By Alexander Gladstone and Jared S. Hopkins
Drugmaker Mallinckrodt PLC said on Tuesday that it reached a
settlement worth more than $1.6 billion with 47 states and U.S.
territories and lawyers representing thousands of local governments
to settle liabilities stemming from the opioid addiction
crisis.
Under the settlement proposal, state and local governments would
receive $1.6 billion of payments, phased out over eight years, and
warrants for a minority stake in the company. Mallinckrodt's
generics subsidiaries would file for chapter 11 to implement the
proposed deal, though the Ireland-based parent will stay out of
bankruptcy.
If approved in bankruptcy court, the settlement would bring
closure to Mallinckrodt's share of thousands of lawsuits filed
against the company by cities, counties and Native American tribes
surrounding the public costs of opioid abuse.
Shares of Mallinckrodt were up 16% to $4.73 in Tuesday trading.
Before Tuesday, the stock had fallen more than 80% over the past
year.
The settlement eliminates the possibility of a bankruptcy filing
by Mallinckrodt itself, which had been a concern among market
investors, J.P. Morgan Chase & Co. analyst Chris Schott said in
a research note Tuesday.
Mallinckrodt is the first company in the opioid litigation to
strike a settlement with such wide support from most states and
local governments. The deal provides a possible template for other
drugmakers, states and municipalities seeking to resolve the
long-running litigation, though Mallinckrodt is among the smaller
companies facing opioid litigation.
"If they can all agree on this maybe they can all agree on the
bigger picture," said University of Connecticut School of Law
professor Alexandra Lahav.
Most of the $1.6 billion will be funneled into a trust to
address the costs of opioid-addiction treatments, the company
said.
Lawyers for states and local governments continue to negotiate
about reaching a comprehensive resolution to resolve the sprawling
litigation that accuses drug companies of helping fuel the opioid
crisis.
Winning broad consensus has proved difficult so far, with some
proposals falling through while a handful of small settlements over
the past year allowed companies to avoid facing juries as they
discuss a broader deal.
Earlier this month, more than 20 state attorneys general
rejected an $18 billion offer from three major drug wholesalers,
McKesson Corp., AmerisourceBergen Corp. and Cardinal Health Inc.,
The Wall Street Journal reported. Drugmakers Teva Pharmaceuticals
Industries Ltd. and Johnson & Johnson have also put forth
separate proposals to resolve their legal exposure.
The Journal reported Monday that Mallinckrodt was close to
finalizing an offer that included the cash payments, equity
warrants and a bankruptcy filing for the company's generics
business. Government creditors under the deal would receive the
right to purchase just under 20% of Mallinckrodt's stock at $3.15 a
share following the completion of the bankruptcy process the
company said Tuesday.
Ohio Attorney General Dave Yost said of Mallinckrodt's proposal,
"If the final structure is right, Ohio will consider supporting a
proposal along these lines." Massachusetts Attorney General Maura
Healey said she and her office were "evaluating this settlement,
and continue to work with the parties involved to ensure the best
possible outcome for our communities."
State and local governments have accused Mallinckrodt and other
drug manufacturers, distributors and retail pharmacies of helping
spark the opioid crisis through misleading marketing and lax
oversight over drug distribution.
Mallinckrodt has denied the allegations. The lawsuits seek to
recoup the costs borne by communities grappling with widespread
addiction, including burdens on emergency services, medical care
and foster services for children born to addicted parents.
Drug companies have been in negotiations with lawyers for
states, cities and counties for more than a year to reach a
resolution that could begin resolving the sprawling litigation.
Two other opioid manufacturers, Purdue Pharma LP and Insys
Therapeutics Inc., have sought chapter 11 protection to deal with
government claims related to the drug epidemic. Purdue has proposed
turning itself over to creditors in bankruptcy and paying at least
$3 billion from its controlling family to fight addiction. Insys
sold its rights to its flagship opioid product and other drug
assets and is winding down affairs.
Malinckrodt said Tuesday it also reached an agreement with
lenders and bondholders for a debt restructuring that would involve
swapping bonds and loans into new debt with later maturities.
Mallinckrodt, one of the largest opioid makers in the U.S.,
previously acknowledged that it faced bankruptcy risk due to its
exposure to opioid litigation.
Mallinckrodt is among several of the opioid companies that will
go to trial next month on allegations brought by New York Attorney
General Letitia James related to the marketing and distribution of
opioids.
Ms. James said her office had yet to reach a final agreement
with the company "on all terms of a New York settlement" but
continues to work with states and creditors to ensure that money
"can flow to our communities for remediation as quickly as
possible."
The settlement would create a trust to pay out proceeds to
governments, with $300 million due when the generics business
emerges from chapter 11.
Mallinckrodt, which has U.S. headquarters in St. Louis, makes
branded and generic medicines as well as raw materials for rivals'
products. It has manufactured opioids for years and from 2006 to
2012 was the country's single largest manufacturer of prescription
opioid pills, according to federal data.
With the generics company slated for bankruptcy, Mallinckrodt
will focus on its branded specialty business, which sells items
such as the anti-inflammatory treatment Acthar Gel. Last year,
Acthar Gel sold nearly $953 million, just under a third of the
company's total revenue.
Write to Alexander Gladstone at alexander.gladstone@wsj.com and
Jared S. Hopkins at jared.hopkins@wsj.com
(END) Dow Jones Newswires
February 25, 2020 16:05 ET (21:05 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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