Purdue Pharma – from Billions to Bankruptcy

New medicines cost millions to develop and can generate billions in profit. The pharmaceutical industry is worth just shy of $1.5tn, with the biggest firms turning over north of $40bn. The notion of one such firm declaring bankruptcy is difficult to entertain. Except, that is exactly what Connecticut-based Purdue Pharma did after 127 years of producing analgesics. Owned by Sackler family trusts since 1952, Purdue’s downfall was OxyContin – a pain killer marketed to avoid the very opioid epidemic it sponsored. Below, we simplify Purdue’s complex collapse into just 910 words.

The Origin of Oxy

The active ingredient of OxyContin is Oxycodone, a highly addictive opioid from the same family as heroin. Oxycodone is 1.5 times more potent than morphine and provides up to six hours of pain relief until the body builds up a tolerance. After combining their extended-release formula known as Contin, Purdue launched OxyContin in 1996 generating $1bn by 2000.

False Claims

In 2007, Purdue was fined $600m for misrepresenting how addictive OxyContin was. A new formula was launched in 2010, supposedly harder for addicts to crush or inject, but sales flatlined. A patient savings card did little to stop the rot, even suggesting a $1bn budget shortfall for 2011. Using unethical means, including misrepresenting drug trials to the FDA, Purdue claimed the new formulation had a less than 1% chance of addiction whilst giving twelve hours of pain relief. In truth, OxyContin was no less addictive than other opioids and gave eight hours of pain relief at best.

Misleading Marketing

In 2013, Purdue launched an aggressive marketing campaign. Hundreds of highly trained sales representatives wined and dined with doctors, pharmacies and healthcare associations, preaching low addiction risks and twelve hours of pain relief. Purdue was selling the dream of pain relief for the masses no matter what the ailment, to the point where OxyContin was prescribed at the same dose for a headache as it was a slipped disc. Despite mounting evidence showing OxyContin was fuelling an opioid epidemic, Purdue continued to market it as safe.

Planning to Fail

In 2004, the Sacker family entered an enduring agreement indemnifying themselves against financial liability for past, present and future actions. The agreement included a bad faith exception for wilful misconduct and gross negligence. In 2008, the family started a ten-year $10.4bn raid, pillaging 75% of Purdue’s cash and assets into Sackler trusts. Correspondence from Mortimer Sackler in 2014 went so far as to claim Purdue was in a death spiral.

Bankruptcy & Settlement

In 2019, the number of OxyContin lawsuits was growing exponentially, prompting Purdue to file for bankruptcy with the intention of consolidating all claims. Purdue agreed to pay $2.8bn in settlement plus a $3.5bn criminal fine and surrender $2bn as criminal forfeiture. The Sackler family entered their own settlement and avoided bankruptcy. They paid $225m to settle False Claims Liabilities in misrepresenting OxyContin, whilst retaining their rights under the 2004 indemnity. Debt collectors may still grace the Sacklers with a visit, but it certainly won’t be for bankruptcy! The Sackler family also relinquished control of Purdue and agreed to contribute up to $6bn to fund its reorganisation into a public beneficiary trust called Knoa Pharma.

In the Knoa

Knoa is Hebrew for peaceful and its mission is two-fold. Firstly, marketing existing Purdue product lines, albeit under intense scrutiny; and secondly, to seek redemption in developing opioid addiction treatments and overdose reversal medicines. Knoa profits are to be reinvested into the communities affected by OxyContin and subsidise compensation payouts.

Opposition to Bankruptcy

When Purdue filed for bankruptcy, it was facing claims exceeding $10bn against assets of $1.8bn. Unsurprisingly, 95% of the 618,000 unsecured creditors voted in favour of the proposal, which set out an equitable distribution of funds. Victims and their families are set to receive token compensation awards of $3.5-$48k, with payments spread out over ten years. Whilst this draws a line under the OxyContin scandal, critics argue it shuts the door on compensation for those who are yet to have their voices heard. At the time of writing, the Supreme Court has been petitioned to stay Purdue’s bankruptcy.

Purdue’s bankruptcy is one of convenience, not necessity. Had OxyContin been the drug claimed, the firm’s trade creditors wouldn’t have gone down the nuclear debt recovery route by themselves.

Opposition to Solvency

The Sackler family have not faced criminal prosecution despite calls from senators such as Ed Marky and Tammy Baldwin to the Department of Justice. Campaigners would like to see Sackler family members charged with the same criminal wrongdoing as Purdue itself and prosecuted under fraudulent transfer laws for the ten-year $10.4bn raid. There are circumstances where personal assets can be included in a corporate bankruptcy to ensure a fair distribution to creditors, but Sackler’s 2004 indemnity must first be undone.

The Real Cost of OxyContin

OxyContin was the drug of choice for 40-60% of opioid overdoses during the period 1999-2020. Latest figures show 6,550 babies have been born with neonatal abstinence syndrome (withdrawal). Personal injury and wrongful death claims now exceed $700m. Private healthcare providers like the Blue Cross Blue Shield Association estimate their claim to be $69-$79bn in respect of excess prescriptions and drug rehabilitation treatments. Each of the 50 states and their respective health authorities are also owed compensation.

The cost of clearing up after OxyContin is estimated to be over $40tn, which far exceeds Sackler’s family wealth.

On face value, no trade creditor is set to receive their full invoiced value. To achieve a $40tn creditor payout, the bankruptcy would have to find at least $3,600 for every dollar in profit OxyContin has generated. With the best will in the world, running Knoa as a profitable public beneficiary trust for the next century still won’t come close. The token compensation awarded to victims means that outside of personal bankruptcy and criminal convictions, justice is unlikely to be deemed served. The wealth created by an opioid like OxyContin is only eclipsed by Colombian drug baron Pablo Escobar, who was once also deemed untouchable by law enforcement and debt collectors!

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