Mallinckrodt Plc said on Tuesday its specialty generic unit would file for bankruptcy after agreeing to pay $1.6 billion over eight years to settle opioid-related lawsuits globally, sending the drugmaker’s shares up 48%.
The settlement was reached with a court-appointed executive committee that represents thousands of plaintiffs in the multi-district opioid litigation and was supported by a group of 47 state and U.S. territory attorneys general, the company said.
Mallinckrodt is the third opioid maker to consider bankruptcy protection as it deals with mounting expenses tied to lawsuits filed by several U.S. states and local governments, holding them accountable for the opioid epidemic in the country.
Insys Therapeutics Inc filed for bankruptcy last June after announcing a $225 million settlement with the U.S. Justice Department.
OxyContin maker Purdue Pharma LP in September sought bankruptcy protection to halt over 2,000 lawsuits and allow it to negotiate legal claims with plaintiffs under the supervision of a U.S. bankruptcy judge.
The lead plaintiffs’ attorneys and a number of state attorneys general “worked hard to reach the best deal possible for our many constituents,” said Paul Hanly, a lead attorney for the local governments pursuing lawsuits.
“We are hopeful that support for the deal will be widespread,” he said.
Mallinckrodt said it would retain ownership of the specialty generics business after the completion of the bankruptcy process and would continue to evaluate strategic options for the unit.
Since last year, the company has been working to separate the business and had said it was considering several options.
Although the settlement terms appear broad-based, requirements for Mallinckrodt to retain ownership of the business leaves questions on longer-term funding, Jefferies analyst Anthony Petrone said.
The company also said it had entered into an agreement with some of its existing lenders under which it could receive a new $800 million four-year term loan.
“As the settlement and debt refinancing will potentially resolve two of the major overhangs, we expect the stock to trade up strongly today,” said SVB Leerink analyst Ami Fadia.
Shares of the company were trading at $6.19 in trading before the bell.
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