The Journal. - How a Drug Maker Plans to Cut Off Money for Opioid Victims

Episode Date: July 31, 2023

Mallinckrodt, one of the country's largest opioid makers, is considering a plan to get out of paying more than $1 billion in settlement money to opioid victims. WSJ's Alexander Saeedy explains. Further Reading:  - Hedge Funds Seek to Cut Off $1 Billion Meant for Opioid Victims  Further Listening: - Purdue’s $4.5 Billion Opioid Settlement Got Thrown Out. Now What?  - Two Days of Reckoning For Opioid Makers Learn more about your ad choices. Visit megaphone.fm/adchoices

In the past few years, some major companies have agreed to multi-billion dollar settlements for their roles in the opioid crisis. A number of states have now agreed to a $26 billion settlement with three large drug distributors and Johnson & Johnson. The OxyContin maker, Purdue Pharma, reaches a new deal with several states to settle lawsuits for its alleged role in the opioid crisis. CVS and Walgreens announced Wednesday they are settling lawsuits over their roles in the opioid crisis. The drug maker, Malincrot, is the latest to announce a major legal settlement involving opioids.

to announce a major legal settlement involving opioids. In these settlements, state governments, municipalities, and victims agreed to not pursue future lawsuits. And makers and distributors of opioids agreed to pay billions of dollars. Those funds are supposed to help keep methadone clinics open, to buy Narcan for distribution across their states so that emergency responders, when they get a call of an overdose, have the materials on hand to save lives. That's what the money's for. That's our colleague Alexander Saidi.

And he says these funds are needed now more than ever. Something I think we may not remember, may not be fully aware of, is that opioid deaths in America are continuing to rise at a healthy clip. As of 2020 and 2021, the annual deaths are totaling something like 80,000, 90,000. So they've almost doubled since 2017 alone. But now, one company that agreed to a settlement, a generic drug maker called Malincrot, is exploring ways to stop paying. So Malincrot was the first company to settle that wave of lawsuits.

And many others followed in their wake after that settlement. However, it's now the first settlement that's of lawsuits. And many others followed in their wake after that settlement. However, it's now the first settlement that's falling apart. Welcome to The Journal, our show about money, business, and power. I'm Kate Leinbach. It's Monday, July 31st. first. Coming up on the show, how one of the country's biggest opioid makers is trying to cut off more than $1 billion to opioid victims. This ad was expressly recorded to create a sense of simplicity. Just a few simple sounds. No complexity. Hmm.

Like Neutral. Made with just vodka, soda, and natural flavor. Neutral. Refreshingly simple. Can you tell us about this company, Malincrot? Do you want me to start at the beginning? Yeah. Malincrot is a Missouri-based pharmaceutical manufacturer. It's an old company.

It was founded in 1867 by three German immigrant brothers who started a chemicals company based in Missouri at that time. And it really rose to prominence because in the early 1940s, it built one of the first uranium refining plants in the United States. And that uranium was refined to be used in the Los Alamos atomic bomb project that J. Robert Oppenheimer started. Data indicates it may have been a plutonium implosion device. Like the one you built at Los Alamos.

So anyways, they've got this amazing Oppenheimer connection that I just loved coming across. But they later became a big pharmaceuticals company. And so now I'll get into the opioid part, if that's cool. One of Malincrot's biggest drugs is roxiecodone. It's a generic type of oxycodone. The most well-known brand name is OxyContin, or Oxy, made by Purdue Pharma. Everyone knows about Purdue Pharma and OxyContin,

and they certainly led the revolution in popularizing prescription opioids in America. But the generic drug manufacturers that wanted to imitate their success produced more pills than Purdue ever did on any given year, specifically starting in the mid-2000s and onwards. So, you know, anyone who's been prescribed opioids for, you know, moderate to severe pain, if they weren't given Oxy, then they would be given a generic form, and the most common generic form would have been Roxycodone. How big was Malincrot as an opioid maker? I mean, they were the largest in the United States.

