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Endo Follows Opioid Bankruptcy Playbook, With A Few Twists (1)

Aug. 18, 2022, 4:57 PMUpdated: Aug. 18, 2022, 9:45 PM

Endo International Plc’s bankruptcy filing follows other big pharma companies into Chapter 11 to manage liability from the nation’s opioid crisis, but contains some distinctions from other notable mass tort litigation bankruptcies.

Endo’s Chapter 11 case proposes to pay up to $550 million to opioid victims by shepherding thousands of victim claims in bankruptcy court, similar to how Purdue Pharma LP and Mallinckrodt Plc treated claims in their bankruptcies.

The Dublin-based drug manufacturer, which reported $3 billion in revenue in 2021, filed for bankruptcy Tuesday with $8 billion in debt. It has proposed a sale plan that would allow a senior lender group—including Silver Point Capital and GoldenTree Asset Management—to take over the company in exchange for about $6 billion in debt forgiveness.

Endo, which made and sold opioid products Opana and Percocet, is facing 3,100 lawsuits related to its opioid products. The company sold $104 million of Percocet in 2021, according to company records. It removed Opana from the market in 2017, the company said.

But Endo’s bankruptcy is different than other pharmaceutical mass tort cases because the company seemingly has less exposure for opioid litigation than other drugmakers and has other legal and financial issues that contributed to its struggles.

Its sales of Opana never accounted for more than 1% of the US Opioid market, according to company records. Endo’s filing, although listing opioid litigation as a factor, also distinguishes itself from Purdue and Mallinckrodt with respect to whom the bankruptcy would protect and why the company filed. Endo is also facing other types of litigation.

“Endo’s case is more like traditional bankruptcies because of other financial problems,” like losing federal patent protection for a major product, said Bruce Markell, a bankruptcy professor at Northwestern University’s Pritzker School of Law and former bankruptcy judge.

Multiple generic versions of its Vasostrict, launched by competitors in 2022, hurt its bottom line, according to court filings.

Before the generic products were introduced on the market, Vasostrict accounted for about $902 million, 30% of the company’s revenue, according to a statement by Mark Bradley, the company’s Chief Financial Officer, filed in the US Bankruptcy Court for the Southern District of New York.

Third Party Releases

Endo’s case is different than other mass tort bankruptcies in that the company doesn’t ask the bankruptcy court to approve releasing the liabilities of non-debtors. Such “non-consensual, third party releases” would ban creditors from pursuing them for damages.

In the Purdue case, such releases granted by the bankruptcy court were later overturned by a district court judge. The question of whether such releases in the Purdue case can stand is now pending in the US Court of Appeals for the Second Circuit.

Endo says it’ll give such releases only after getting creditors’ consent, according to its initial court filings.

Rather than resolve the claims through a bankruptcy plan, Endo proposes to sell its assets to its first-lien creditors. Bankruptcy allows companies to sell assets free and clear of other parties’ claims and interests.

This case suggests using bankruptcy sale protections for asset purchasers, Markell said.

Endo has proposed that the sale happen during the bankruptcy case but not as part of the reorganization plan.

Since creditors are allowed to vote on Chapter 11 plans but not sales, this tactic raises concerns about how much information regarding the transaction will be shared with creditors, said Melissa Jacoby, a bankruptcy professor at the University of North Carolina School of Law.

“Mass tort cases are controversial enough, and opioid cases even more so, but Endo goes a step further by trying for a quick sale of the company outside of a Chapter 11 plan,” Jacoby said.

A major question in the case is whether use of the bankruptcy sale —as opposed to a typical reorganization plan process—will reduce the negotiating leverage of unsecured creditors, personal injury claimants, and states’ attorneys general, said Emanuel Grillo, a partner at Allen & Overy LLP’s restructuring practice.

“The question is to what degree Endo has already marketed its assets and what that market looks like,” Grillo said. “

Opioid Questions

Endo will still have to address claims related to opioid sales.

Endo is the target in opioid litigation brought by a number of states, counties, municipalities, and other political subdivisions that accuse drugmakers of fueling a national epidemic by illegally or fraudulently marketing opioids.

Plaintiffs also include hospitals and individual victims, Bradley said. The company proposes setting up a trust to be funded with $550 million over ten years to pay those claimants.

Despite its role in opioid litigation, Endo’s troubles don’t carry quite the same level of public awareness as bankruptcies like Purdue or Boy Scouts of America. Purdue put the its Sackler family owners into the spotlight. The BSA filed as a result of widespread sex abuse allegations.

“Based on what little we know, Purdue is different because the allegations against the Sacklers are so severe,” said Jonathan Lipson, a bankruptcy professor at Temple University’s Beasley School of Law. In Endo “you have no highly visible bad guys,” he said.

Endo has proposed that a future claims representative—a professional appointed to represent claimants whose injuries haven’t become known yet—should handle multiple types of alleged injuries stemming from its multiple products, including opioids and pelvic mesh.

But its not clear whether the interests of those different types of claims would be aligned, Jacoby said.

“Purdue did not have a big future claims element—it set aside only a small amount for future claims because it took the position its future claimant exposure was small. This looks to be quite different,” Jacoby said.

Unsecured noteholders suggested about a week before Endo’s filing that a bankruptcy was unnecessary because the company, in their view, was outperforming near-term projections, Grillo noted.

Noteholders followed up on Thursday with motions telling the court that the sale process isn’t necessary and, in lieu of a traditional plan, has been proposed in “bad faith.”

In addition to the noteholders’ opposition, it’s not yet clear whether the $550 million trusts to compensate victims will be sufficient to pay the claims, Grillo noted.

The sale parties, including Endo, probably hope they will be able to strike a deal quickly and avoid a protracted fight, he said.

“More often than not, there is probably some more ‘dry powder’ in any settlement proposal,” Grillo said. “It depends in part as to how well-organized the opposition is or will become.”

(Updated with additional reporting.)

To contact the reporters on this story: Daniel Gill in Washington at dgill@bloomberglaw.com; James Nani in New York at jnani@bloombergindustry.com

To contact the editors responsible for this story: Maria Chutchian at mchutchian@bloombergindustry.com; Roger Yu at ryu@bloomberglaw.com