Maker of OxyContin considers bankruptcy Defense stocks rise in wake of federal budget

Company, facing lawsuits over opioid crisis, made billions selling painkiller

The company that has made billions selling the prescription painkiller OxyContin said Wednesday that it is considering legal options including bankruptcy, a move that could upend lawsuits claiming it had a major role in causing the U.S. opioid drug crisis.

“As the company has stated, it is exploring and preparing for any number of eventualities and options, given the amount of litigation the company currently faces,” Purdue Pharma spokesman Robert Josephson said in an email to The Associated Press. “A decision has not been made to file for bankruptcy, nor is there a timetable.”

Such a move has been seen as a strong possibility, as the privately held company hired an executive and consultants that specialize in helping companies restructure in the past year.

The company is owned by members of the Sackler family, who have given money to museums around the world, including the Smithsonian Institution in Washington, New York City’s Metropolitan Museum of Art and London’s Tate Modern. A court filing made public in Massachusetts earlier this year asserts that members of the family were paid more than $4 billion from Purdue from 2007 to 2018.

The first trial date is nearing in hundreds of lawsuits aiming to hold the company and others in the drug industry accountable for the nationwide opioid crisis. Bankruptcy proceedings would likely pause that litigation, at least for Purdue.

A federal bankruptcy judge would have wide discretion on how to proceed, which could impact the claims of hundreds of local and state governments that have sued. The judge could let claims against other drugmakers and distributors move ahead while Purdue is handled separately, consolidate all of them or let the other claims continue without Purdue involved. Another possibility is that the bankruptcy filing includes a settlement with plaintiffs in the suits.

The lawsuits assert the Stamford, Connecticut-based company aggressively sold OxyContin as a drug with a low chance of triggering addictions despite knowing that wasn’t true.

Since OxyContin, a time-released opioid, was introduced in 1996, addiction and overdoses to opioids have surged. In 2017, opioids were involved in nearly 48,000 deaths — a record, according to the U.S. Centers for Disease Control and Prevention.

In recent years, there have been more deaths involving illicit opioids, including heroin and fentanyl, than the prescription forms of the drugs. That change has happened as awareness of the dangers of prescription opioids has increased and prescribers have become more cautious.

Purdue’s drugs are just a slice of the opioids prescribed, but critics assign a lot of the blame to the company because it developed both the drug and an aggressive marketing strategy. According to a lawsuit filed by the Massachusetts attorney general, the company pushed big sales of OxyContin from the start, persuading doctors who had been reluctant to prescribe such strong painkillers that this one was safe.

In court filings, Purdue pointed out that its products were approved by federal regulators and prescribed by doctors.

A federal judge overseeing more than 1,300 of the cases against Purdue and other companies has been pushing the parties to reach a grand settlement that would make a difference in the opioid crisis. The judge, Cleveland-based Dan Polster, has scheduled a trial for the claims brought by Ohio’s Cuyahoga and Summit Counties for October.

U.S. aerospace and defense stocks ended their longest losing streak in more than a decade on Wednesday, after the federal fiscal year 2020 budget was released earlier this week.

The S&P Supercomposite Aerospace and Defense Industry Index gained as much as 1.2 percent, while the S&P 500 Index rose nearly 1 percent. The top gainers on the index included defense contractors United Technologies, Huntington Ingalls, Raytheon, General Dynamics, Northrop Grumman and Arconic.

Defense stocks also had been under pressure in the last few months of 2018 amid concerns about an impending peak in defense spending, even though valuations have now recovered from a late-December low.

President Donald Trump’s proposed $750 billion defense budget elicited mixed responses, with analysts noting that the plan would prioritize funding for research and development over procurement. Overall, the proposal is expected to undergo revisions, analysts said, before an agreement finally is reached.

The Navy is asking for 12 more ships in fiscal year 2020, including three attack submarines. The submarines are built by General Dynamics subsidiary Electric Boat, headquartered in Groton, and Newport News Shipbuilding in Virginia. The companies have been the beneficiaries of lucrative Navy contracts with the resurgence of submarines in U.S. military strategy.

General Dynamics’ stock rose by 1.75 percent by the time markets closed Wednesday.

Bernstein said the budget represented an increase of 4.8 percent, or 3.3 percent excluding wall funding, and that the levels were in line with expectations. Morgan Stanley called the proposal “lackluster” and said it was unlikely to make it through Congress in the current form.

“The $750 billion headline defense budget was at the upper end of expectations, but light on investment funding,” Morgan Stanley analyst Rajeev Lalwani wrote in a note to clients. “The mix of funds indicates a prioritization of research and development while trimming procurement, netting about 2 percent growth, shy of mid-single-digit expectations,” the analyst noted, adding that the proposal underwhelmed investors.

Analysts also flagged a large component for Overseas Contingency Operations (OCO), or war funds, which they believe could raise questions and relegate the current proposal to a “placeholder” status.

“The OCO has long been a controversial topic as fiscal hawks believe it should have wound down years ago,” Baird analyst Peter Arment wrote in a note, adding that “the latest fiscal 2020 requested levels are especially extreme and a very high water mark, even by historical standards, and will be met by resistance in negotiations.”