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.

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, the Journal reported.

Shares of Mallinckrodt jumped 18% to $4.82 in Tuesday trading. Before Tuesday, the stock had fallen more than 80% over the past year.

The Wall Street 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.

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. A spokesman for the New York attorney general's office didn't immediately respond to a request for comment on Mallinckrodt's offer.

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 12:34 ET (17:34 GMT)

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