(Bloomberg) — Mallinckrodt Plc became the third major opioid maker to go bankrupt after being swamped by claims it profited by fueling the U.S. opioid epidemic.



a close up of a cake: This illustration image shows tablets of opioid painkiller


© Photographer: ERIC BARADAT/AFP
This illustration image shows tablets of opioid painkiller

The drug company said Monday it filed for Chapter 11 protection in Delaware after getting creditors and claimants to agree on a restructuring plan that hands ownership to bondholders, wipes out shareholders and sets aside $1.6 billion to resolve all opioid litigation. The filing also will help resolve a U.S. government probe into whether the company defrauded Medicaid by overcharging for Acthar Gel, its top-selling mutiple sclerosis drug.

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The move comes as Mallinckrodt was readying for two trials over accusations it illegally marketed opioids and failed to properly oversee large shipments of the highly addictive pills, which have been tied to an epidemic of abuse that killed thousands of Americans. A judge is likely to halt all litigation while the bankruptcy plan makes its way through the court process.

The agreement includes certain debt holders, state attorneys general and lawyers for municipalities that sued to recoup billions in tax dollars spent on battling opioid addictions. Mallinckrodt will set up a trust to oversee payments from the $1.6 billion fund to claimants, and give them warrants to buy a stake in the reorganized company that could total nearly 20%, according to a statement.

Wiped Out

Current shareholders are likely to get nothing, filings show. The stock, which ended last week at 75 cents a share, has hovered at penny-stock levels for most of this year as the talks progressed, and trading was suspended on Monday after the bankruptcy was filed.

Chief Executive Officer Mark Trudeau, who has been in charge for seven years, said the plan puts Mallinckrodt “on a clear

Mallinckrodt, the largest maker of generic opioids, filed for bankruptcy on Monday as it faces more than $1 billion in costs from lawsuits over its role in fueling the opioid crisis.

The company in February agreed to the framework of a $1.6 billion settlement with 47 attorneys general from states and territories over opioid-related lawsuits.

On Monday, the company detailed a structure for making those settlement payments, beginning with a $450 million payment upon emerging from bankruptcy proceedings.

“For years, they balanced their business on the backs of a product they knew was dangerous and deadly,” Connecticut Attorney General William Tong said in a statement on Monday. “As Mallinckrodt now collapses and files for bankruptcy, this agreement ensures $1.6 billion will be placed in a trust and used to directly address the pain, suffering and trauma caused by the opioid epidemic.”

The company is also agreeing to terms to prevent it from marketing its opioids in the future and to put in place protections aimed at preventing abuse.

The company said it would continue to serve customers “as normal” during the bankruptcy proceedings.

The company is also agreeing to pay $260 million over disputes about its pricing of its multiple sclerosis drug Acthar Gel.

Purdue Pharma, another major opioid maker, also filed for bankruptcy last year as part of a settlement to resolve opioid lawsuits against it.

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A New Jersey drugmaker ensnared in the fallout from America’s opioid crisis is seeking bankruptcy protection

A New Jersey drugmaker ensnared in the fallout from America’s opioid crisis is seeking bankruptcy protection.

Mallinckrodt said Monday that it had begun Chapter 11 proceedings to restructure debt and resolve “several billion dollars of otherwise unmanageable potential legal liabilities.”

The drugmaker, one of the highest-volume opioid producers in the U.S. at the height of the nation’s prescription drug crisis, announced in February a tentative $1.6 billion settlement to avert hundreds of lawsuits. It said Monday that it plans to amend the settlement as it restructures.

Under the proposed settlement, opioid claims would be channeled to trusts that receive $1.6 billion in structured payments. Claimants also would receive warrants for about 20% of the company’s fully diluted outstanding shares, the company said Monday.

A court-appointed committee representing thousands of plaintiffs in the opioid lawsuits will recommend support for the amended agreement, Mallinckrodt said.

The company did not immediately respond early Monday to inquiries about whether the amended deal affects the amounts individual plaintiffs may receive.

Trading in company shares, which dipped under $1 for the first time this month as investors bailed out, were halted at the opening bell Monday. The stock went for well over $100 just over five years ago.

Mallinckrodt’s path through the bankruptcy courts follows that of Purdue Pharma, the maker of OxyContin, last year.

Mallinckrodt plans to slash its debt by about $1.3 billion and it will continue to operate during the process.

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Here are five things you must know for Monday, Oct. 12:

1. — Stock Futures Edge Higher Amid Stimulus Uncertainty

Stock futures edged higher Monday amid uncertainty over the prospects for further fiscal stimulus and as investors prepared for quarterly earnings reports from the biggest banks in the United States.

Contracts linked to the Dow Jones Industrial Average rose 59 points, S&P 500 futures were up 23 points and Nasdaq futures rose 199 points.

Stocks closed higher Friday after the White House raised its coronavirus aid proposal to $1.8 trillion, up from $1.6 trillion. The offer, however, still remains below the latest proposal of $2.2 trillion from Nancy Pelosi and House Democrats.

Pelosi rejected the latest Trump proposal as “one step forward, two steps back,” but said she was still hopeful progress can be made toward a relief package.

“I remain hopeful that (Friday’s) developments will move us closer to an agreement on a relief package that addresses the health and economic crisis facing America’s families,” Pelosi said in a letter to Saturday to colleagues.

The Dow last week jumped 3.3%, the S&P 500 rose 3.8% – its best week in three months – and the Nasdaq gained 4.6%.

2. — JPMorgan Chase and Citigroup Kick Off Earnings Season

Earnings reports are expected this week from JPMorgan Chase  (JPM) – Get Report, Citigroup  (C) – Get Report, Bank of America  (BAC) – Get Report, Wells Fargo  (WFC) – Get Report, Goldman Sachs  (GS) – Get Report, Morgan Stanley  (MS) – Get Report, Johnson & Johnson  (JNJ) – Get Report, Delta Air Lines  (DAL) – Get Report, United Airlines  (UAL) – Get Report, UnitedHealth 

Drugmaker Mallinckrodt  (MNK) – Get Report became the third major opioid producer to file for bankruptcy, weighed down by thousands of U.S. lawsuits from states, cities and counties that have blamed drugmakers and distributors for the epidemic of overdose deaths.

“After many months of deliberation, negotiation and consideration of alternatives, Mallinckrodt’s management and board of directors determined that implementing a Chapter 11 restructuring provides the best opportunity to maximize the value of the enterprise and position the company for the future in light of the current challenges it faces,” said Mark Trudeau, Mallinckrodt’s president and CEO, in a statement.

The company said it entered into a restructuring agreement that would reduce its debt by about $1.3 billion. The company also said it aims to resolve all opioid litigation while in bankruptcy protection.

Mallinckrodt listed estimated liabilities of $1 billion to $10 billion in its bankruptcy filing and assets in the same range.

Purdue Pharma, the maker of the maker of OxyContin that entered Chapter 11 protection in September 2019, has proposed a $10 billion settlement of existing claims. Insys Therapeutics also filed for bankruptcy in 2019.

The Centers for Disease Control has estimated that every day in the U.S. 130 people die from an opioid-related drug overdose.

Mallinckrodt hired restructuring advisers late last year, and management disclosed in February that it was pursuing court protection.

The plan at that time was to settle its opioid claims by putting a small part of the company into bankruptcy, but it failed to gain required support from lenders.

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