A leading manufacturer of opioids, Mallinckrodt Pharmaceuticals, initially agreed to pay $1.7 billion over eight years as compensation for its involvement in the opioid crisis. However, the company recently announced that it has reached an agreement with its creditors to reduce the settlement payments by $1 billion.
The original settlement was intended to provide funds for addiction victims to rebuild their lives and for governments to prioritize initiatives like providing drugs to reverse opioid overdoses. In a regulatory filing, Mallinckrodt disclosed its plan to file for bankruptcy for the second time in three years. This plan would cancel the majority of the $1.25 billion that the company still owes under the original settlement, in exchange for a final payment of $250 million before entering its second bankruptcy.
The decision to reduce the outstanding payments was made with the support of hedge funds that would control the company during the second bankruptcy. These funds had lent money to Mallinckrodt and were prioritizing repayment over compensating victims of the opioid crisis.
It’s important to note that the revised plan is still subject to approval from the bankruptcy court. Mallinckrodt’s CEO, Siggi Olafsson, expressed the company’s commitment to reaching a meaningful resolution for the trust responsible for distributing settlement payments to victims. Mallinckrodt did not provide immediate additional comments on the matter.
The original settlement plan, which was finalized last year as Mallinckrodt emerged from its first bankruptcy, protected the company and its former executives from future liability related to its opioid sales. However, the company has only made one payment of $450 million so far and is overdue on a second payment due in June.
The revised plan was agreed upon by a master trust overseeing the distribution of payments to subordinate trusts responsible for dispersing funds to victims. While governments have begun receiving the initial funds, individual victims are still waiting for their share, which is expected to be distributed soon. However, the revised plan will reduce the amount going to individuals by approximately $100 million, according to Joseph Steinfeld, a lawyer representing about half of the promised payment recipients.
Steinfeld expressed concern over the significant reduction in compensation, stating that victims were relying on the agreed-upon amount and are now losing about 70% of what they were promised.
Mallinckrodt is one of several manufacturers, pharmacy chains, and distributors that have agreed to substantial settlements with governments and other victims in response to accusations of contributing to the opioid crisis by promoting prescription opioids and downplaying their addictive nature. While Purdue Pharma garners more attention for its role in the crisis, Mallinckrodt’s product, Roxicodone, also played a significant part, although it received less recognition. Documents revealed during the company’s first bankruptcy filing showcased how Mallinckrodt aggressively marketed its prescription painkillers as the opioid crisis unfolded across communities in the United States.
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