Purdue deal puts government in opioid business, critics say

The U.S. Department of Justice's settlement of its criminal and civil investigation of Purdue Pharma LP and the family that long ran it will put the government in the opioid business, critics say.

Under terms of the tentative deal, Purdue Pharma -- best known for its most drug OxyContin -- will cease to operate in its current form after the company emerges from bankruptcy and will instead operate as a public benefit company run by a trust.

The Justice Department said Wednesday the trust's goal will be "to function entirely in the public interest," with proceeds directed to state, county and city opioid abatement programs.

Adam S. Zimmerman, a professor at Loyola Law School, said this will create a perverse incentive given the allegations by federal and state officials that opioids are a national tragedy devastating people's lives.

"Now the government has a stake in running this as a profitable business," he said in a telephone interview. "The deal [the federal government] struck creates a financial interest that these companies remain a going concern."

Deputy U.S. Attorney General Jeremy A. Rosen, in a settlement hailing the agreement, said the guilty pleas and "repurposing of assets entirely for the public's benefit ... reaffirms that the Department of Justice will not relent in its multipronged efforts to combat the opioids crisis."

Rosen also touted a settlement of more than $8 billion, although other attorneys said the government would not see anything close to that amount of money given the company's other debts, and in fact passed on the chance to get additional money.

Zimmerman said the government had the power to claim a criminal fine of $3.544 billion and an additional $2 billion in criminal forfeiture outside of bankruptcy. The Justice Department said Purdue Pharma would pay $225 million on the effective date of the bankruptcy.

The remaining funds will be part of the company's bankruptcy settlement that must be approved by U.S. Bankruptcy Court Judge Robert D. Drain. In re Purdue Pharma, 19-23649 (S.D.N.Y. Bankruptcy Ct, filed Sept. 15, 2019).

"Resolving the DOJ investigations is an essential step in our bankruptcy process," Steve Miller, chairman of the company's board of directors, said in a statement. "The settlement agreement will pave the way for Purdue to submit a plan of reorganization to the bankruptcy court that will transfer all of Purdue's assets to a public benefit company, and ultimately deliver more than $10 billion in value to claimants and communities."

Joseph F. Rice, co-founder of Motley Rice LLC -- who represents 2,800 cities and counties across the nation, including Los Angeles and Santa Clara counties -- said he was not involved in the agreement but defended it.

The settlement "is not going to be $8 billion, but all of the money is going to go to abatement," Rice said. "The deal brings an end to the fight with the Department of Justice, which is a necessary event to resolve the bankruptcy."

California Attorney General Xavier Becerra and some other state attorneys general said the OxyContin business shouldn't be preserved as a public trust.

"The federal government should enforce the law impartially rather than force states to become pharmaceutical vendors of Purdue's Oxycontin, the very drug that is responsible for thousands of deaths," Becerra said in a statement. "We will continue our pursuit of justice for our communities alongside our coalition of state attorneys general."

The attorneys general wrote last week, "A business that killed thousands of Americans should not be associated with the government. ... Selling the business to a private owner may also deliver more upfront money that cities and states can use to abate the opioid epidemic. At least one potential buyer has already come forward to make a bid to buy Purdue's drug businesses, which would keep the businesses in private ownership."

The Sackler family will pay $225 million in damages to resolve its civil False Claims Act liability, a tiny fraction of their estimated $13 billion fortune.

"It illustrates why it's such a weak deal in the end," Zimmerman said.

The dispute over the settlement has become a partisan battle, with the company agreeing to a settlement days before the election with the support of the Trump administration and Republican attorneys general. Democrats oppose it.

Purdue still faces a long list of lawsuits in federal and state courts over opioids.