McKesson Dangles $1 Billion Legal Fund to Boost Opioid Deal
McKesson, Opioid Distributors Propose $1 Billion Legal Fee Fund
(Bloomberg) -- McKesson Corp. and two other opioid distributors have sweetened a settlement offer by proposing to pay more than $1 billion in legal fees for states, cities and counties suing them over their handling of the highly addictive painkillers, according to people familiar with the talks.
McKesson, Cardinal Health Inc. and AmerisourceBergen Corp. say the proposal would free up money for treatment and other social services strained by the U.S. opioid crisis, according to the people, who spoke on the condition of anonymity because they aren’t authorized to discuss the negotiations publicly.
Shares of the three companies rose by at least 1.5% after the news.
The three are betting the new overture will garner support for their offer to pay $18 billion to resolve more than 2,000 lawsuits accusing them of ignoring suspiciously large opioid orders to reap billions of dollars in profits.
Twenty-one U.S. states sent a letter to the companies last week rejecting the offer “as currently structured,” the people said. Many cities and counties are also thumbing their noses at the offer, saying it isn’t enough to address the harm the companies caused, the people added.
“I guess they are hoping this will get them over the hump with the states,” said Jean Eggen, a Widener University law professor who teaches product liability law. “The states have been pretty adamant about not taking a one-size-fits-all kind of deal. Maybe this will help it move forward.”
David Matthews, a McKesson spokesman, didn’t immediately return a call and email seeking comment on the legal fee proposal. Gabe Weissman, an AmerisourceBergen spokesman, had no comment. Erica Lewis, a Cardinal Health spokeswoman, didn’t comment specifically on the fund.
“We continue to work toward a nationwide settlement that would bring substantial and immediate relief to communities impacted by the opioid epidemic,” she said in an emailed statement.
Shares of the three companies moved from red to green after news of their proposal. McKesson’s stock, which had been down from Wednesday’s close, was trading at $170.86, up 1.7%, shortly after 3:30 p.m. in New York, while AmerisourceBergen was also up 1.7%, to $96.79, and Cardinal was up 1.5% to $60.22.
Read More: McKesson Hits 52-Week High at $169.69
The distributors’ offer is part of a roughly $50 billion proposal to resolve the thousands of suits filed by state and local governments seeking to recoup billions in tax dollars they have spent addressing the costs of the opioid epidemic.
As part of that larger offer, Johnson & Johnson, which at one time produced poppies, the raw ingredient of opioids, would pay $4 billion to resolve suits against it. Teva Pharmaceutical Industries Ltd. would donate $23 billion of the generic addiction-fighting drug Suboxone and pay $250 million in cash over 10 years to end the litigation.
Drugmakers are accused of pushing opioid prescriptions on doctors across the U.S. and downplaying the risks of addiction, while the governments say distributors and pharmacies turned a blind eye to suspicious orders and failed to meet government requirements on the painkillers. More than 400,000 Americans have died of opioid overdoses over two decades, and local communities have sued to recover expenses on drug treatment and police services.
Thousands of suits have been consolidated before a federal judge in Cleveland for pre-trial information exchanges and test trials. The first case set to be tried was settled in Cleveland in October for $260 million.
The distributors’ legal fee bid may be an attempt to avoid a trial next month in state court in New York. McKesson, Cardinal Health and AmerisourceBergen are facing claims from New York Attorney General Letitia James, along with private plaintiffs’ lawyers representing two New York counties, that they ignored the warning signs of oversize opioid orders and should pay billions in compensation.
When Teva reported slightly better-than-expected fourth-quarter earnings this month, Chief Executive Officer Kare Schultz said he was still “cautiously optimistic” about a global opioid settlement “before the New York state trial.”
Many states, cities and counties have hired outside lawyers who specialize in mass-tort cases, and often are compensated with a percentage of whatever they recover, to handle the opioid litigation on their behalf. Such agreements have been controversial in some states, where elected officials are loath to hand over what can amount to hundreds of millions of dollars in fees to well-heeled attorneys.
The distributors’ unusual offer to set up a $1 billion legal fee fund would allow governments to demand that outside lawyers cut the percentage of recovery they are entitled to in fees, said Elizabeth Burch, a University of Georgia law professor who teaches mass-tort law.
“I don’t see why they don’t just add the $1 billion to their $18 billion settlement offer,” Burch said. “Having the defendants pay some of the governments’ legal fees makes it look like they are trying to pay off the plaintiffs’ lawyers for less vigorous representation of their clients.”
The consolidated case is In Re National Prescription Opioid Litigation, 17-md-2804, U.S. District Court, Northern District of Ohio (Cleveland).
--With assistance from Erik Larson.
To contact the reporter on this story: Jef Feeley in Wilmington, Delaware at jfeeley@bloomberg.net
To contact the editors responsible for this story: David Glovin at dglovin@bloomberg.net, Peter Jeffrey
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