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Novel Plan Aims to Settle Opioid Suits

The Wall Street Journal. logo The Wall Street Journal. 10/1/2019 Sara Randazzo, Patrick Fitzgerald
a close up of a typewriter© Keith Srakocic/Associated Press

Endo International PLC, Johnson & Johnson and other drugmakers that face sprawling litigation over the opioid crisis are exploring a way to settle the cases by participating in Purdue Pharma LP’s bankruptcy, according to internal documents and a person familiar with the matter.

The move, if successful, could bring an end to—or at least dramatically shrink—one of the largest and most complex pieces of litigation the U.S. has ever seen.

Drugmakers and distributors face some 2,500 lawsuits brought by virtually every state as well as cities, counties, Native American tribes and others accusing the pharmaceutical industry of helping fuel widespread opioid addiction.

The cases have become political flashpoints as communities look for ways to recover money to address the costs of treating addiction, including overstressed hospitals and first responders and to care for babies born with opioid dependence.

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Five drugmakers battling the cases—Endo, J&J, Teva Pharmaceutical Industries Ltd., Allergan PLC and Mallinckrodt PLC—are looking to enact a global settlement of the litigation that would be implemented through OxyContin maker Purdue’s chapter 11 case, according to a person familiar with the matter. The mechanism, if successful, would allow the companies to contribute money into a trust set up through the bankruptcy in exchange for a complete release from liability.

The idea is still in the early stages, the person said, and no dollar figures have yet been discussed. The concept would need buy-in from Purdue and its owners, the Sackler family, as well as a critical mass of state attorneys general and local municipalities suing the companies. The bankruptcy judge overseeing Purdue’s case would also need to agree he has jurisdiction to allow the other companies into the case.

A Purdue spokesman declined to comment.

Endo is working with lawyers at Skadden, Arps, Slate, Meagher & Flom, the company’s longtime corporate counsel, on the proposed deal, according to internal documents and a person familiar with the matter.

Endo, which makes the opioid painkiller Opana, isn’t considering filing for bankruptcy, the person said, though it faces significant debt.

Purdue, which has been the primary target of plaintiffs in the opioid litigation, entered bankruptcy court in mid-September to implement a multibillion-dollar deal with about half the states and thousands of local governments that would resolve much of the litigation it faces.

Purdue has valued the settlement at $10 billion to $12 billion, which includes at least $3 billion in cash from the Sacklers, as well as money from future OxyContin sales and the development of addiction-treatment drugs.

Purdue’s proposed deal, however, still faces strong pushback from mostly Democratic state attorneys general from some two dozen states, including New York and Massachusetts. Adding other companies into the talks could further complicate negotiations.

Endo, Allergan and Mallinckrodt recently reached settlements cumulatively valued at $45 million to avoid a landmark opioid trial slated to start in late October that will test the claims of Ohio’s Cuyahoga and Summit counties. That trial has been selected to serve as a bellwether of some 2,000 of the opioid lawsuits centralized in federal court in Cleveland.

The U.S. district court judge overseeing the thousands of federal-court opioid cases, Dan Polster, has pushed both sides to settle the cases rather than waste time and money in protracted litigation. Finding a way to fully cap liability from cases brought by local and state governments in different courts around the country has been a challenge, however. Using Purdue’s chapter 11 case could provide a way to resolve claims on a near-complete basis.

A scenario in which companies use a bankruptcy proceeding to resolve legal liabilities, without filing for bankruptcy themselves, has some precedent.

Car makers that were sued along with Takata Corp. over defective air bags had an option to contribute money and settle the cases through Takata’s bankruptcy plan.

The settlement mechanism was optional on both sides, and only Honda Motor Co. had signed on as of February 2018, when Takata’s plan was confirmed. Unlike Purdue’s co-defendant drugmakers, the car makers were major creditors in Takata’s bankruptcy since they were owed money for funding the recall of millions of vehicles, as well as funding the bankruptcy case.

Walmart Inc. in 2014 obtained a release of liability over dangerous plastic gasoline cans as part of a $162 million settlement built into the chapter 11 plan of Blitz USA, which made the cans. The retailer had been sued for selling the Blitz cans.

So-called third-party releases, which clear a company that is not itself in bankruptcy of liability in exchange for some kind of value, are prohibited in some parts of the country. That isn’t the case in New York, where Purdue filed for bankruptcy, or Delaware, where Takata obtained protection.

Endo, Teva and Mallinckrodt each face significant debt in addition to the opioid lawsuits. Reaching a global resolution could help them avoid seeking bankruptcy protection or implementing broader restructurings.

Endo, which posted sales of $700 million in its most recent quarter, had about $8.4 billion in debt and $1.8 billion in cash on its balance sheet as of the end of June, according to the company’s latest quarterly report.

Endo has more $1.4 billion in 6% bonds maturing in 2023. Those bonds were trading at about 62 cents on the dollar last week, according to MarketAxess.

Mallinckrodt in late June reported having $4.82 billion in long-term debt and total liabilities of $7.15 billion. Teva reported having $25.96 billion in long-term debt.

Write to Sara Randazzo at sara.randazzo@wsj.com and Patrick Fitzgerald at patrick.fitzgerald@wsj.com

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