By Joseph Walker and Sara Randazzo
Four pharmaceutical companies in settlement talks with states to
resolve claims related to their involvement in the national opioid
crisis stand to reap about $1 billion each in tax breaks if a
combined payout of more than $26 billion is finalized, according to
company filings.
The drug distributors McKesson Corp., AmerisourceBergen Corp.
and Cardinal Health Inc., along with Johnson & Johnson, plan to
deduct the payouts from their taxes, filings show.
Cardinal, which expects to pay $6.6 billion as part of the
settlement, said in a regulatory filing earlier this month that it
anticipates receiving a $943 million tax benefit as a result of
losses it incurred because of the payout charge. The company said
it has filed for an income tax refund it expects to receive in the
next 12 months.
Cardinal, based in Dublin, Ohio, said $420 million of the
benefit would come from offsetting profits from prior tax years
when there was a higher corporate income-tax rate, taking advantage
of a provision created by Congress as part of its Covid-19
economic-relief package last March
"We recorded a net operating loss for tax purposes in our second
quarter, which, as permissible under current federal law, will be
carried back to recover previously paid federal taxes," a Cardinal
spokeswoman said in an email.
Cardinal's use of the tax break was criticized by some lawmakers
who have pushed -- unsuccessfully so far -- to change the law.
"Many of the same Americans who were victimized by opioid hucksters
are now being asked, as taxpayers, to finance almost $1 billion of
the belated settlement for Cardinal Health through a special
interest tax provision buried in pandemic relief legislation," said
Rep. Lloyd Doggett (D., Texas) and Sen. Sheldon Whitehouse (D.,
R.I.) in a joint statement.
McKesson, based in Irving, Texas, said earlier this month that
it had recorded a charge of $8.1 billion to cover its settlement
payments, but that the amount would be reduced by $1.4 billion
after tax deductions. AmerisourceBergen, based in Chesterbrook,
Pa., said in a November financial filing that its planned $6.6
billion settlement payment would be offset by about $1.1 billion in
tax benefits.
McKesson didn't respond to a request for comment. An
AmerisourceBergen spokeswoman declined to comment beyond what was
in the company's financial statements.
Johnson & Johnson said in a regulatory filing that it
expects to pay about $5 billion for its part of the settlement at
an effective tax rate of 21.4%, which would result in a $1 billion
deduction. A spokesman declined to comment beyond what was stated
in the company's filings.
The Washington Post earlier reported the potential tax
deductions related to the opioid settlement.
Drugmakers, distributors and pharmacies have been under pressure
for years to take accountability for the nation's opioid crisis.
More than 3,000 lawsuits have been filed by states, local
municipalities, Native American tribes and others against industry
players, alleging they contributed to the crisis through aggressive
marketing of prescription painkillers and lax distribution
practices.
The companies have pushed back on the allegations while engaging
in talks to resolve the lawsuits. Cardinal, AmerisourceBergen,
McKesson and Johnson & Johnson have been working to broker a
deal with state attorneys general and local municipalities since
late 2019.
The overall value of the deal rose last year to more than $26
billion, with the distributors' contributions to be paid over 18
years. No final agreement has been reached and the delay of court
trials in New York, Ohio and West Virginia because of the pandemic
has removed some sense of deadline pressure.
So far, the only nationwide opioid deal has been reached with
the consulting firm McKinsey & Co., which agreed last week to
pay nearly $600 million for its work advising drugmakers, including
Purdue Pharma LP and Johnson & Johnson, on ways to boost
sales.
While announcing the McKinsey deal, several state attorneys
general said they hoped the firm's cooperation would serve as a
model for others in negotiations.
"We want to get fair settlements now," Colorado Attorney General
Phil Weiser said last week. "Others need to follow suit."
Mike Kaufmann, chief executive of Cardinal Health, declined to
say in an interview Feb. 5 whether the lack of a global settlement
so far is due to either industry or governments in particular. He
said that Cardinal continues to have productive talks with states
and attorneys for local governments and that Cardinal is "ready to
be part of the solution." Mr. Kaufmann said, "It's complex so it's
not for lack of trying on either side. Both sides want to get this
to conclusion."
Kare Schultz, the chief executive of the generic drugmaker Teva
Pharmaceutical Industries, said Wednesday in an interview that the
McKinsey settlement was a positive development showing that states
could have such widespread agreements in resolving an opioid-crisis
legal dispute. Teva offered in 2019 to donate addiction-treatment
drugs along with a smaller cash payment to resolve lawsuits filed
against it.
Mr. Schultz said the inclusion of thousands of local governments
in addition to states makes the drug industry's legal dispute more
complicated in reaching a resolution, despite the progress made.
"We probably need a firm trial date to really push everybody to
sign on the dotted line," he said.
--Richard Rubin and Jared S. Hopkins contributed to this
article.
Write to Joseph Walker at joseph.walker@wsj.com and Sara
Randazzo at sara.randazzo@wsj.com
(END) Dow Jones Newswires
February 12, 2021 20:08 ET (01:08 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.
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