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Opioid Distributors Are Asked to Boost Offer to End Litigation

July 10, 2020, 10:00 AM

States are pushing drug distributors McKesson Corp., Cardinal Health Inc. and AmerisourceBergen Corp. to add $2.3 billion to their $19.2 billion proposal to resolve government lawsuits over the U.S. opioid epidemic.

A majority of the state attorneys general are seeking the added funds to bring the total settlement package, including $4 billion from drugmaker Johnson & Johnson, to about $25.5 billion, according to people familiar with the talks who asked not to be identified because they aren’t authorized to speak publicly.

It’s unclear if the three largest U.S. drug distributors are considering the request for a bigger payout, which would compensate governments for the billions of dollars they spent battling the public health crisis caused by the U.S. opioid epidemic. The companies declined to comment on the states’ latest request.

There’s also a complication -- not all the states are in agreement. About 18 are seeking an even bigger increase than $2.3 billion. And in a separate group of lawsuits against the distributors, many cities and counties also are demanding more from the companies, which are unlikely to settle without a majority of the municipalities on board, the people said.

Almost every state and several U.S. territories, along with thousands of local governments, are suing over the opioid crisis. They’ve targeted drug distributors as well as opioid makers such as Mallinckrodt Plc and pharmacy companies including CVS Health Corp. Progress on settlements has been slow, but some state and local officials may be more receptive to a deal since the Covid-19 pandemic sent the U.S. into a recession, hurting tax revenue.

“Every single state is being hit hard by Covid,” said Elizabeth Burch, a mass tort lawyer and a professor at the University of Georgia law school. “Nobody knows how long its going to last or the long-term ramifications. Anything that beefs up your budget today is going to be more attractive than it was last year, especially since they’ve added another couple of billion to the offer.”

Read More: Bloomberg Intelligence Analysis of Opioid Litigation Risks

Some leaders of the negotiating group for attorneys general -- Josh Shapiro of Pennsylvania, Ken Paxton of Texas and Josh Stein of North Carolina -- declined to comment. Joe Rice, the lead negotiator for the cities and counties, also declined to comment.

Last year, the three big distributors and J&J made proposals to settle more than 2,000 lawsuits against them. For their part, the distributors offered $18 billion, plus $1.2 billion to cover government legal fees.

But the majority of state attorneys general are seeking a $1.5 billion boost to the funds set aside for treatment and another $800 million increase in the legal fund, the people said.

Even before the distributors were being pushed to sweeten the pot, some analysts predicted governments would accept the lower offer.

“As states are facing increased fiscal pressure, we think they might be more willing to accept a lower lump sum, in exchange for an accelerated payment schedule,” Morgan Stanley analyst Ricky Goldwasser said in a client note last month. An $18 billion settlement with a $14.6 billion upfront payment “could be the sweet spot to get to a resolution” for AmerisourceBergen, McKesson and Cardinal Health, Goldwasser said.

Under the new proposal sought by the majority of states, J&J and the distributors would pay the money out over a 15-year period, accelerating the 18-year payout of the earlier bid, the people said.

Upfront Payments

Governments want at least some of the proposed settlement pot to be paid immediately, but discussions about how much would be provided upfront have yet to be resolved, the people said.

While states are asking McKesson, Cardinal Health and AmerisourceBergen for more money, the majority aren’t seeking an increase from J&J, the people said.

“J&J is smartly riding the coattails of the distributors in this deal,” said Burch, the Georgia law professor. “It’s a brilliant strategy for getting out at the lowest cost possible.”

Some plaintiffs’ lawyers who represent governments are telling their clients this may be the best deal they can get from J&J and the distributors without suffering through several years of more litigation, the people said.

But the prospect of more trials in the coming year is increasing pressure on opioid companies, Citibank analyst Navann Ty said in a client note last month. Trials have been put off by the Covid-19 pandemic.

J&J Loss

So far, only Oklahoma has tried a case, persuading a judge to award the state $465 million against J&J for fueling the state’s opioid epidemic through its wrongful marketing of its painkillers. The case is on appeal.

Another trial is set for Aug. 17 in Bristol, Tennessee, against opioid makers Endo International Plc, Mallinckrodt and Purdue Pharma LP, said Gerard Stanch, one of the plaintiff lawyers.

The consolidated case is In Re National Prescription Opioid Litigation, 17-md-2804, U.S. District Court, Northern District of Ohio (Cleveland).

To contact the reporter on this story:
Jef Feeley in Wilmington, Delaware at jfeeley@bloomberg.net

To contact the editors responsible for this story:
David Glovin at dglovin@bloomberg.net

Steve Stroth, Peter Blumberg

© 2020 Bloomberg L.P. All rights reserved. Used with permission.

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