Wrecking Purdue Pharma Won’t Help Opioid Victims
(Bloomberg Opinion) -- There are few quotations that have stuck with me over the years like the one delivered by the anti-tobacco scientist Stanton Glanz back in 2006, when I was writing an article about Altria Group Inc. Asked what his ultimate goal was, he didn’t say it was to get people to stop smoking. He said it was “to destroy the tobacco companies.”
I thought of that line on Monday, the day after Purdue Pharma LP filed for bankruptcy, and the day ahead of the first court hearing before the respected U.S. Bankruptcy Court Judge Robert Drain, in White Plains, N.Y.
The filing was inevitable: No company can withstand over 2,600 lawsuits from states, counties, cities and Native American tribes all across the country.
What was not inevitable was Purdue’s proposed solution. As part of its bankruptcy filing, Purdue unveiled a settlement proposal that would set up a trust to give cash to those affected by the opioid crisis it helped trigger with its primary product, the painkiller OxyContin. The money, which Purdue estimated at around $10 billion, would come from the company’s present and future profits, as well as $3 billion from Purdue’s owners, heirs of founders Arthur, Mortimer and Raymond Sackler. Some 24 states were backing the settlement, along with five territories and over 1,000 counties. But other states are opposing the settlement, including Massachusetts.
In an op-ed article in The Washington Post on Monday, Massachusetts Attorney General Maura Healey explained why. The proposed settlement, she wrote, “doesn’t hold the company or its owners accountable.” After documenting Purdue’s undeniable role in the crisis — “We uncovered a scheme to get more patients on opioids, at higher doses, for longer periods of time,” she wrote, even as the Sacklers were pocketing billions — she declared: “Accountability means making the Sackler family reach into their own pockets. It means telling the whole truth. It means shutting down Purdue for good.”
That’s just crazy. The idea that shutting down Purdue will somehow be a societal good is exactly like saying that destroying tobacco companies is more important than getting people to stop smoking. The goal should be to provide money that government entities can use to combat the crisis. It should be to develop pain-relief drugs that are abuse resistant. It should be to find ways to manage severe pain without relying on drugs that addict and kill. Shutting down Purdue might give some attorneys general a notch on their belts, but it won’t help bring the opioid crisis to an end.
At the hearing in White Plains on Tuesday — a sedate affair that mainly established the rules under which Purdue would continue to operate while in bankruptcy — the company’s lead attorney, Marshall Huebner of Davis, Polk & Wardwell, outlined the Purdue plan.
A trust would be set up, controlled by the plaintiffs, that would dole out money to communities and individuals who had legitimate claims of being harmed by opioids. The trust would take control of Purdue, meaning that those who are now suing Purdue would effectively own the company. It would continue to manufacture OxyContin, but the owners would also be able to direct the company towards developing drugs to counteract opioid addiction. Meanwhile, Purdue profits would be sent to the trust.
In the near term, Huebner said, the company’s goal was maximizing and preserving its value. That meant stopping the millions it was spending on lawyers — and the millions more it would be spending if it had to start trying cases. It meant retaining scientists and other key employees who were wondering whether they should jump ship. He described what Purdue was doing as “radically de-risking the situation,” in the sense that those suing the company were being guaranteed every penny Purdue could generate without the risk of losing at trial. Purdue, meanwhile, was eliminating the risk of being put out of business through litigation, which wouldn’t leave anywhere near the amount of money the plaintiffs were now going to get.
“Purdue is not shielding itself from these claimants,” Huebner said. “It is giving itself to these claimants without them ever having to prevail in the litigation.” He added: “It is very much the best case for the country. Pursuing cases outside Chapter 11 benefits no one.”
The real bone of contention between those who back the settlement and those who oppose it isn’t so much what will happen to Purdue as it is what will happen to the Sacklers. Huebner made much of the fact that the family would be selling another pharmaceutical company it owns to help raise the $3 billion. But that is exactly what galls critics like Healey: selling a company to raise money is different from taking money out of your pocket and handing it over to the people who are suing you.
At the hearing, Purdue’s lawyers went out of their way to assure the court and the critics that the company was disassociating itself as much as possible from the Sacklers. No Sackler family member remained on the board. No Sacklers would get their legal fees paid by the company. No Sacklers would get any of the retention bonuses and other money the company was spending to hold onto key employees. Be that as it may, it seems pretty clear that critics like Healey won’t be satisfied unless the settlement inflicts more pain on the family.
Right now, the bankruptcy has stopped all litigation against Purdue, including from the government entities that are opposing the settlement. Over the next few months, Judge Drain will have to decide whether the lawsuits brought by those who have not agreed to settle can continue. As Bloomberg News pointed out on Tuesday, while Drain could put all litigation on hold, the law tends to favor attorneys general who want to keep suing. If he allows the suits to continue, the settlement will fall apart. As the company put it in court papers, “Absent this protection [from lawsuits], the fundamental goal of this or any bankruptcy will have been thwarted.”
A better approach would be to encourage the various government entities to forge a settlement with Purdue that excluded the Sacklers. Then they could continue suing family members, or craft a different settlement with them that took away a significant portion of the $13 billion they are said to be worth. Now that there are no Sacklers on the Purdue board, this strikes me as reasonably realistic.
In 1981, Johns Manville, an insulation and roofing manufacturer facing thousands of lawsuits for covering up the dangers of asbestos, filed for bankruptcy. It was the first company to employ the technique Purdue hopes to use: It set up the Manville Trust and seeded it with 75 percent of the company stock. The trust pays out claims to this day. (Johns Manville, no longer associated with the trust, is now owned by Berkshire Hathaway.)
Here’s the kicker, though. It took seven years for Johns Manville to emerge from bankruptcy and for the Manville Trust to be established. Even then, tens of thousands of people who had asbestos-related cancer had to wait another three, four or five years to get any compensation. And they received only pennies on the dollar.
The entities affected by the opioid crisis — whether states, cities, tribes or individuals — can’t wait that long to get relief. They need it now. The settlement that was negotiated between Purdue and the plaintiffs will get them that money. That’s enough reason the settlement on the table is the best way forward, even if it doesn’t satisfy the soul.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Joe Nocera is a Bloomberg Opinion columnist covering business. He has written business columns for Esquire, GQ and the New York Times, and is the former editorial director of Fortune. His latest project is the Bloomberg-Wondery podcast "The Shrink Next Door."
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