Drug distributors offer $10 billion to resolve lawsuits claiming they fueled opioid crisis

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 United States, with a separate group of lawyers leading the litigation. Getting them to sign on to any deal could prove challenging.

McKesson spokesperson Kristin Hunter Chasen said in an emailed statement, “We regularly engage with the state attorneys general, but the company has made no settlement offers.”

The people familiar with the matter reiterated that the companies — including McKesson — have made an opening proffer of a settlement price. Chasen declined to elaborate on McKesson’s discussions to resolve the litigation.

Representatives for Chesterbrook-based drug distributor AmerisourceBergen, and Cardinal Health declined to comment on the discussions or on what one company said was “speculation.”

Samantha Fisher, a spokesperson for Tennessee Attorney General Herbert Slatery, one of the leaders of the attorneys general group holding the talks, didn’t return a call for comment on the settlement offer.

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.

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 by the close of Tuesday. McKesson was down 3.91% to $139, Cardinal was down 5.77% to $42.92, and AmerisourceBergen dropped 5.17% to $84.11

At the heart of the lawsuits are allegations that drugmakers including Purdue Pharma LP and Johnson & Johnson downplayed the health risks of opioids and oversold their benefits through hyperaggressive 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, W.Va. — population 400 — received almost five million doses from McKesson in 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. And 2.3 million more 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 government’s allegations and have advanced dozens of legal and factual defenses, saying they complied with all state and federal laws.

U.S. District Judge Dan Polster in federal court in Cleveland has consolidated most of the opioid lawsuits. The first trial of the many local-government claims was 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.”

A spokesperson 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.

In an indication of how complicated settlement talks will be, local governments are pressing to set up their own negotiating class to represent more than 24,000 cities and counties to work a separate deal with the pharmaceutical industry. Many state attorneys general oppose the bid by cities and counties.

“Fifty state attorneys general are better representatives of the people of their state,” Ohio Attorney General Dave A. Yost said in a July 23 letter to Polster. He added that private lawyers hired by local governments would likely take a chunk of any settlement in legal fees.

Although some states have the power to resolve opioid cases with deals that supersede 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 that 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.

“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 that 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.

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 drugmakers 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., which is based in Israel and has U.S. headquarters in Pennsylvania. A judge will rule later this month on Oklahoma’s claim that 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.