And between 2006 and 2014, they manufactured something like 35% of all opioids in the United States, which is billions of pills. Just huge amounts of production. Over the last two decades, the rise of opioid abuse has ravaged communities around the country. According to the CDC, more than 560,000 people died from opioid overdoses from 1999 to 2020. What was the company's role in the opioid crisis? Their role in the crisis is kind of twofold. Their role in the crisis is kind of twofold.

The most important one being that, according to people like state attorneys general who sued them, they knowingly were filling orders to pill mill clinics that were distributing pills for illicit use, and they did nothing to stop those orders. Malincrot has denied these claims. The cases against the company said that Malincrot's pills were often sold on the black market. The pills are pretty well known on the streets. They're called M30s because of the M embossment on the front for Malincrot and 30 on the back for 30 milligrams. They're one of the most commonly bought and sold forms of opioids on the streets, often called blues because of their blue color. Mallinckrodt eventually started to face legal issues.

In 2010, the U.S. Drug Enforcement Administration told company executives that the agency viewed it as the, quote, kingpin within the prescription drug cartel. In 2017, the company agreed to a $35 million settlement with the DEA over alleged violations of the Controlled Substances Act. And since 2018, Malincrot has been sued repeatedly by local and state governments and victims of opioid abuse. But, you know, a lot of documents came out of the woodwork during a 2019 investigation into the company. It showed that sales reps openly discussed how they knew consumers of the pills were rapidly getting addicted.

And some likened their pills to Doritos, saying, just keep eating them, we'll make more. And that's a verbatim quote from a Mallinckrodt sales rep talking about their pills. Really? Yes. Just keep eating, we'll make more. A company spokesman later called the statement, quote, outrageously callous.

And beginning in 2019, the company tried to settle lawsuits with individual states and individual cities. But it was finding that it was like whack-a-mole. You know, you settle one and, you know, there's three more popping up that you have to deal with. So they were facing this litany of lawsuits, you know, totaling into the thousands. And it was one of the main factors that caused the company to file for bankruptcy in 2020. The company filed for bankruptcy? Yes. The main factor that brought them into bankruptcy were these thousands of lawsuits. I mean, the damages sought by the totality of the lawsuits was in the trillions of dollars, which is like more

than the worth of the entire company. So it used bankruptcy to deal with that. Right. And so by going into bankruptcy, did that alleviate its responsibility for these lawsuits? So it stopped the lawsuits all at once, essentially. That's one of the legal benefits of filing for bankruptcy, is that there's a provision called the automatic stay. And it's a stay of litigation that's against you. It cannot proceed at that time. And while it can't stop criminal investigations or criminal lawsuits that are being brought against you, for civil lawsuits, it's a more effective way of dealing with the tsunami of claims against you. It's one of the advantages of bankruptcy and why a lot of troubled companies, you know, seek bankruptcy

protection. It forces all of your stakeholders to the table so you can try to cut a deal. And Malincrot's deal allowed the company to keep making opioids, and it also assured that no other opioid-related lawsuits could be filed against the company. And Malincrot agreed to pay $1.7 billion to state and local governments and people affected by opioid addiction. So they had contractually promised payments of between $150 to $200 million every year after a first $450 million payment in 2022. That was like what made the whole plan go live.

They made a first payment. They got a release from all the lawsuits that were brought against them. And they exited bankruptcy. But then this year, Malincrot missed a scheduled payment. And it has a new plan to try to get out of the settlement altogether. That's next. We'll see you next time. What do we mean by almost? Well, you can't get a well-groomed lawn delivered, but you can get a chicken parmesan delivered.

A cabana? That's a no. But a banana? That's a yes. A nice tan? Sorry, nope. But a box fan? Happily, yes. A day of sunshine? No. A box of fine wines? Yes. Uber Eats can definitely get you that. Get almost, almost anything delivered with Uber Eats.

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Ooh, must be mating season. And hiking with them. Is that a squirrel? Bear! Run! Collect more moments with more ways to earn. Air Mile. Cracks began to show in Malincrot's opioid settlement in June this year,

when the company missed a $200 million payment. So here's what happened. Almost as soon as the company exited bankruptcy, some of the company's creditors, which include hedge funds, as well as some investment firms, started to believe that the company had actually overpromised in this settlement. And some of their key investors started to think, maybe there's a way that the company can get out of paying this.

