Mallinckrodt Reaches Agreement in Principle for $1.6-Bn Global Opioid Settlement
Mallinckrodt and its specialty generics-focused subsidiaries Mallinckrodt LLC, SpecGx LLC and certain other affiliates (collectively, “Specialty Generics”) have reached a $1.6-billion global agreement in principle that would resolve all opioid-related claims against the company, Specialty Generics, and the company’s other subsidiaries. To implement the proposed settlement, the company expects that Specialty Generics, which manufactures certain generic opioid products, among other products, will file voluntary petitions under Chapter 11 of the US Bankruptcy Code in the coming months. The company’s Specialty Brands-related subsidiaries would not be part of the Chapter 11 filing.
Under the proposed settlement, plaintiffs would receive $1.6 billion in structured payments over eight years of which $300 million would be received upon Specialty Generics’ emergence from the completed Chapter 11 case, $200 million would be received on each of the first and second anniversaries of emergence, and $150 million would be received on each of the third through eighth anniversaries of emergence. The substantial majority of those payments are expected to be contributed to a trust which, among other things, would establish an abatement fund to be administered to cover the costs of opioid-addiction treatment and related efforts. Upon Specialty Generics’ emergence from the contemplated Chapter 11 process, the trust would receive warrants, exercisable at $3.15 per share, to purchase ordinary shares that would represent approximately 19.99% of the company’s fully diluted outstanding shares, including after giving effect to the exercise of the warrants. Specialty Generics would abide by certain agreed-upon operating covenants.
“Reaching this agreement in principle for a global opioid resolution and the associated debt refinancing activities announced today are important steps toward resolving the uncertainties in our business related to the opioid litigation,” said Mark Trudeau, President and Chief Executive Officer of Mallinckrodt, in a February 25, 2020 statement. “Importantly, when finalized, we believe the proposed settlement and capital restructuring activities will provide us with a clear path forward to achieving our long-term strategy, preserving value for our financial stakeholders and providing us with the flexibility to operate effectively.”
It is expected that Mallinckrodt would receive the benefit of a “channeling injunction” that would provide for the release of all opioid-related claims that have been or could have been asserted against Mallinckrodt or its subsidiaries related to Specialty Generics’ manufacture and sale of opioids prior to the time Specialty Generics’ Chapter 11 plan becomes effective.
The proposed settlement would become effective upon Specialty Generics’ emergence from a contemplated Chapter 11 process, subject to court approval and other conditions. The agreement in principle has been reached with a court-appointed plaintiffs’ executive committee representing the interests of thousands of plaintiffs in the opioid multidistrict litigation and is supported by a broad-based group of 47 state and US territory attorneys general, according to the company.
Mallinckrodt says the company and all of its subsidiaries, including Specialty Generics, are operating as normal, and the company says they are expected to continue operating normally throughout the court-supervised process contemplated for Specialty Generics. The company currently expects that Specialty Generics would continue to be an indirect, wholly owned subsidiary of Mallinckrodt during and following emergence from the contemplated court-supervised process. Upon emergence, the company will continue to evaluate strategic options for the Specialty Generics business.