Drug manufacturer Mallinckrodt to pay $1.6 billion to settle opioid claims

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The generic drug manufacturer Mallinckrodt Pharmaceuticals has tentatively agreed to pay $1.6 billion to settle thousands of lawsuits in a major federal case attempting to determine who should pay for the ravages of the opioid crisis.

Mallinckrodt, one of the largest manufacturers of generic opioids, is set to pay the money to a trust over eight years and enter its generics business into Chapter 11 bankruptcy. The company reached the agreement with a group of lawyers representing thousands of municipalities that have sued companies up and down the opioid supply chain. The framework for the agreement has also been approved by 47 state and territory attorneys general, who have brought separate cases against opioid companies.

Mallinckrodt is the first company to reach a tentative global agreement with parties involved in the sprawling federal case based in Cleveland and could serve as an impetus for settlement with dozens of other companies as trial dates loom. U.S. District Judge Dan A. Polster, who is overseeing the Cleveland case, has said he wants to see a global settlement of all claims.

Tuesday’s announcement comes shortly after more than 20 attorneys general signed a letter this month rejecting an $18 billion settlement deal proposed by three of the nation’s biggest opioid distributors. Negotiations on that track are ongoing.

“The companies that helped to create and fuel this deadly crisis must help us recover,” North Carolina Attorney General Josh Stein (D) said in a statement.

Under the proposed agreement with Mallinckrodt, plaintiffs would also receive warrants for 20 percent of the generic company’s outstanding shares. Mallinckrodt’s Ireland-based parent company, which manufactures brand-name drugs, will remain out of Chapter 11.

“Reaching this agreement in principle for a global opioid resolution and the associated debt refinancing activities announced today are important steps toward resolving the uncertainties in our business related to the opioid litigation,” said Mark Trudeau, president and chief executive of Mallinckrodt.

Next month, numerous drug companies are scheduled to go to trial in New York, and later this year, additional cases are slated in West Virginia and Cleveland.

Two Ohio counties, Cuyahoga and Summit, reached a $260 million settlement with three opioid distributors and Mallinckrodt in October, averting an imminent trial. The counties also reached a $20.4 million settlement with Johnson & Johnson.

Mallinckrodt is the second company to declare bankruptcy while faced with opioid lawsuits. Purdue Pharma, the manufacturer of OxyContin, filed for Chapter 11 bankruptcy in September.

Elizabeth Chamblee Burch, a law professor at the University of Georgia, said Tuesday’s tentative agreement is a test case for companies negotiating in the Cleveland case, known as multidistrict litigation. It is less costly for a company to declare bankruptcy with a subsidiary than to put the parent company through Chapter 11.

“Bankruptcy as an option, I think, is one alternative to negotiating a global settlement or a holistic closure” to the case, she said. “It’s like, all right, if you’re not going to play ball with us, this is our last move because we can always say well, we’ll just declare bankruptcy.”

As a condition of Purdue Pharma’s bankruptcy, it began a comprehensive, $23.8 million information campaign this week to notify individuals who might have claims against the firm that they must file by June 30. Most lawsuits already filed against Purdue came from state and local governments.

The company will flood the Internet, magazines, newspapers, TV and radio, and other public spaces, such as movie theaters and billboards. The ad campaign was designed to reach 95 percent of U.S. adults. Those people are predicted to see or hear the ads an average of six times.

The plan was approved by a bankruptcy judge in White Plains, N.Y., on Jan. 24 and developed by Purdue Pharma in partnership with the Official Committee of Unsecured Creditors and a court-approved claims agent, Prime Clerk.

The ads direct people to a website where they can read about the case, find frequently asked questions and learn how to file a claim.