Connecticut rejects Purdue Pharma reorganization plan
STAMFORD — Bankrupt OxyContin maker Purdue Pharma filed Tuesday a reorganization plan, which it said would provide billions of dollars to tackle the opioid crisis — but Connecticut and nearly two-dozen other states panned that proposal, arguing for changes such as a greater contribution from the company’s owners.
The Stamford-based firm’s new plan consists of the main terms that it has proposed, since filing for Chapter 11 protection in September
2019, for settling the approximately
3,000 lawsuits consolidated in its bankruptcy case. It values its proposal at more than $10 billion, and the vast majority of the proceeds would be allocated for efforts to respond to a national opioid epidemic that is resulting in tens of thousands of deaths every year.
“Purdue has delivered a historic plan that can have a profoundly positive impact on public health by directing critically-needed resources to communities and individuals nationwide who have been affected by the opioid crisis,” Steve Miller, chairman of Purdue’s board of directors, said in a statement. “The company has worked closely with a broad and diverse group of stakeholders to guarantee that billions of dollars will be used exclusively for abatement purposes and not diverted elsewhere.”
Among the key provisions, Purdue would be dissolved and transfer all of its assets into a new company after emerging from bankruptcy. The new firm would be owned by a trust.
At the same time, the Sackler family members who own Purdue reiterated their intention to relinquish control. They said they would have no role in the new company and also end their involvement in their international pharmaceutical companies. In addition, the Sacklers said they were increasing their contribution to the settlement funds to about
$4.5 billion, up from an original offer of $3 billion.
“Today marks an important step toward providing help to those who suffer from addiction,” Sackler family members said in a statement. “We hope this proposed resolution will signal the beginning of a far-reaching effort to deliver assistance where it is needed.”
Purdue officials said they believe their plan has garnered “broad and strong support” from a number of groups involved in its bankruptcy, including about half of the state attorneys general and “nearly every group of private creditors.”
But Connecticut Attorney General William Tong and about twodozen of his counterparts oppose the plan. Since Purdue filed for bankruptcy, those “non-consenting” states have rejected the company’s terms for settling their lawsuits.
In a joint statement, the nonconsenting states said that they wanted the company to amend its plan to ensure its restructuring “does not excessively entangle it with states and other creditors.” They also called for the Sacklers to contribute more to the settlement, demanded more transparency through “robust” document disclosures and asked for protections for nonprofits over naming rights for charitable gifts.
“We are disappointed in this plan,” the statement said. “While it contains improvements over the proposal that Purdue announced and we rejected in September 2019, it falls short of the accountability that families and survivors deserve... Now, the Sacklers and Purdue need to own up to their decades of misconduct and their role in creating this crisis.”
Despite their settlement offer, Purdue and the Sacklers deny the lawsuits’ allegations that they fueled the opioid crisis with deceptive OxyContin marketing. The company, however, agreed last October to an approximately $8 billion settlement with the U.S. Department of Justice, which also entailed it pleading guilty to three criminal charges of defrauding the government and violating antikickback laws.
The Sacklers who own Purdue reached a separate $225 million settlement with the Justice Department, but they did not admit to any wrongdoing. Not including the agreement with DOJ, the Sacklers would contribute $4.275 billion toward Purdue’s settlement of the pending lawsuits.
“I think this reorganization plan has to be seen with abundant skepticism in light of Purdue Pharma’s shameful practice of denying and dodging responsibility for purposely marketing opioids and ignoring deaths and injuries suffered by millions of Americans,” Sen. Richard Blumenthal, D-Connecticut, who sued Purdue when he previously served as state attorney general, said in an interview. “Any proposal by Purdue Pharma requires complete truth and transparency. We need to know how these billions of dollars will be spent. Decisions should be guided by independent health experts. And Purdue Pharma must explicitly accept responsibility for years of callous indifference to the opioid crisis.”
The company that would succeed Purdue would fund a number of trusts focusing on abating the opioid crisis.
Purdue has proposed the “public-benefit company” concept since filing for bankruptcy. Such a restructuring is also a requirement of its settlement with the Justice Department.
Connecticut and the other nonconsenting states have rejected that framework, arguing it would create a conflict of interest by having government officials run the new company. They have advocated instead for Purdue to be sold to a private buyer.
Purdue said, however, that state and local governments would neither own nor operate the new company.
The National Opioid Abatement Trust, a new entity created to satisfy the claims of state and local governments, would receive bilopioid lions of dollars — making it the largest recipient of funding generated by the settlement. NOAT and a trust established to respond to the claims asserted by Indian tribes and tribal organizations would together indirectly own 100 percent of the new company.
In addition to the NOAT and the “Tribe Trust,” Purdue’s plan calls for the creation of several additional trusts. Each of them would have to ensure that underserved urban and rural areas, as well as minority communities, received “equitable access” to the funds, according to company officials.
Funding for the trusts would primarily come from the Sacklers’ $4.275 billion in cash payments, more than $500 million in cash distributed by Purdue after it emerges from bankruptcy and about $1 billion generated by the successor company’s assets and operations through 2024.
In addition to the cash funding, Purdue officials estimate that the successor company could produce a total of approximately $4 billion worth of medications, including generic buprenorphine and naloxone tablets to treat opioid dependence and nalmefene injections and over-the-counter naloxone nasal sprays to respond to opioid overdoses.
“This give us a concrete plan, with terms and conditions, about the reorganization,” said Robert Bird, a professor of business law at the University of Connecticut. “It’s significant, and it’s one that would benefit the very interests of the people who have been hurt by this crisis.”
The plan may be periodically amended or supplemented and still needs to be confirmed in federal bankruptcy court.
A hearing to approve a related disclosure statement is scheduled for April 21. Following the court’s approval of the disclosure statement, Purdue said it would distribute the plan and disclosure statement to voting creditors for their consideration. Settlement funds are urgently needed, as the country grapples with an unrelenting epidemic.
Overdoses involving opioids killed nearly 47,000 people in the U.S., in 2018, according to the U.S. Centers for Disease Control and Prevention. Prescription opioids were involved in 32 percent of those deaths.
In 2020, 1,273 people in Connecticut died from opioid-involved overdoses, up 13 percent from 2019, according to the state Office of the Chief Medical Examiner.
Among other recent litigation sparked by the opioid crisis, consulting firm McKinsey & Co. last month reached a $573 million settlement with Connecticut and nearly every other state, to resolve their investigations of the company’s alleged support of efforts to boost opioid sales of pharmaceutical firms including Purdue.
Some elected officials have misgivings about that agreement. Blumenthal and Sen. Brian Schatz, D-Hawaii, sent Monday a letter to U.S. Attorney General Merrick Garland calling on the Justice Department to investigate McKinsey. Despite reaching the settlement, McKinsey did not admit to any wrongdoing.
Blumenthal and Schatz cited a report last month by NBC News that McKinsey could benefit from the settlement through a hedge fund affiliate’s indirect stakes in addiction-treatment centers and overdose-treatment products.
“It is critical that McKinsey, which has demonstrated a disconcerting indifference toward the well-being of America’s families, is also held fully accountable for its role in this crisis,” Blumenthal and Schatz said in the letter. “Accordingly, we urge you to investigate McKinsey’s role with Purdue Pharma and its work with other opioid manufacturers to determine if McKinsey also participated in fraud and anti-kickback conspiracies or has engaged in other criminal wrongdoing.”