Bankruptcy speculation clouds embattled Purdue Pharma
As the Stamford-based company grapples with more than 1,000 lawsuits that accuse it of stoking the opioid crisis with deceptive marketing of its pain drugs, reports have emerged in the past week about its exploration of a bankruptcy filing to help contain its potentially massive liability. “Chapter 11” protection could bolster Purdue’s long-term viability, but it would also usher in another round of scrutiny of the already-changing firm.
“A possible reason for filing for bankruptcy may be to avoid compensating the injured parties that have sought to hold parties such as Purdue accountable,” U.S. Sen. Richard Blumenthal, who sued Purdue when he was attorney general of Connecticut, said in an interview. “That would not be a proper purpose for the declaration of bankruptcy. Any such plan would have to be carefully scrutinized.”
In a statement this week, Purdue said that it is “looking at all of its options, but we have made no decisions and have not set any timetables. The company is committed to working with the state of Connecticut and the other states to help address this public health challenge.”
Moving toward bankruptcy?
So far, Purdue has not filed for bankruptcy, according to public court records.
In its statement, the company said it had “ample liquidity.” Some of its recent court filings have also pushed back on the perception that its finances are imperiled.
“Even at last week’s hearing, the state’s attorneys suggested Purdue would file (for) bankruptcy this week,” the company said in a Feb. 22 filing, in response to Oklahoma’s lawsuit, which also names several other opioid makers. “Yet Purdue is still here, ready, willing and eager to prove in this court that the state’s claims are baseless.”
Attorneys general who have sued the company give a more ominous forecast.
“This is as serious as it can be,” Connecticut Attorney General William Tong said in an interview last month. “The scale of the damages and liability is enormous.”
Recent moves have also stoked speculation that the company could be contemplating an overhaul.
Its advisers purportedly include AlixPartners LLP, a Manhattan-based consulting firm known for its restructuring work.
Last year, the company hired law firm Davis Polk & Wardwell LLP for restructuring help and brought in a corporate-turnaround specialist, Steve Miller, as its new board chairman.
AlixPartners declined to comment. A message left for Davis Polk & Wardwell was not returned.
In contrast with a Chapter 7 filing, a Chapter 11 plan would not liquidate the company.
Among Connecticut companies that have sought Chapter 11 protection in recent years, Stamford-based printing-and-mailing company Cenveo last year became privately held and changed its CEO after going through the process.
“Essentially, what you would be trying to show is that the company is worth more to creditors alive than dead,” said Jeff Hellman, a New Haven-based attorney, whose practice concentrates on commercial litigation and bankruptcy. “There are many examples of companies doing well after coming out of Chapter 11.”
A prospective Purdue bankruptcy could halt the litigation. Any subsequent moves, such as settlements, would then have to be approved by the bankruptcy court handling the case.
Estimates of Purdue’s and other opioid makers’ financial exposure vary, but a comprehensive agreement with the plaintiffs could easily amount to many billions of dollars.
Significant creditor support would be needed to enact a Chapter 11 plan. In Purdue’s case, the stakeholders would include the local and state governments that have sued. Banks and other organizations that might be financing the company would also participate in the proceedings.
“Anything is possible in a bankruptcy,” said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. “But the idea is to preserve the assets and allow the business to continue after everyone (among the creditors) has been paid and after the company has been reorganized.”
At the same time, a number of state attorneys general have reiterated their intent to advance their cases.
“We will oppose any attempt to avoid our claims and will continue to vigorously and aggressively pursue our claims against Purdue and the Sackler family,” Connecticut’s Tong said in a statement.
In Oklahoma, the trial for the state’s lawsuit is scheduled to start May 28.
Purdue has filed a motion to push back the start, saying a delay is necessary after the state produced 165,000 documents last month. Oklahoma Attorney General Mike Hunter appears undeterred.
“Our focus over the next several months is on trial preparation and ensuring the facts and evidence in this case will be heard by Oklahoma triers of fact in an Oklahoma courtroom,” Hunter said in a statement this week.
Meanwhile, about 1,500 municipal and county lawsuits against Purdue and other pharmaceutical firms have been consolidated in “multidistrict litigation” federal court in Cleveland. The first trial linked to those cases is scheduled to start in October.
Paul Hanly, co-lead counsel for the MDL plaintiffs, declined to comment this week. In an interview last year, he expressed his desire for Purdue to keep operating.
“We don’t want any of these companies to go out of business; this is not an act of vengeance,” Hanly said in the interview. “This is litigation to recover money that these government entities have spent and lost as a consequence of the defendants.”
Business in transition
In the meantime, Purdue continues to undergo major changes.
Last year, it disbanded its controversial sales force and laid off several hundred employees.
It is also increasingly diversifying its research-and-development pipeline.
A drug to treat attention deficit hyperactivity disorder made by new subsidiary Adlon Therapeutics gained approval last week from the U.S. Food & Drug Administration.
The endorsement of Adhansia XR followed a Feb. 22 announcement that the FDA had granted “orphan drug designation” to a bile-duct cancer treatment made by another new Purdue subsidiary, Imbrium Therapeutics.
Applying to makers of drugs for diseases affecting less than 200,000 people, the “orphan” label makes recipients eligible for a number of incentives, including tax credits for certain clinical testing.
Both Adlon and Imbrium are based in the same building as their parent company, at 201 Tresser Blvd. in downtown Stamford.
“You definitely want to diversify your product line to remain viable,” said Angela Mattie, a professor in the schools of business and medicine at Quinnipiac University. “I think it’s a good strategy for Purdue given the public outcry about its role in the opioid crisis and all of the litigation involving the company.”
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