Mallinckrodt agrees to $1.6bn opioid settlement

May 2020 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

May 2020 Issue

In a move to settle thousands of lawsuits brought by state and local governments over its role in the opioid crisis in the US, opioid manufacturer Mallinckrodt plc and its specialty generics-focused subsidiaries Mallinckrodt LLC, SpecGx LLC and certain other affiliates, known as Specialty Generics, have reached an agreement in principle on the terms of a global settlement.

The agreement was reached with a committee of lawyers representing plaintiffs in thousands of cities and counties and is supported by a broad-based group of 47 state and US territory attorneys general.

To implement the proposed settlement, Mallinckrodt expects Specialty Generics, which manufactures certain generic opioid products, among other products, to file voluntary petitions under Chapter 11 of the US Bankruptcy Code. Mallinckrodt’s specialty brands business and related subsidiaries will not be part of the contemplated Chapter 11 process.

“Reaching this agreement in principle for a global opioid resolution and the associated debt refinancing activities are important steps toward resolving the uncertainties in our business related to the opioid litigation,” said Mark Trudeau, president and chief executive of Mallinckrodt. “Importantly, when finalised, we believe the proposed settlement and capital restructuring activities will provide us with a clear path forward to achieving our long term strategy, preserving value for our financial stakeholders and providing us with the flexibility to operate effectively.”

The largest generic opioid manufacturer in the US, Mallinckrodt develops, manufactures, markets and distributes specialty pharmaceutical products and therapies. The lawsuits are a result of its alleged role in the US opioid crisis. Mallinckrodt is the first opioid company to reach a national settlement agreement with municipal governments and the majority of states.

“Nothing can undo the devastating loss and grief inflicted by the opioid epidemic upon victims and their families, but this settlement is an important step in the process of healing our communities,” said Xavier Becerra, attorney general of California. “Our office has worked aggressively to hold accountable bad actors who fuelled this public health crisis.”

Under the terms of the proposed settlement, which would become effective upon Specialty Generics’ emergence from a contemplated Chapter 11 process, subject to court approval and other conditions, plaintiffs would receive $1.6bn, comprising $300m upon Specialty Generics’ emergence from Chapter 11 and $1.3bn in structured increments over eight years.

The substantial majority of those payments are expected to be contributed into a trust which, among other things, would establish an abatement fund to be administered to cover the costs of opioid-addiction treatment and related efforts.

Upon Specialty Generics’ emergence from the contemplated Chapter 11 process, the trust would receive warrants, exercisable at $3.15 per share, to purchase ordinary shares that would represent approximately 19.99 percent of Mallinckrodt’s fully-diluted outstanding shares, including after giving effect to the exercise of the warrants.

Furthermore, the court-supervised Chapter 11 process is expected to lead to the creation of a trust which, among other things, would establish an abatement fund to offset the expense of helping to combat opioid addiction and providing support to communities impacted by opioid abuse. The process is also expected to provide a fair, orderly, efficient and legally binding mechanism to resolve all opioid-related claims against Mallinckrodt, Specialty Generics and all of Mallinckrodt’s other subsidiaries.

Going forward, Mallinckrodt is engaging with plaintiffs to finalise details and satisfy the terms of the agreement in principle. The company intends to work through this process as quickly and efficiently as possible.

Mr Trudeau concluded: “Looking ahead, we remain focused on our vision to develop and bring to market innovative therapies for underserved patients with severe and critical conditions.”

Fraser Tennant