OxyContin manufacturer Purdue Pharma LP is preparing to seek bankruptcy protection before the end of September if it does not reach a settlement with U.S. communities over extensive opioid litigation, sources familiar with the matter said, after some states balked at the organization’s $10 billion to $12 billion offer in August to end their legal proceedings as part of a negotiated Chapter 11 case.
Last Friday 30, Purdue lawyers had documents ready for a Chapter 11 filing at a short notice, according to Reuters. A federal court, which expects plaintiffs to update it on settlement progress this week, wants 35 state attorneys to present a deal, a target that has not yet been met, three people familiar with the matter said.
Purdue lawyers have told lead attorneys for local governments including some other state attorneys general for weeks, and again most recently, that the organization will have to file for bankruptcy without a settlement if one is not reached in the near future, one of the sources said. This strategy is known as a “free-fall” bankruptcy filing since it lacks consensus on a reorganization beforehand.
Last week, strong opposition from some attorneys general from New York and Massachusetts emerged after confidential discussions on Purdue’s settlement talks went public in media reports, with Connecticut’s request for the company to be “broken up and shut down,” and auctioned in parts. Their major issue is how much Purdue’s controlling Sackler owners will pay, the people said.
Purdue faces over 2,000 lawsuits from cities, counties and states alleging it helped fuel the U.S. opioid epidemic. Reuters reported in March that the firm and family started exploring bankruptcy options for Purdue to stop lawsuits and attempt to resolve legal action with plaintiffs rather than take on every single case.
Purdue and the Sackler’s family, who also face lawsuits, have denied the accusations.
One major reason why Pardue Pharma is determined to file for bankruptcy this month is an October 21 trial the company wants to avoid, the sources said.
The trial, originating from widespread lawsuits mainly brought by local governments that are consolidated in an Ohio federal court, risks a decision with massive damages that Purdue, currently holding $500 million in cash, cannot withstand, one of the sources said.
The bankruptcy timing could fail if the company reaches a settlement or the October trial is postponed, the sources added. Ohio’s attorney general last week requested a federal appeals court to stop the trial.
Sackler family representatives did not provide an immediate comment about Purdue’s bankruptcy plans or the details of settlement talks.
In a statement, the company said it “has made clear that it prefers a constructive global resolution” and not “years of wasteful litigation and appeals.”
Purdue is “actively working with state attorneys general and other plaintiffs on solutions that have the potential to save tens of thousands of lives and deliver billions of dollars to the communities affected by the opioid crisis,” read the statement.
A representative for a plaintiffs’ executive committee in the opioid lawsuit failed to respond to a request for comment.
Negotiated Bankruptcy VS. “Free-fall”
Boasting a stable balance sheet and no serious debt, Purdue’s issues are legal, rather than financial. The company believes that it could put itself on stronger footing, and possibly restructure and sought out lawsuits in less time, if it was possible to file for bankruptcy with a settlement in hand, the sources confirmed.
In recent talks to resolve the litigation, documents exchanged among the parties stating potential settlement terms included Purdue’s plan to file for bankruptcy and become a public benefit corporation with a board selected by court-appointed trustees, the sources added.
The public trust would donate millions of doses of drugs Purdue developed to fight overdoses and addiction to U.S. citizens, which the pharmaceutical company values at $4.45 billion over ten years.
The Sacklers, who accumulated a multibillion-dollar fortune from OxyContin sales, would surrender control of the company, they said.
On the contrary, a Chapter 11 filing without a deal could bring extended, more expensive bankruptcy procedures and result to further litigation, the people said. Some states have made it clear they will resist Purdue Pharma’s attempt to use bankruptcy proceedings to stop litigation.
The organization is preparing for states to argue their cases and cannot be stopped by a Chapter 11 filing as their lawsuits were brought to impose public health and safety laws – excluding them from the standard bankruptcy rules that would halt their accusations.
A free-fall bankruptcy could help in recoveries of around $1 billion for U.S. groups suing the company as opposed to the near $12 billion in value Purdue attaches to its current proposal, according to calculations Purdue’s lawyers have shared with plaintiffs.
Several state attorneys general maintain the Sacklers’ proposed settlement contribution is too little, the sources said. The family offered to pay $3 billion over the course of seven years and to add $1.5 billion or more by ultimately selling another family business called Mundipharma, they said.
However, these state officials aren’t interested in the extra $1.5 billion to be dependent on the Mundipharma sale, and prefer the family guarantee $4.5 billion, according to the sources.
Another contentious issue is the Sackler’s proposal to pay instalments of the $3 billion of cash initially and more in future, other people close with the talks said.
Some state officials are also keen to find out more about the Sackler’s finances before agreeing to a deal, with the thought that more money could be available for a settlement, these other sources said.
As of last week, the Sacklers had not moved their stance, according to the main sources familiar with the matter.