Opioid Distributors Propose $10 Billion to End State Claims

McKesson Corp., Cardinal Health Inc. and AmerisourceBergen Corp. have proposed paying $10 billion to settle claims they helped to fuel the U.S. opioid epidemic — the first sign of progress in resolving state lawsuits against the drug distributors, according to people familiar with negotiations.

The companies, which deliver the majority of prescription medications to U.S. pharmacies, made the verbal proposal as part of talks with a group of state attorneys general, said three people familiar with the offer who asked that their names not be used because they weren’t authorized to speak publicly.

It’s the first time in two years of discussions that the three distributors put a dollar figure on the table to resolve lawsuits against them, the people said. The National Association of Attorneys General — handling talks on behalf of more than 35 states — countered with a demand for $45 billion to cover costs from the public-health crisis of opioid addiction and overdoses, the people said. Any settlement would be paid out over decades, they said.

Whether the distributors and attorneys general can agree to a deal remains uncertain. But reaching a compromise may not be the toughest hurdle. The distributors face almost 2,000 additional lawsuits brought by cities and counties across the U.S., with a separate group of lawyers leading litigation that has been consolidated under U.S. District Judge Daniel A. Polster in Cleveland. Getting them to sign on to any deal could prove challenging.

McKesson spokeswoman Kristin Hunter Chasen declined to comment directly on settlement talks or whether the company had made an opening proffer. “While we regularly engage with other parties about a pathway towards resolution, the company has made no settlement offer,” Chasen said. “As we explore whether resolution is possible, we share Judge Polster’s view that ‘any resolution has to be a global one,’ which includes states, local governments, cities and counties.”

Spokeswomen for AmerisourceBergen and Cardinal Health declined to comment on the discussions.

“The states are in ongoing settlement talks and are the leaders” of the effort to find a global resolution to the opioid litigation, Paul Singer, a lawyer for Texas Attorney General Ken Paxson, told Polster at a hearing in Cleveland on Tuesday. Singer declined to comment on the $10 billion settlement proposal by the three distributors.

A global settlement covering all opioid manufacturers and distributors may end up costing the companies a combined $30 billion to $55 billion, according to analysts at Nephron Research, an independent health-care investment research firm. Wells Fargo analyst David Maris said a final tally could be even higher, at almost $100 billion.

Flood of Pills

The drug distributors generate large amounts of cash that could be used to pay a settlement. In its 2019 fiscal year, San Francisco-based McKesson produced $4.04 billion from operations, according to data compiled by Bloomberg. In fiscal 2018, Cardinal generated $2.77 billion and AmerisourceBergen produced $1.41 billion.

Shares of the drug distributors fell Tuesday, reversing gains from earlier in the day. McKesson tumbled as much as 7.3%, Cardinal dropped as much as 7.7%, and AmerisourceBergen dropped as much as 6.8%.

At the heart of the lawsuits are allegations that drug makers including Purdue Pharma LP and Johnson & Johnson downplayed the health risks of opioids and oversold their benefits through hyper-aggressive marketing campaigns. Distributors, considered to have the deeper pockets by plaintiffs’ lawyers, are accused of ignoring red flags about misuse of the painkillers and illegally flooding states with pills.

One pharmacy in Kermit, West Virginia — population 400 — received almost 5 million doses from McKesson between 2005 and 2006, records show. About 30 miles from Kermit, the company shipped more than 5.8 million to a pharmacy in Mount Gay — population 1,800 — between 2006 and 2014. Another 2.3 million went to a pharmacy three miles away.

McKesson, Cardinal Health and AmerisourceBergen, along with other distributors, shipped a total of 76 billion pain pills over a six-year period starting in 2006, according to the U.S. Drug Enforcement Agency. The companies deny the governments’ allegations and have advanced dozens of legal and factual defenses, saying they complied with all state and federal laws.

At Tuesday’s hearing in Cleveland, the cities and counties asked the federal judge for permission to create their own negotiating class of 24,000 local governments. Many state attorneys general oppose the request. Polster has yet to rule.

The first trial of the many local-government claims is set to start Oct. 21, but the defendant companies are seeking a delay, saying in court filings that they need more time to prepare for what will be “one of the most complicated trials in legal history.”

While some states have the power to resolve opioid cases with deals that supercede separate litigation by local governments, many don’t, said Elizabeth Burch, a University of Georgia law professor.

“So it’s hard to see how this deal would fly given it can’t be crammed down on all the cities and counties,” Burch said. “The companies want closure. They don’t want to have to do two settlements.”

To address that problem, the state attorneys general are trying to structure a deal with distributors that offers incentives for cities and counties to participate, according to people familiar with the talks. Those joining the state early are likely to get a greater share of the settlement pie, they said.

At the same time, it’s likely McKesson, Cardinal Health and AmerisourceBergen will demand a high percentage of cities and counties sign off on the settlement, the people said. If not, the companies could ditch the deal or cut cash payments.

Little Incentive

“It just may not make sense for the cities and counties to join this from a financial standpoint because they may be able to get more” through the cases they brought, said Carl Tobias, a University of Richmond law professor who teaches about mass torts.

The cities and counties are worried any state deal would get used for general state expenses rather than local needs. They point to the $246 billion settlement in 1998 with tobacco companies in which few funds made their way to municipalities.

A spokeswoman for three of the plaintiffs’ attorneys leading the cases brought by local governments — Joe Rice, Paul Hanly and Paul Farrell — didn’t return a call seeking comment on whether McKesson, Cardinal Health and AmerisourceBergen made the same $10 billion settlement offer in the talks sponsored by the judge.

There already have been some state settlements.

In May, West Virginia agreed to accept $37 million from McKesson to resolve a suit brought by that state’s attorney general alleging it improperly distributed opioids there. West Virginia has the highest rate of drug-overdose deaths in the U.S.

Oklahoma, which sued drug makers rather than distributors, agreed in March to a $270 million payment from Purdue and then two months later accepted an $85 million accord with Teva Pharmaceutical Industries Ltd. A judge will rule later this month on Oklahoma’s claim J&J should pay as much as $17.5 billion for its role as the opioid crisis’ “kingpin.” The state plans to use the money for treatment of opioid addiction and research into the problem.

The consolidated federal case is In Re National Prescription Opioid Litigation, 17-md-2804, U.S. District Court, Northern District of Ohio (Cleveland).