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Mallinckrodt Takes $30 Million Deal to End Ohio Opioid Cases

Mallinckrodt to Pay $30 Million to Resolve Opioid Cases in Ohio

(Bloomberg) -- Mallinckrodt Plc agreed to pay $30 million to settle allegations that it helped fuel the opioid epidemic, avoiding the first federal trial over the addictive painkillers.

The company said in a statement Friday that it will pay $24 million in cash and donate $6 million in generic products, including those used to treat addiction, as part of the settlement. That resolves a case against Mallinckrodt that is scheduled to go to trial next month in Cleveland.

Mallinckrodt shares close up 18% in New York following the news. Mallinckrodt’s bonds maturing in April jumped as much as 6.75 cents to 65 cents on the dollar, a day after plunging to a record low of 46 cents, according to Trace. The company, which produces specialty and generic drugs, had lost almost 90% of its market value this year with investors concerned about the potential liability posed by opioid-related lawsuits.

More than 2,000 states and local governments in hard-hit states including Ohio, West Virginia and Kentucky have accused opioid makers, distributors and pharmacy chains of understating the risks of prescription opioids, overstating their benefits, failing to halt suspiciously large shipments, and ignoring red flags about repeated retail sales. Next month’s trial is a test case involving just two Ohio counties. Among the companies facing a jury are Johnson & Johnson, McKesson Corp. and Teva Pharmaceutical Industries Ltd.

“We’re seeing the power of a trial date,” said Elizabeth Burch, a University of Georgia law professor who teaches about mass torts. “You’ve got to wonder, if you’re stuck in the multi-district litigation and unable to get a trial date, what will be left at the end of the all? It’s not sustainable.”

Mallinckrodt Takes $30 Million Deal to End Ohio Opioid Cases

Some opioid makers, including Endo and Allergan Plc, have already settled. Endo agreed to pay $10 million and donate $1 million worth of drugs while Allergan agreed to pay $5 million. Purdue Pharma LP is preparing to file for bankruptcy as part of a plan that may include an $11.5 billion settlement to resolve all lawsuits against it, Bloomberg has previously reported.

Mallinckrodt, burdened with $5 billion in debt, faced the risk of a large legal judgment. In recent days, the company was negotiating with lawyers for the cities and counties in hopes of working out a deal to avoid the Oct. 21 trial, and it hired restructuring advisers to help limit its potential legal liabilities.

“Of all of the remaining players that are not Purdue, Mallinckrodt is flying the closest to the sun,” said Piper Jaffray & Co. analyst David Amsellem.

The company had been exploring options that could include a bankruptcy filing if its costs become unmanageable, people with knowledge of the matter have said. The drugmaker has tapped the law firm Latham & Watkins LLP and turnaround firm AlixPartners LLP to advise it, said the people, who asked not to be identified discussing confidential talks.

Mallinckrodt’s goal to achieve a global resolution appears to be on a similar track to Purdue’s proposed settlement, analyst Eric Axon of CreditSights wrote in a note Friday.

A bankruptcy filing could free the company from current and future opioid-related legal liabilities, establishing a settlement trust, he said, though the outcome would likely negatively impact Mallinckrodt’s bondholders who would receive a low recovery in the event of a filing.

“No one wants the result of this litigation to be mere bankruptcy of companies, said three of the plaintiffs’ attorneys leading the cases brought by local governments, Joe Rice, Paul Hanly and Paul Farrell, in a statement. But, the lawyers said, the companies “must actively participate in abating and helping communities recover from this public health crisis.”

What Bloomberg Intelligence Says:

Mallinckrodt’s reported settlement to avoid track one trials of the opioid lawsuit isn’t necessarily a good thing, but at the very least it buys time to negotiate a feasible global settlement. While caution should be met with extrapolating numbers, and there’s no telling if it’s a proxy for a global deal, it suggests a $5 billion cash fine or more is a possibility.

Curt Wanek, pharma industry analyst, and Elizabeth Krutoholow, pharma industry senior analyst

Click here to view the research

In the lawsuits, cities and states claim that executives at the company provided lax oversight of orders for its products and took a cavalier attitude toward sales of the addictive medicines.

In 2008, a compliance officer at the drug maker warned her bosses that the company’s system for red-flagging suspicious orders -- required under U.S. rules intended to prevent shipments from being diverted to illegal uses -- needed to be upgraded, according to unsealed U.S. Drug Enforcement Administration records. But company executives declined to hire an outside vendor to beef up reviews, the records show. While the company denied having lax compliance, it agreed to a $35 million settlement in 2011 to end a government probe of the matter.

The case is In Re National Prescription Opioid Litigation, 17-md-2804, U.S. District Court, Northern District of Ohio (Cleveland).

--With assistance from Katherine Doherty.

To contact the reporters on this story: Chris Dolmetsch in Federal Court in Manhattan at cdolmetsch@bloomberg.net;Jef Feeley in Wilmington, Delaware at jfeeley@bloomberg.net;Riley Griffin in New York at rgriffin42@bloomberg.net

To contact the editors responsible for this story: David Glovin at dglovin@bloomberg.net, Joe Schneider, Peter Blumberg

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