- Mallinckrodt on Tuesday proposed to pay a total of $1.6 billion to 47 state and territorial governments and plaintiffs in a federal case to settle claims that it misrepresented the risks of prescription opioids and drove a nationwide addiction crisis.
- Payments would begin after the generics division of the British-based specialty pharma emerges from a planned Chapter 11 bankruptcy proceeding. In filing for bankruptcy protection, Mallinckrodt is following the lead of other companies sued for opioid marketing practices, such as Purdue Pharma and Insys.
- After falling by nearly 20% on an initial report of the deal Monday, Mallinckrodt shares surged by as much as 48% in Tuesday morning trading. Raymond James analyst Elliot Wilbur said the settlement "isn’t cheap" but added that "it is manageable."
Mallinckrodt's proposed settlement isn't final, but the drugmaker reached an agreement in principle with a court appointed plaintiff committee and says it has the backing of the 47 U.S. state and territory attorneys general.
Raymond James' Wilbur said it is the first "done deal" with broad support among the states and territorial governments as well as individual plaintiffs.
Mallinckrodt plans on putting its generics division into bankruptcy proceedings. Once it emerges from that, an upfront $300 million payment will be paid out to the plaintiffs, $200 million on the first and second anniversary of the first payment and $150 million on the third through eighth anniversary.
Payments will be administered by a trust to which Mallinckrodt will grant warrants to buy up to nearly one-fifth of the company at $3.15 a share. Wilbur said this arrangement "aligns interests of plaintiffs and the company."
The company also announced debt refinancing to give it the flexibility to carry out the settlement. A four-year, $800 million loan will allow it to pay off $615 million in notes due in April, along with assorted other debts.
The settlement will bring to an end pressure on the company to make up for its marketing practices for opioids like hydrocodone, hydromorphone, and oxycodone. Patients and government health programs have claimed Mallinckrodt and other drugmakers like Purdue Pharma contributed to a surge in addiction and led many to turn to illegal drugs when access to prescription medications were cut off.
Shares on Monday stood at just 3% of their all time high in March 2015, and hit a low of $1.59 in September 2019.
As the first comprehensive settlement of its kind, Mallinckrodt’s deal could provide a model for other companies that have been the subject of opioid related lawsuits.
Teva, Johnson & Johnson, Allergan, Endo and other drugmakers and distributors have been negotiating with both the plaintiffs in the Ohio federal case and multiple state attorneys general to reach global settlements that will provide compensation for the costs of opioid addiction.