Facing Wave of Opioid Lawsuits, Drug Companies Sprinkle Charity on Hard-Hit Areas

(Bloomberg) -- The drug industry is dishing out millions in grants and donations to organizations in cities, counties and states that have sued the companies over the deadly U.S. opioid epidemic.

The efforts could help makers and distributors of prescription painkillers, who face hundreds of lawsuits by communities across the country, reduce their tax bills and build goodwill ahead of a potential multibillion-dollar settlement over their role in a crisis that kills more than 100 Americans a day.

The money is pouring into places that have been hollowed out by the epidemic. Wholesaler Cardinal Health Inc., for example, this year gave $35,500 to a nonprofit in hard-hit Clermont County, Ohio, where overdoses have soared for more than a decade. In all, the company has given at least $3 million to some 70 groups — some with ties to plaintiffs in the litigation.

Additionally, drug wholesaler McKesson Corp. seeded a standalone nonprofit dedicated to fighting the opioid-abuse crisis with $100 million, and distributor AmerisourceBergen Corp. started its own opioid-focused grant program. Amerisource said it is still processing most applications, and couldn’t provide details, but has announced a $50,000 grant to three Boise-area hospitals to launch a program to help patients who overdosed on opioids.

The contributions mostly began after the wave of lawsuits. They are small in comparison with the amount companies could be forced to pay in a settlement — an estimate by Bloomberg Intelligence analysts pegs that potential tab at as high as $50 billion.

“That’s the way these battles are fought these days. They’re not just fought in court,” said Richard Ausness, a University of Kentucky law professor. “If you read these complaints it just sounds awful what they did, so they’re trying to create a different narrative.”

Andrew Kolodny, a Brandeis University researcher and critic of opioid makers’ business practices, urged communities to turn down the funds. “I can certainly understand how desperate they are, but they’re taking blood money,” he said. “An element of this is public relations and they want to make it look like they are doing something about this problem.”

For cities and counties with battered law-enforcement agencies or stretched social-service programs, the benefits of having the money could outweigh any disadvantages.

“What it came down to was here’s $35,000 that we can bring more prevention programs to the kids in schools,” said Karen Scherra, executive director of the Clermont County Mental Health & Recovery Board. “Do we punish them, in effect, and not provide that service, simply because of what else is going on?”

Companies facing lawsuits regularly seek ways to influence public opinion. Researchers at Harvard Business School who studied 20 years of lawsuits against public companies found that targeted local advertising increased by 23 percent after lawsuits were filed, and that they increase the probability of a favorable outcome.

Oxycontin maker Purdue Pharma LP has positioned itself as an advocate for fighting the crisis, helping fund distribution of overdose antidote naloxone through a national sheriffs’ association. In recent weeks, the closely held company has also purchased advertising in national news outlets, including the Washington Post and the Wall Street Journal, touting its efforts to stem the crisis

Another drugmaker named in the suits, Endo International Plc, said it is helping communities but doesn’t disclose donations by organization. Johnson & Johnson said its opioid outreach includes focusing on supporting mothers and babies, but declined to provide specific details. Teva Pharmaceuticals Industries Ltd. didn’t say whether its outreach on public health has included donations related to opioids.

Corporations can deduct or donate up to 10 percent of their annual taxable income. But a company can violate self-dealing rules if giving is seen by the Internal Revenue Service as using its charity to benefit the company, including paying debts or fines, said Marcus Owens, a partner at law firm Loeb & Loeb LLP and former director of the agency’s exempt-organizations division.

He said companies may be in a gray area for two reasons: First, a fine or debt in the opioid litigation doesn’t yet exist but is possible, but also the donations have come after they were sued and amid settlement discussions.

“That sort of coincidence might suggest self-dealing, but in order to make that a case the IRS would have to know more about how the donations were structured,” Owens said.

Alexandra Lahav, a University of Connecticut School of Law professor, said the contributions could be a tactic in settlement talks or discussions with regulators, and while the donations wouldn’t be applied dollar-for-dollar in a settlement agreement, they show goodwill on the part of the company.

“The narrative is they’ve been irresponsible and this is a way to mitigate the narrative,” she said. “What they’re probably factoring in is, if I seem less like a bad guy, then the jury is more likely to award a lower a mount, the judge is more likely to rule in my favor and the regulators are more likely to go softer on me.”

Clermont County sued the three major wholesalers in December 2017. The Cardinal grant went to the Coalition for a Drug-Free Clermont County, a nonprofit whose programs, volunteers and resources overlap with the county government. The money, from a program affiliated with Cardinal’s foundation and the Ohio State University College of Pharmacy, will fund education and prevention programs through Cardinal Health’s Opioid Action Program.

Mary Makley Wolff, director of the Coalition for a Drug-Free Clermont County, said that the contribution makes sense for accountability.

“People who created the problem need to be part of creating the solution, and that means funding the solution through prevention,” she said.

Scherra credits more than $1 million in grants for a drop in the overdose rate the past two years, prior to which the rate nearly doubled from 2013 to 2015. In 2015, enough opioids were dispensed in Clermont County so that 67 doses would have gone to every man, woman and child.

County Commissioner David Painter, a member of the nonprofit, initially opposed the funds and said the donation doesn’t exonerate the industry. “The source was not one that I would have looked for obviously,” Painter said. “We have a large lawsuit there.”

Drug distributors have denied claims that they failed to halt suspiciously large shipments of painkillers and helped mislead patients about the painkillers’ addictive properties.

Dublin, Ohio-based Cardinal has also bought naloxone for communities and conducted take-back programs, where it accepts unused or expired medicines anonymously. Spokeswoman Ellen Barry said grant recipients were chosen partly from how epidemic has had an impact, the location’s proximity to Cardinal operations and impact on its employees in Ohio.

“These organizations were chosen through a competitive grant process and we are proud to support the important work they are doing to combat the opioid epidemic and make a difference in their communities,” she said.

Beside its grant program, AmerisourceBergen has given grants to the Moyer Foundation, which helps children and families affected by addiction, and donated drug deactivation resources to communities. An AmerisourceBergen spokeswoman said the company has helped bring together “innovative players who can address the disease of addiction and developed philanthropic efforts” that support nonprofits and municipalities.

San Francisco-based McKesson has long provided resources for military veterans with addiction issues through the Community Anti-Drug Coalitions of America (Endo said it also supports this organization). McKesson spokeswoman Jennifer Nelson said its nonprofit, announced in March, “demonstrates our commitment to being part of the solution to this complicated, national crisis.”

To contact the editor responsible for this story: Timothy Annett at tannett@bloomberg.net

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