In an expected development in the wake of the company’s large settlement of thousands of lawsuits, drug maker Purdue Pharmaceuticals has filed for Chapter 11 bankruptcy. The filing came after the company paid $12 billion to settle lawsuits that accused it of being responsible for the opioid crisis that has caused hundreds of thousands of deaths. In the meantime, the company will continue operating because the settlement agreement essentially hands the entire company over to the claimants who sued Purdue.
Purdue is the manufacturer of OxyContin. The company is accused of flooding the market with its highly addictive and dangerous products that are far more powerful than even street drugs. Several states that have been hard hit by the crisis received billions of pills and some smaller areas were supplied with thousands of pills for each resident. At the same time, many of the opioid manufacturers incentivized and encouraged doctors to prescribe their product to patients, even those who did not necessarily need the drug. The lawsuits allege that the drug makers knew the risks of their products, but continued to profit from them even in the face of mounting deaths.
The settlement involves the company putting $10 billion worth of assets into a trust. The bankruptcy court will select the board of directors for the company which will then choose the management. In addition, the company is obligated to contribute millions of doses of opioid overdose reversal and addiction treatment medications at no or low cost. Any proceeds from further sales of OxyContin will be used for the benefit of the cities and jurisdictions where people have suffered from opioid overdoses and addiction.
Purdue is a privately held company that is owned by the Sackler family. The family is reported to have taken billions of dollars in profits out of the business over the years. The Sacklers are required to contribute $3 billion of their own money to the settlement. In addition, the Sacklers may contribute proceeds from the sale of their international pharmaceutical businesses. Nevertheless, there have been reports of transfers of money out of the company and to the Sacklers as bankruptcy loomed. While some states have entered into an agreement with the company, other states have indicated that they may take action to try and recover money from the Sackler family under the premise that the transfer of money to them with bankruptcy pending is fraudulent. The usual legal repercussion in the case of a fraudulent transfer is to stop the transfer.
For the Sackler family, it means the end of their control over Purdue, the business that they ran for decades. Nonetheless, the family has built a total net worth of approximately $13 billion from their time running the family company. Even after the settlement, the Sacklers will still have a large fortune remaining. However, this does not mean that the Sacklers are off the hook completely. Numerous state attorney generals have indicated that they intend to take legal action against the Sacklers personally for their actions that drove the opioid crisis.
The Purdue settlement is important for a number of reasons. First, it helps establish the parameters of what these drug companies may have to do in order to settle the cases against them. Many other pharmaceutical companies are facing similar litigation. Johnson & Johnson recently lost a lawsuit and was ordered to pay $572 million to the State of Oklahoma. Second, it establishes a precedent for settlement values. Purdue had previously settled with Oklahoma in an agreement that saw the Sackler family contribute some of its own assets to the state.
The settlement agreement was not agreed to by every state. 27 states signed on to the settlement, but 20 other states firmly rejected the settlement agreement. Since the company has now declared bankruptcy, whether the states can recover will be up in the air as the matter now rests within the discretion of the bankruptcy court judge.. The states that have rejected the deal have indicated that they will be filing legal action against the Sacklers. However, the Sackler family has threatened to walk away from the settlement if these states continue to pursue them personally in court. However, there is a perception that the Sacklers have stripped the company and then thrown the shell of it into bankruptcy court in order to escape with their fortunes largely intact.
The other uncertainty surrounding this settlement deal is whether it will be approved by the federal bankruptcy court. The judge has the ability to reject the lawsuit or to seek changes in the terms of the agreement. There is a concern that the Sackler family is escaping fairly unscathed from their pattern of conduct and that they still have billions of dollars hidden away. In that sense, a judge may feel that the settlement does not punish the Sacklers strongly enough and may oppose the agreement. The judge’s approval is a necessity since the matter is now in bankruptcy court. The expectation is that the settlement agreement as signed will not be the final one that passes the bankruptcy court and some further action will be taken to get some of the Sackler family money.
Practically, this means that Purdue will not have to face lawsuits from private defendants for damages suffered due to opioids. There are numerous federal trials about to start that have been brought by opioid addicts or families of those who have died from the medication.
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