Drugmaker Mallinckrodt Nears Bankruptcy Filing Over Opioid Lawsuits

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Drugmaker Mallinckrodt Nears Bankruptcy Filing Over Opioid LawsuitsIreland-based drugmaker is preparing a bankruptcy filing to weather litigation over opioid addiction

Like other opioid manufacturers, Mallinckrodt has been targeted in lawsuits seeking compensation for the cost of opioid addiction.PHOTO: WHITNEY CURTIS /AP IMAGES FOR MALLINCKRODT

By 

Alexander Gladstone

Updated Sept. 25, 2020 3:39 pm ET

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Mallinckrodt PLC is preparing to file for bankruptcy within weeks, setting up a potential battle with state and local governments over the drugmaker’s alleged role in fueling opioid addiction in the U.S., according to people familiar with the matter.

The Ireland-based company is negotiating with key creditors over a restructuring proposal covering more than $5 billion in debt, these people said. The framework for restructuring that debt isn’t supported by the states and U.S. territories that have sued Mallinckrodt and other pharmaceutical companies over the opioid crisis, the people said.

Most state attorneys general reached a settlement with Mallinckrodt in February for $1.6 billion in payments over eight years, plus a minority stake in the business.

But in March, Mallinckrodt’s capacity to fulfill its end of the settlement was damaged after the company suffered an adverse court ruling: A federal judge ordered it to pay $640 million for retroactive rebates related to its multiple-sclerosis treatment Acthar.

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Mallinckrodt has appealed the ruling, but the bill is close to coming due, prompting the drugmaker to pursue a chapter 11 bankruptcy filing that would give it financial breathing room, according to people familiar with the matter.

Mallinckrodt declined to comment.

Meanwhile, the coronavirus pandemic has battered demand for Mallinckrodt’s medicines as patients limit visits to doctors and pharmacies for ailments unrelated to Covid-19.

Taking a page from other companies that paid retention bonuses to top brass before entering bankruptcy amid the pandemic, Mallinckrodt recently paid more than $5 million in cash bonuses to its top executives, including Chief Executive Mark Trudeau.

Like other opioid manufacturers, Mallinckrodt has been targeted in a number of lawsuits seeking compensation for the cost to communities of widespread opioid addiction. State attorneys general have been determined for years to hold the pharmaceutical industry accountable for high rates of opioid addiction.

Mallinckrodt, which for years sold more opioids in the U.S. than any other company, is set to become the third drugmaker to use the bankruptcy process in an effort to settle liabilities stemming from addiction.

The first two, Purdue Pharma LP and Insys Therapeutics Inc., owed no debt to lenders when they filed for court protection. Mallinckrodt has more than $5 billion in corporate debt, much of it secured by the company’s assets as collateral.

—Sara Randazzo contributed to this article.

Write to Alexander Gladstone at alexander.gladstone@wsj.com

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