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DJ States Pressure Drug Makers After McKinsey's $600 Million Opioid Settlement

· 02/04/2021 17:16
By Sara Randazzo and Jonathan Randles

State attorneys general intensified pressure on drug companies to settle claims over the opioid crisis, following consulting firm McKinsey & Co.'s agreement to pay nearly $600 million over its advice to pharmaceutical companies to rev up sales.

McKinsey's settlements, reached with every state but Nevada, are an unexpected first source of revenue to stem from yearslong investigations into drug industry players that states say helped exacerbate an opioid epidemic. It has killed at least 400,000 people in the U.S. since 1999.

"We do not want to be in litigation for years on this, spending money and resources while people are dying," Colorado Attorney General Phil Weiser said Thursday. "We want to get fair settlements now. Others need to follow suit."

States have been negotiating since 2019 with the nation's three largest drug distributors, McKesson Corp., AmerisourceBergen Corp., Cardinal Health Inc., as well as drugmaker Johnson & Johnson. The companies have publicly disclosed that they have set aside a collective $26 billion for the deal, most of it to be paid over 18 years, but no final agreement has been reached.

In news conferences Thursday, attorneys general said they hoped the McKinsey deal would provide momentum for a bigger settlement, if others facing litigation follow the consulting company's lead.

"These other companies are not acting smartly, if they don't do the same, " said Oregon Attorney General Ellen Rosenblum.

Representatives for the distributors declined to comment. Johnson & Johnson pointed to an October statement that it had increased its settlement offer to $5 billion and that terms were still being finalized.

The swift settlement negotiations with McKinsey were spurred by information about the consulting firm's work that became public during OxyContin maker Purdue Pharma LP's chapter 11 bankruptcy, state lawyers in Vermont and North Carolina said.

McKinsey Global Managing Partner Kevin Sneader said the firm chose to resolve the matter to provide support to communities across the U.S. addressing the opioid crisis. "We deeply regret that we did not adequately acknowledge the tragic consequences of the epidemic unfolding in our communities," Mr. Sneader said. The agreement, like most civil settlements, didn't require McKinsey to admit to wrongdoing.

The state agreements won't block potential legal claims that Purdue could bring against McKinsey related to the years of work it provided the company. Bankrupt companies sometimes sue former advisers over advice that caused management to breach duties owed to company stakeholders.

The bankruptcy documents showed how McKinsey advised Purdue to increase OxyContin sales, including suggesting Purdue's sales team make more calls to health-care providers who wrote the highest volume of prescriptions. The company retained McKinsey in 2013 to increase OxyContin revenue shortly after the U.S. Food and Drug Administration approved labeling for a reformulated version of the opioid painkiller that is harder to abuse. The consulting firm did work for Purdue between 2004 and 2019, according to complaints filed by states Thursday.

The deals announced Thursday call for $558 million to be shared by 47 states, the District of Columbia and several territories, with $15 million going to a national attorney-general organization. Washington state reached a separate $13 million deal that explicitly doesn't prohibit its local governments from suing McKinsey down the line. West Virginia, meanwhile, cut a $10 million deal that its attorney general said was higher than the allocation it would have received otherwise.

McKinsey said Thursday it fired partners Arnab Ghatak and Martin Elling, who had communicated about deleting documents, for violating the firm's professional-standards policy. In July 2018, Mr. Elling wrote an email to Mr. Ghatak about litigation against a member of Purdue's board, saying that, "as things get tougher there someone might turn to us."

Mr. Elling further said in the email, which has been made public in Purdue's bankruptcy case: "It probably makes sense to have a quick conversation with the risk committee to see if we should be doing anything other than eliminating all our documents and emails."

Messrs. Ghatak and Elling couldn't immediately be reached for comment Thursday.

The settlements call for McKinsey to create a public repository of documents related to its work for opioid-industry clients, including Purdue, Johnson & Johnson, and drugmakers Endo International PLC and generic drugmaker Mallinckrodt PLC. The database, attorneys general said Thursday, is akin to one that was created during the 1990s tobacco litigation.

More than 3,000 lawsuits have been filed in recent years by states, local governments and Native American tribes against companies involved in the making and distributing of prescription painkillers. A few settlements were reached in early cases set for trial in 2019, but the pandemic has delayed several other scheduled opioid trials, reducing urgency to reach more deals, lawyers involved in the litigation say.

States are also expecting opioid-related money to come from the bankruptcies of Purdue and Mallinckrodt. In both cases settlements have been proposed that would benefit states but are still being worked out in bankruptcy court.

Private plaintiffs' lawyers representing hundreds of counties and some states in the opioid litigation weren't involved in the McKinsey settlement talks, Massachusetts Attorney General Maura Healey said Thursday, a factor that she said she believes helped the deal coalesce quickly.

Andrew Scurria contributed to this article.

Write to Sara Randazzo at sara.randazzo@wsj.com and Jonathan Randles at Jonathan.Randles@wsj.com

(END) Dow Jones Newswires

February 04, 2021 17:16 ET (22:16 GMT)

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