computer programs that calculate how much a
municipality could get under the deal based on the amount of opioids circulated
in the area.
U.S. Bankruptcy
Judge Robert Drain has been assigned to oversee Purdue’s Chapter 11 case. His
White Plains court is about a 20-minute drive from Purdue’s Stamford,
Connecticut headquarters.
A veteran
bankruptcy judge, Drain has handled similar high-profile filings, including
that of Sears Holding Corp., which was sold to hedge fund manager Eddie
Lampert’s ESL Investments Inc. He also oversaw the sale of some of Delphi
Corp.’s assets in 2009 after the auto-parts maker and ex-General Motors Co.
spinoff sought protection from creditors.
Bigger bite
The Sackler family
said it backed the proposed settlement in hopes of finding a way to provide
“critical resources” to address an epidemic that some attorneys general have
accused them of spawning.
“This process will
bring the thousands of claims into a single, efficient forum where the
settlement can be finalized, reviewed by the bankruptcy court to ensure it is
fair and just and then implemented,” the family said in an emailed statement.
Opponents argue
Purdue’s plan isn’t enough of a reckoning for the Sacklers, who made billions
from the over-prescribing of OxyContin that was spurred by the company’s
allegedly illegal marketing. It also won’t provide enough reimbursement for
hundreds of thousands of overdose deaths and addiction damage inflicted on
millions of U.S. families, opponents say.
“Irrespective of
Purdue’s actions or evasions, we will continue to pursue justice on behalf of
those harmed by the Sacklers’ greed, callousness, and fraud,” Delaware Attorney
General Kathy Jennings said in an emailed statement.
The Sacklers and
Purdue officials had sought to persuade 35 attorneys general to back the
current settlement proposal. That super-majority would have held more sway in
bankruptcy court when it came time to win final approval of the deal. As of
Sunday, the company had lined up as many as 29 U.S. states and territories,
according to Purdue’s news release.
Purdue planned to
file for protection from creditors by the end of September to avoid facing a
Cleveland jury that’s scheduled to hear evidence starting next month in the
first federal trial over the opioid epidemic.
Public nuisance
A host of other
opioid makers, such as Johnson & Johnson, and drug distributors like
McKesson Corp., will face claims they created a public nuisance across the U.S.
with their mishandling of the medicines.
States and
municipalities contend drugmakers, distributors and pharmacy chains conducted
illegal marketing campaigns pushing the painkillers, failed to adequately
oversee orders and ignored red flags about unusually frequent retail sales.
In March, Purdue
settled claims brought by the state of Oklahoma for $270 million, and another
defendant, Teva Pharmaceutical Industries Ltd., also reached an $85 million
deal to avoid trial. J&J, which refused to settle, was ordered to pay $572
million for creating a public nuisance in the state with its over-promotion of
its opioid pain medicines.
The case is Purdue
Pharma LP 19-23649, U.S. Bankruptcy Court for the Southern District of New York
(White Plains).
–With assistance
from Dawn McCarty, Rick Green and Virginia Van Natta.
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