Mallinckrodt announces bankruptcy and $1.6 billion settlement deal.
Mallinckrodt, the largest generic opioid drug maker in the U.S., is set to pay $1.6 billion into a trust as part of a settlement in the litigation against it, according to South Carolina’s Attorney General Alan Wilson. The fund will be allocated to efforts helping to end the crisis and used to resolve claims related to Mallinckrodt’s role in the epidemic as the drug maker subsequently puts the entire company into bankruptcy. Back in February, the company had originally announced its intent to file bankruptcy.
According to court documents, the $1.6 billion will be used as follows: “$450 million upon emergence from bankruptcy, $200 million annually on first and second anniversary of emergence from bankruptcy and $150 million annually on third through seventh anniversaries of emergence from bankruptcy.” Details of how the money will be distributed state by state is still being negotiated, but the deal will essentially be used to end all litigation brought forward by cities, states and communities.
“While the opioid crisis continues to claim the lives of South Carolinians, this improved agreement with MNK represents an important step in my Office’s ongoing efforts to hold accountable those who are responsible for the epidemic,” said Wilson.
Mallinckrodt listed its worth in the range of $1 billion to $10 billion in a filing with the U.S. Bankruptcy Court for the District of Delaware. More than 3,000 lawsuits have been filed against it, accusing the company of using deceptive marketing practices promoting the use of addictive opioid painkillers.
“The company has agreed to pay $260 million over seven years and reset Acthar Gel’s Medicaid rebate calculation as of July 1, 2020, such that state Medicaid programs will receive 100% rebates on Acthar Gel Medicaid sales, based on current Acthar Gel pricing,” Mallinckrodt said in a statement. It added, it “intends to use bankruptcy to provide a fair, orderly, efficient and legally binding mechanism that provides for an amended proposed opioid claims settlement and a financial restructuring.”
The company took heat in September for paying executive bonuses despite its looming bankruptcy filing. The payout consisted of “cash bonuses of 1.5 times its five top executives’ base salaries,” according to a securities filing, and was issued to keep its decision-makers in their roles for at least a year and a half.
“It’s unusual for a company to pay those bonuses prior to a Chapter 11 filing,” said Chuck Tatelbaum, a Florida-based bankruptcy attorney, at the time. “I see this as some real message-sending to the local governments that they better get a deal done or the thing will land in bankruptcy court.”
“This is a challenging situation,” the company’s Chief Executive Officer Mark Trudeau said on a conference call with investors and analysts in 2019. He was given $1.6 million in the deal. Later, the drug maker released an official statement, indicting, “The retention payments were determined to be appropriate by a committee of the board of directors. We are navigating a challenging market environment and working to achieve a number of key objectives, including addressing near-term debt maturities, resolving opioid claims and pursuing a separation of the specialty generics business.”