NEW YORK - A federal judge’s approval of the $7 billion bankruptcy plan for Purdue Pharma also spells the beginning of the end of a process that has enriched lawyers and consultants to the tune of more than $1.1 billion so far, more than the amount set aside for individual claimants under the plan.
All bankruptcies are expensive, but the Purdue restructuring was especially so, given the mass of litigation against the opioid maker. All 50 states and thousands of municipalities, hospitals and individual plaintiffs sued the company over its aggressive marketing practices of OxyContin, which they blamed for trillions of dollars in losses from addiction and overdose deaths.
The basis of the litigation was the claim Purdue’s products constituted a “public nuisance.” Now under the oversight of a court-appointed monitor, the company continues to sell those same drugs, earning a gross profit of $390 million on sales of $470 million so far this year.
Post-restructuring, Purdue will become a public benefit corporation called Knoa that will use its profits to fund opioid-abatement programs and overdose-reversal drugs.
The big winners in the Purdue bankruptcy so far have been lawyers, who represented the company and its creditors since it filed for bankruptcy in 2019. The biggest payout went to Davis Polk & Wardwell, which earned $285 million. Akin Gump Strauss Hauer & Feld earned $257 million working for the creditor committee, while Skadden Arps was paid $47 million for its role as special counsel. Mediator Ken Feinberg made $5.5 million.
The total exceeds the $850 million the plan sets aside for individual claimants, who must provide evidence they had an OxyContin prescription and were injured by the drug. Most of the rest of the money will go to the states, who have agreed to the plan, with Indian tribes, cities and hospital districts receiving less.
The plan ends litigation against Purdue but not its former owners, the Sackler family. They lost a landmark case last year when the at the U.S. Supreme Court rejected a plan that would have immunized them against lawsuits without declaring bankruptcy themselves. They agreed to hand over as much as $7 billion to fund the latest plan, while remaining vulnerable to lawsuits by anyone who opts out of the payment system set up by the bankruptcy.
They are still somewhat protected, however. Under a separate agreement, Purdue will set aside $200 million of the money intended to settle government claims to pay the Sackler’s litigation expenses, with potential “replenishment” up to $800 million. The City of Baltimore, which opted out of prior opioid settlements, told the New York Times it plans to sue the Sacklers after Purdue exits bankruptcy.
Recovering more than the $800 million might be tough. Like many wealthy families, the Sacklers stored much of their Purdue earnings over the years in Delaware trusts with a strict four-year time limit on fraudulent-conveyance claims. The $7 billion the Sacklers have agreed to contribute to the Purdue bankruptcy may represent dividends they pulled from the company inside that four-year window before the company filed Chapter 11 in 2019.
