A major opioid manufacturer that has pledged to pay $1.7 billion in compensation for its role in the opioid crisis revealed Wednesday that it has reached an agreement with its creditors to reduce settlement payments by $1 billion.
The manufacturer, Mallinckrodt Pharmaceuticals, originally agreed to pay $1.7 billion over eight years to state and local governments, individuals and others who sued the company for helping fuel the opioid crisis. Funds are intended for victims of addiction to rebuild their lives and for governments to pay priorities such as drugs to reverse opioid overdoses.
In a regulatory filing on Wednesday, Mallinckrodt revealed that it has reached a plan to file for bankruptcy for the second time in three years. The plan would cancel most of the $1.25 billion the company still owes under the original settlement agreement, in exchange for a final payment of $250 million to be made before the company enters its second bankruptcy.
The plan to cancel most of the outstanding payments was made on backing from hedge funds who will control the company under the second bankruptcy. The funds lent money to Mallinckrodt and were in a position to force the company to prioritize paying its lenders over paying victims.
The revised plan still requires bankruptcy court approval. The company’s chief executive, Siggi Olafsson, told a News release that the company “remains committed to ensuring that we achieve a meaningful resolution” for the trust set up to provide settlement payments to victims. Mallinckrodt did not immediately return a request for further comment.
The original settlement plan, finalized last year when Mallinckrodt exited its first bankruptcy, protected the company and its former executives from future liability related to its opioid sales.
Mallinckrodt last year made its first and only payment, of $450 million, under the original settlement agreement. The company is late on the second payment, due in June.
The revised plan was agreed upon by a master trust which oversees the distribution of payments to subordinate trusts tasked with disbursing money to victims. Governments began to receive initial funds. The money earmarked for individuals has not yet been released but is expected to be released soon.
Joseph Steinfeld, a lawyer representing about half of the roughly 40,000 individuals promised payments as part of the settlement, said the revised plan would reduce the amount going to that group by about $100 million.
“What was promised was a huge sum to many of the victims who depended on it,” Mr. Steinfeld said. “They lose about 70 percent of what they were promised.”
Mallinckrodt is among several manufacturers, pharmacy chains, and distributors who have agreed to large settlements with governments and other victims who accused them of sowing a public health disaster by pushing of prescription opioids and reducing their addiction risks.
While Purdue Pharma has become a household name for its role in the opioid crisis, Mallinckrodt is less well known, even though its product known as Roxicodone has become one of the most widely misused legal painkillers. Documents made public through the company’s first bankruptcy filing showed how Mallinckrodt was aggressively promoted its prescription painkillers as the opioid crisis rages on in communities across the country.