These investors include a group of hedge funds, like Silverpoint Capital and Bracebridge Capital, according to people Alexander spoke with. These hedge funds came up with a plan that involved going through bankruptcy again to get out of the settlement. And the hedge funds are also negotiating to get control of the business. Here's Alexander describing their argument.

We are the senior creditors to the company and we want first access to its resources and we no longer want to see money going to victims and state governments because they felt that that that was not you know how the company should operate and they've been working with the management and the board of directors to effectuate this plan and write down the settlement amount through this repeat bankruptcy. How is that possible? It's possible because of the bankruptcy code. You know, sometimes I liken bankruptcy to a little bit like a sandbox.

You have a lot of freedom to build new things and destroy old things. lot of freedom to build new things and destroy old things. And the question will be whether or not the judge or other creditors in the case try to say, this is not right. This is not fair. This is a tactic to wipe us out. It's not a genuine business insolvency. So we'll see if the plan works. There are still hurdles it'll have to cross, but most legal experts we've talked to say there's a chance that the company can pull it off if the judge goes along with it. It's hard not to feel cynical about this. Yeah. It showcases how the legal system can be used by companies to get out of liability. There's no question about it.

You know, someone described who's involved in the case said that the first time Mallinckrodt filed for bankruptcy, they used it as a shield to protect themselves from all the lawsuits that they were facing that would have ended the company. And now they're using bankruptcy a second time as a sword to cut off the settlements and get out of paying what it owed. And this is in the span of about three years. And you've reached out to Malincrot about this.

What has the company said? So the company, you know, hasn't said much publicly because they're clearly negotiating this in real time. They said that they are in active discussions with their financial stakeholders and creditors to, you know, have discussions around its debt and settlement obligations. And as we've reported, you know, they are preparing for a restructuring and bankruptcy. Malincrot said it's engaged in ongoing discussions with financial stakeholders to determine the best path forward. Silverpoint Capital declined to comment. Bracebridge Capital didn't respond to requests for comment. How have the state attorneys general reacted to this? So, I mean, what's really interesting is that a lot of them don't even know this is happening. This is happening behind closed

doors. So a lot of them are learning about this through our reporting. And we've had to reach out to them for comment on this. And they've said, you know, to the extent that we're able to comment, this is like devastating to us. What would that mean for the state governments and the victims? Without this money, I mean, we're told this just takes away from those efforts. This takes away life-saving medicines. This takes away education. This takes away emergency response services, rehabilitation centers. I mean, you name it. Like, that's what all the funds are meant for.

And they're really unhappy about this outcome because the settlement was an exchange. The settlement was an exchange of money for an agree to drop all lawsuits against the company for its role in fueling the opioid crisis. And they feel that they were given a false promise. What were those conversations like for you? You know, it was disheartening just because in those conversations, you learned about the plans people had with the funds. We spoke with a guy based in South Florida who runs a nonprofit. He said, you know, this is devastating. The opioid crisis is not over.

It's in fact getting worse. And you're telling me that money is being taken off the table to fight it because of financial maneuvering and what critics call a gaming of the legal system. How is that right? How is that fair? So there's a lot of rage and disappointment and, you know, wondering where's the accountability

in all of this. Malincrot was the first of many opioid settlements. So if the company is able to get out of it, Alexander says there could be repercussions for other companies and the billions of dollars they owe. If it's seen that, you know, the Mallinckrodt path is successful and other hedge funds maybe identify other opioid manufacturers or distributors who have large amounts outstanding under their settlement and think that they could make a case somehow that they're in financial distress and need to file for bankruptcy and give them control and wipe out the settlement money in the process, that could be a really, really slippery road to more and more money being lost for

victims of opioid addiction. There's no guarantee that that would be the case, but it shows that there's a legal path to doing this. And if it isn't stopped, then I don't see why it couldn't be replicated in other companies. This episode has been updated to say that OxyContin is the most well-known brand of oxycodone. That's all for today, Monday, July 31st. The Journal is a co-production of Gimlet and The Wall Street Journal. Additional reporting in this episode by Alexander Gladstone and Akiko Matsuda.

Thanks for listening. See you tomorrow.