SignalHub-Drugmaker Mallinckrodt may renege on $1.7 billion opioid settlement

The SignalHubgeneric drugmaker Mallinckrodt says the company's board might not make a $200 million opioid settlement payment scheduled for later this week.

In a June 5 filing with the Securities and Exchange Commission, the financially troubled firm said it faces growing questions internally and from creditors about the payout, which is part of a $1.7 billion opioid deal reached as part of a bankruptcy deal last year.

One possibility is that the company could file for a second bankruptcy, a move that could put the entire settlement at risk.

"It could be devastating," said Joseph Steinfeld, an attorney representing individuals harmed by Mallinckrodt's pain medications. "It potentially could wipe out the whole settlement."

According to Steinfeld, individual victims overall stand to lose roughly $170 million in total compensation. The rest of the money was slated to go to state and local governments to help fund drug treatment and health care programs.

The opioid crisis has killed hundreds of thousands of Americans, sparked first by prescription pain medications, then fueled by street drugs such as fentanyl and heroin.

If Mallinckrodt files a second bankruptcy, payouts would likely go first to company executives, staff and other creditors, with opioid-related claims paid out last.

"Paying board members, paying the company professionals and paying non-victims is all well and good," Steinfeld said. "But it ignores the whole fact that the persons most harmed and the reason the company is in bankruptcy is because of the damage they've done" through opioid sales.

Katherine Scarpone stood to receive a payment in compensation after the death of her son Joe, a former Marine who suffered a fatal opioid overdose eight years ago.

She described this latest legal and financial setback as "disheartening."

"First there's the victim, right, who may lose their life and then there's the bankruptcy and going through all the painful stuff of filing and then to have all that blow up it really angers me," Scarpone told NPR.

Mallinckrodt is headquartered in Ireland and has U.S. corporate offices in Missouri and New Jersey.

A company spokesperson contacted by NPR declined to comment about the matter beyond the SEC filing.

"On June 2, 2023, the board directed management and the company's advisors to continue analyzing various proposals," the firm said in its disclosure.

"There can be no assurance of the outcome of this process, including whether or not the company may make a filing in the near term or later under the U.S. bankruptcy code or analogous foreign bankruptcy or insolvency laws."

This financial maneuver by Mallinckrodt comes at a time when drugmakers, wholesalers and pharmacy chains involved in the prescription opioid crisis have agreed to pay out more than $50 billion in settlements.

Most of the firms involved in those deals are much larger and more financially stable than Mallinckrodt.

In late May, a federal appeals court approved another opioid-related bankruptcy deal valued at more than $6 billion involving Purdue Pharma, the maker of Oxycontin.