Purdue Pharma, a drug manufacturer accused of fueling America's epidemic of opioid addiction through its sale of the highly addictive painkiller OxyContin, filed for bankruptcy Sunday.
Restructuring the company through bankruptcy was at the heart of a tentative settlement agreement reached last week between the company and thousands of cities and counties that have sued it in federal court. Twenty-four states and five U.S. territories have also accepted the agreement.
"This settlement framework avoids wasting hundreds of millions of dollars and years on protracted litigation," Steve Miller, chairman of Purdue's board of directors, said in a statement.
A person familiar with the matter who would only speak on the condition of anonymity said Purdue has spent $250 million on litigation costs this year.
The settlement calls for Purdue's owners, the billionaire Sackler family, to hand over Purdue to a trust controlled by roughly 2,000 entities -- including state, city and county governments -- that have sued to recoup billions of dollars they spent battling opioid addictions and overdoses. The trust would continue to produce OxyContin as well as overdose "rescue" drugs that would be distributed at no cost to communities across the country. Future profits from the trust would go to the company's creditors.
Purdue's board of directors voted Sunday evening to approve the settlement in principle. The deal does not include any admission of wrongdoing by Purdue or the Sacklers.
The Sackler family Sunday night issued a statement calling the settlement and the Chapter 11 bankruptcy filing in White Plains, N.Y., a "historic step" to address a "tragic public health situation."
"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," the family said.
Officials originally envisioned raising as much as $12 billion with the trust plan. But in an emailed statement, Purdue officials reduced the potential settlement amount to more than $10 billion. The company listed as much as $10 billion in assets and $1 billion in debts in its Chapter 11 filing.
States that aren't satisfied with Purdue's proposal will get a chance to voice their opposition before a bankruptcy judge approves its Chapter 11 plan.
While Purdue only sold a fraction of the opioid prescriptions in the United States, it is nonetheless widely identified with the epidemic because of its pioneering role in pain pill sales. Starting in 1996, the company used aggressive sales tactics to push physicians to prescribe millions of doses of oxycodone pills under the brand name OxyContin, saying the medication's time-release properties made it a safer form of narcotic.
But the drug was blamed for a sharp rise in addiction, prescription drug abuse and fatal overdoses. Widespread sale of the drug, and generic versions that were sold by other companies, set the stage for subsequent waves of heroin and fentanyl abuse in communities throughout the country, especially Appalachia, according to authorities.
More than 200,000 people have died of prescription opioid overdoses since 1999.
Purdue's move to seek financial shelter will shift the focus to new wrangling over how potential proceeds will be divided by communities reeling under the burden of addiction and overdose deaths.
The bankruptcy also will raise the stakes on legal sparring over how much of the personal fortunes of the Sackler family will be available to compensate plaintiffs.
"The controversial piece is going to be about how much the Sacklers need to kick in for the deal to work," said Adam Levitin, a professor specializing in bankruptcy at Georgetown University's law school.
The Sacklers have guaranteed to pay a minimum of $3 billion as part of the settlement, with most of the sum generated by selling Purdue's U.K.-based drugmaker Mundipharma.
But states including New York, Massachusetts and Connecticut argue that the Sackler family has far more money stashed in a number of trusts and investment firms, including in offshore tax havens such as the Channel Islands, that should be made available to plaintiffs. Forbes has estimated the Sackler family's total worth at $13 billion.
The family is expected to argue that billions of dollars moved out of Purdue Pharma were legitimate dividends. Levitin said there will be restrictions on what can be "clawed back" from the family, partly because state statutes of limitations prevent plaintiffs from examining transactions going back more than a few years.
"There is a desire that the Sacklers pay some blood money, but it's never going to be enough to make everyone happy," Levitin said.
Paul Hanly, co-lead counsel for plaintiffs suing Purdue, said the local governments have accepted the tentative settlement because it's a better bet than the alternative, which he called "probably 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."
Information for this article was contributed by Christopher Rowland, Joel Achenbach and Lenny Bernstein of The Washington Post; by Jef Feeley, Steven Church and Dawn McCarty of Bloomberg News; and by Jan Hoffman and Mary Williams Walsh of The New York Times.
A Section on 09/16/2019