Impact Blog
Looking closer at the legal risk for companies in opioid value chain

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      By Laura AhmadiESG Research Analyst, Calvert

      Washington - Summer's end has been eventful for opioid litigation - consider the landmark ruling in the Johnson & Johnson case in Oklahoma and a new settlement proposal from Purdue Pharma. These developments may have significant implications for the upcoming multidistrict litigation (MDL) in October and, in turn, for exposed companies and investors.

      On August 26, the judge in the case of Oklahoma vs. Johnson & Johnson ruled that the pharmaceutical manufacturer has contributed to the state's opioid epidemic, and ordered the company to pay $572 million to fund public health and other expenses created by the crisis.1 While the attorney general sought total payments of $17 billion, reflective of the estimated amount needed to remediate the effects of the epidemic each year for 20 years, the courts found that the state only proved its case for one year's worth of costs.

      Several key inferences can be made from this ruling:

      • Improper and illegal behaviors may influence financial penalties more than opioid market share. Johnson & Johnson, with an estimated opioid market share far less than Purdue Pharma or Teva Pharmaceutical Industries in Oklahoma, received a penalty greater than the settlements of the other two companies. While the judge mentioned Johnson & Johnson's role as a supplier of active pharmaceutical ingredients like hydrocodone and oxycodone, at the core of the ruling was the defendant's false and misleading advertising tactics regarding its own products and opioids generally.2
      • Other states may follow Oklahoma's lead with similar cases against drug manufacturers or distributors. Oklahoma's use of the public nuisance statute to hold pharmaceutical companies accountable for public health impacts was controversial and was dismissed by other states as an inappropriate application of public nuisance laws. However, success in Oklahoma may drive other impacted states with similarly broad public nuisance laws to employ this legal strategy. Lawyers for Johnson & Johnson said the company will appeal the Oklahoma decision.
      • MDL litigators may refine their strategies, having now gleaned what may and may not work at trial. Plaintiffs' lawyers may now better understand what evidence is required to demonstrate false and misleading advertising and its connection to opioid abuse and overdose deaths. They may also learn from Oklahoma's failure to prove the need for multiple years' worth of payments to address the crisis in hard-hit areas.
      • Companies may be more motivated to settle prior to the MDL after witnessing what was seen as an unlikely success for plaintiffs. A recent report by NPR indicated that in addition to Purdue, several other manufacturers are all in discussions with authorities to settle ahead of the October trial. 3

      Purdue Pharma in settlement talks

      In the week prior to the Johnson & Johnson verdict, the owners of Purdue Pharma put forth an offer to settle its 2,000+ pending opioid cases for $10 billion to $12 billion.4 The details of the settlement offer include:

      • Purdue would declare Chapter 11 bankruptcy and reorganize into a for-profit "public benefit trust."
      • A bankruptcy court-appointed trustee would select a board of directors to run the trust, which would be in operation for a minimum of 10 years.
      • Profits from the trust would serve as compensation to plaintiffs, in addition to approximately $4 billion in drugs to serve as payment in-kind, for a total settlement value of $7 billion to $8 billion.
      • The Sackler family would contribute an additional $ 3 billion to $4.5 billion to the settlement amount and cede control of the business.

      Purdue Pharma indicated that if the settlement offer is not accepted, the company would declare bankruptcy, and that this latter option would yield much lower value to claimants. While the $10 billion to $12 billion offer is less than Purdue Pharma has made to date from the sale of OxyContin (est. $35 billion), and significantly less than estimates of total funds needed to adequately address public health, legal and social costs of opioids on communities, it highlights that there is likely to be a large funding gap between the costs these companies have imposed on society and the settlements available to fight the opioid epidemic. What these negotiations suggest is that whether or not the offer is accepted, there is likely to be a large funding gap that plaintiffs will look to other companies to close in the MDL.

      Bottom line: Recent developments around opioid litigation bring mixed implications for investors. The conclusion of the Oklahoma trial for less than the attorney general sought and the developing settlement talks serve to reduce uncertainty and move the industry toward a more comprehensive resolution. However, these events highlight the catastrophic impacts of the opioid epidemic, as well as the significant financial investment needed to bring aid to communities.