Mallinckrodt files for Chapter 11 protection amid opioid battle

January 2021 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

January 2021 Issue

Pharmaceutical company and opioid maker Mallinckrodt plc has filed for Chapter 11 bankruptcy amid growing lawsuits that allege the company participated in fuelling the opioid epidemic in the US.

In a statement announcing the filing, Mallinckrodt said it was attempting to restructure its debt “and resolve several billion dollars of otherwise unmanageable potential legal liabilities”. The company expects to reduce its total debt by around $1.3bn, most of which is attributable to legal fees and liabilities relating to the opioid crisis. The company listed both assets and liabilities in the range of $1bn to $10bn in a filing with the US Bankruptcy Court for the District of Delaware. It is the third drug manufacturer to file for Chapter 11 bankruptcy due to its alleged role in the opioid crisis.

As per the restructuring agreement, all first lien credit agreement claims, and first and second lien note claims will be restored to present rates and maturity. Guaranteed unsecured noteholders will receive $375m in new secured second lien notes on a pro-rated basis and warrants convertible into ordinary shares of New Mallinckrodt. Trade creditors and general unsecured noteholders will share $150m in cash while equity shareholders and unsecured noteholders will get no recovery.

All US subsidiaries of Mallinckrodt will continue to operate during the proceedings, including supplying customers and patients with pharmaceutical products. The company announced in February 2020 that it planned to have its generic drug business file for bankruptcy as part of a tentative opioid settlement to resolve claims by state attorneys general and US cities and counties.

In March, the company, which was one of the highest-volume opioid producers in the US at the height of the US’ prescription drug crisis, also lost a court battle to avoid paying higher rebates to state Medicaid programmes for its top-selling drug.

Mallinckrodt has agreed to pay $1.6bn into a trust under a new settlement over several years to resolve opioid-related litigation. About $450m would be paid as part of its settlement once the company emerged from Chapter 11 bankruptcy protection. At that point, the company would then pay $200m in the first and second year after its emergence from the bankruptcy, and $150m subsequently through the seventh year.

Mallinckrodt had agreed to pay $260m over seven years to resolve disputes related to its multiple-sclerosis drug H.P. Acthar gel and pay out rebates to state Medicaid programmes.

“After many months of deliberation, negotiation and consideration of alternatives, Mallinckrodt’s management and Board of Directors determined that implementing a Chapter 11 restructuring provides the best opportunity to maximise the value of the enterprise and position the Company for the future in light of the current challenges it faces,” said Mark Trudeau, president and chief executive of Mallinckrodt. “The actions we are taking are an important step forward for Mallinckrodt and our patients, employees, customers, suppliers and other partners. We have worked diligently over the last several months to evaluate all available options to achieve a comprehensive resolution to the significant litigation and debt issues overhanging our business.”

He continued: “Having entered our restructuring support agreement and reached agreements in principle with a key group of opioid plaintiffs, other governmental parties and our guaranteed unsecured noteholders, we are beginning this process in a highly organised manner. We are now on a clear path to eliminating legal uncertainties, maximising enterprise value, strengthening our balance sheet and moving ahead with our strategic plans. At the same time, we remain committed to improving health outcomes and developing and bringing to market therapies for patients with severe and critical conditions.”

More than 3000 lawsuits have been filed accusing drug manufacturers of engaging in deceptive marketing that promoted the use of addictive painkillers, fuelling an epidemic that has resulted in more than 450,000 overdose deaths since 1999.

Richard Summerfield