A proposed deal for Purdue Pharma LP to resolve more than 2,000 lawsuits over its role in the opioid crisis is facing pushback from a vocal group of state attorneys general who say it doesn’t bring in enough cash to satisfy their demands, according to people familiar with the matter.
Virtually every state, in addition to thousands of cities and counties across the U.S., sued Purdue, claiming the company’s aggressive promotion of its painkiller OxyContin helped trigger an addiction epidemic.
Some states, including New York, Connecticut and Massachusetts, have in recent days criticized a proposed settlement with Purdue valued at as much as $12 billion, people familiar with the matter said. Among the states’ concerns is the deal’s reliance on future drug sales, how much money will be guaranteed and the Purdue-owning Sackler family’s contribution, these people said.
A Thursday phone call among representatives from several states ended with New York and Massachusetts attorneys general voicing their disapproval for the deal, according to people familiar with the matter.
Under the current proposal, Purdue would file for bankruptcy and emerge as a public-benefit corporation run by trustees, The Wall Street Journal reported Tuesday. That proposal, which is still in flux, would include $3 billion in cash from the Sackler family. Much of the rest of the value, however, is tied to future sales of OxyContin, other drugs in development and the possible sale of another Sackler-owned company.
The Sacklers would cede ownership of Purdue through the bankruptcy and sell a separate company, Mundipharma, which sells drugs outside the U.S., effectively severing any connection the family has to opioid sales. Under the proposal, the Mundipharma sale could bring in another $1.5 billion to benefit the local and state governments suing Purdue, contingent on the sale price.
Some state attorneys general want the Sacklers to guarantee a larger cash payment upfront, people familiar with the matter said. Other states don’t like the public-benefit corporation concept and the idea that their recoveries rely in part on future sales from OxyContin, a drug they say contributed to widespread opioid addiction.
A Purdue spokeswoman declined to comment. Representatives for the Sacklers didn’t respond to a request for comment. Massachusetts and New York attorneys general said in statements this week they are committed to holding Purdue and the Sackler family accountable for their alleged roles in the opioid crisis.
Other drug companies, distributors and pharmacy chains are also accused in thousands of lawsuits of helping fuel the nation’s addiction crisis. An October trial involving two Ohio counties is seen as a bellwether for the allegations. Meanwhile, settlement talks have been ongoing between all the parties.
Purdue has been under intense pressure to settle cases, and bankruptcy has been considered since at least earlier this year. The two branches of the Sackler family that own Purdue are worth more than $3.5 billion, the Journal has reported, citing people familiar with the Sacklers.
The current proposal emerged from a mediation held last week in Cleveland under the guidance of U.S. District Judge Dan Polster, who is overseeing some 2,000 lawsuits filed by local governments in federal court. Judge Polster doesn’t have jurisdiction over the states who have separately sued, but they are participating in his attempt to achieve a “global resolution.” The Cleveland meeting included state attorneys general or representatives from Ohio, Florida, Texas, Louisiana, Massachusetts, New York, Connecticut, North Carolina and Tennessee, people familiar with the matter said.
Judge Polster asked the plaintiffs to give him an update Friday about where talks stand. The judge has said he wants 35 states on board, though the company and state attorneys general can cut a deal without meeting his threshold.
States in favor of the deal say chances are slim of getting more money if Purdue files for bankruptcy without a settlement in hand.
Massachusetts and New York, the primary dissenters, have been among the most aggressive states of those suing Purdue. Massachusetts Attorney General Maura Healey in June 2018 named Sackler family members, in addition to Purdue Pharma, as defendants for their alleged role in the opioid crisis. Her office later amended the lawsuit to include previously undisclosed internal emails and company documents that suggest family members helped shape marketing strategies for OxyContin.
Purdue and the Sacklers asked the Massachusetts court to dismiss the lawsuit and said family members were fulfilling their ordinary duties as board members.
New York Attorney General Letitia James was the first to sue the company and family members for allegedly violating the law against “fraudulent conveyance,” which is meant to protect creditors from debtors that try to stash or shield assets improperly. She alleged they knew Purdue was insolvent yet continued to distribute funds from the company to themselves.
The company and family have disputed the allegations and said the state is trying to unfairly blame them for a public health crisis.
One concern among some states is the size of the Sacklers’ contribution after selling U.K.-based Mundipharma, a last-minute addition to the deal presented last week.
As late as 2017, Mundipharma’s internal valuation was at least $7 billion, and it generated positive cash flow, according to a person familiar with the matter.
Mundipharma operates in more than 120 countries and sells OxyContin and opioids, but also an array of drugs treating diseases such as cancer and diabetes.
Some states that didn’t attend last week’s meeting in Cleveland say they’ve been left in the dark about the proposal and haven’t even seen the terms of the deal.
Even those who have seen a proposal say there are many missing pieces, including any accounting for how the money would be split among the states and local governments. Larger states want money to be split based on population, while others are pushing for a split based on the impact of opioid addiction in each state, said people familiar with the matter.
Much of the value of the current proposed deal would come from continued sales of OxyContin, Purdue’s signature drug, and potential products in development.
Three Sackler brothers—Arthur, Mortimer and Raymond—acquired a company in 1952 that became today’s version of Purdue Pharma. Raymond and Mortimer bought out the share of the oldest brother, Arthur, after his death in 1987, and Arthur’s heirs haven’t been involved in Purdue since then.
Write to Jared S. Hopkins at jared.hopkins@wsj.com and Sara Randazzo at sara.randazzo@wsj.com
