Purdue Pharma on Sunday filed for Chapter 11 bankruptcy as part of a tentative settlement the drugmaker reached with nearly two dozen states and thousands of U.S. cities, counties, and territories that are suing the company for allegedly contributing to the U.S. opioid epidemic.
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Background on opioid lawsuits
Across the country, thousands of lawsuits have been filed against pharmaceutical companies over their role in fueling the opioid epidemic. U.S. District Judge Dan Polster in Cleveland, Ohio, is overseeing the consolidation of 2,000 opioid cases brought by 33,000 U.S. counties, cities, and towns—including those that have not filed lawsuits—to settle opioid cases.
Polster last week approved a proposal to allow the counties, cities, and towns to form a negotiating bloc for settlement discussions with the 13 companies being sued. But a group of drug distributors on Saturday filed a motion to disqualify Polster from overseeing the trial. The group argued that Polster has shown bias by being heavily involved in settlement discussions and publicly stating that he wants to help address the opioid epidemic.
Drugmakers also face separate lawsuits brought by state attorneys general (AGs). A district court judge last month ruled that Johnson & Johnson helped to fuel Oklahoma's opioid crisis by downplaying the risks of its opioid drugs and ordered the company to pay the state $572 million. Observers have said the ruling could influence settlement negotiations in similar cases.
Purdue files for Chapter 11 bankruptcy
Purdue on Sunday filed for Chapter 11 bankruptcy as part of a tentative settlement it reached with parties in thousands of lawsuits filed against the company over its alleged role in the opioid epidemic.
Purdue and the Sackler family, which owns the company, for the past year have been working to negotiate a settlement to resolve the local government lawsuits being overseen by Polster, as well as lawsuits filed by state AGs. Sources familiar with the matter said Purdue as of last week had reached a tentative settlement with attorneys representing thousands of cities and counties in federal lawsuits, 24 states, and three U.S. territories.
The proposed settlement reportedly would total up to $12 billion. Under the proposed settlement, the Sackler family would:
- Give up ownership of Purdue;
- Pay $3 billion of their own money over seven years; and
- Sell the family's Britain-based drug company, Mundipharma, and contribute $1.5 billion or more from the sale's proceeds toward the settlement agreement.
Purdue would not cover the costs of the settlement in a straightforward cash payment. The majority of the costs would come from the company's restructuring under the Chapter 11 bankruptcy filing, which would convert Purdue from a private company into a "public beneficiary trust" and allow any future profits from the company's drug sales—including OxyContin sales—to go to cities, states, towns, and tribes involved in the lawsuits.
Under the settlement, a federal bankruptcy judge would supervise the Chapter 11 filing and appoint three independent trustees. The trustees then would select a board of directors for the new public beneficiary trust. The board would be responsible for all the decisions about the trust's revenues.
Purdue under the proposed settlement also would provide public access to substance use disorder treatments the company is developing at no cost. The treatments include tablets designed to curb opioid cravings and an over-the-counter nasal spray that can reverse the effects of an opioid drug-related overdose. Overall, the value of the profits generated from the trust and drug donations is projected to be between $7 billion and $8 billion.
Purdue under the settlement would not admit to any wrongdoing.
Purdue's board of directors on Sunday voted to approve the settlement in principle, and the company then filed for Chapter 11 bankruptcy. The tentative settlement still needs to be approved by a bankruptcy judge.
What Purdue's bankruptcy filing means for the opioid lawsuits it faces
Purdue's bankruptcy filing likely will change the scope of settlement negotiations to focus on how communities would divvy up the company's potential proceeds.
The filing also could allow the company to avoid a trial for the consolidated cases being overseen by Polster, which is scheduled to begin Oct. 21, by prompting an automatic stay in current civil litigation that has been filed against the drugmaker over the opioid epidemic. It is unclear whether the stay also would apply to lawsuits filed against the Sackler family.
California, Connecticut, Delaware, Massachusetts, New York, and other states—which have not agreed to the tentative settlement—are expected to try to override any bankruptcy protections the Sackler family might claim to have. Several of the states have claimed the Sackler family improperly transferred billions of dollars out of the company's coffers over the past 10 years to protect the funds from potential court judgments, which they argue amounts to "fraudulent conveyance" and could negatively impact the family's bankruptcy protections.
For example, New York AG Letitia James (D) on Friday announced that her office discovered $1 billion dollars in undisclosed transfers from Purdue to one of the family's private accounts.
The states have argued that the family's transferred funds should be subject to the legal proceedings. However, it remains unclear whether federal bankruptcy courts will agree with the states.
The Sackler family on Sunday called the bankruptcy filing a "historic step" to address a "tragic public health situation." The family said, "It is our hope the bankruptcy reorganization process that is now underway will end our ownership of Purdue and ensure its assets are dedicated for the public benefit."
Purdue Chair Steve Miller, a restructuring specialist, said, "We are hopeful of and expectant that a growing number of states will see this is a much better outcome for them than for us to go into the swamp of litigation that would basically eat up all the resources of the company."
Paul Hanly, co-lead counsel for plaintiffs suing Purdue, said many cities, counties, and states have agreed to the tentative settlement because it is a better option than spending "a decade or more in the bankruptcy court, at the end of which will probably be a ham sandwich left over for our clients, the communities that are suffering."
Adam Levitin, a professor specializing in bankruptcy at Georgetown Law, said, "The controversial piece is going to be about how much the Sacklers need to kick in for the deal to work." Levitin said there will be restrictions on what can be "clawed back" from the family's estate in part because of state statutes, which prevent plaintiffs from examining transactions dating back more than a few years. He added, "The Sacklers are going to be left with plenty of money after this. There is a desire that the Sacklers pay some blood money, but it's never going to be enough to make everyone happy" (Randazzo/Hopkins, Wall Street Journal, 9/16; Hoffman/Williams Walsh, New York Times, 9/15; Rowland, Washington Post, 9/15; Purdue release, 9/15).