Purdue deal puts damages payouts on uncharted path

The federal government's settlement with Purdue Pharma LP, maker of OxyContin, will attempt to repay government agencies and individual plaintiffs for damages caused by the opioid with a corporate entity never before used this way.

The privately held drug company would emerge from bankruptcy as a public benefit corporation managed by a trust. Such a corporate structure is not extraordinary, as it attempts to balance making a profit with serving the public.

But private companies have never emerged from bankruptcy as public benefit corporations, experts say.

Moreover, the easiest way for the new company to make money would be to sell lots of OxyContin, the very drug that was blasted as a public health scourge. Critics, including California Attorney General Xavier Becerra, say the agreement forces states to become pharmaceutical vendors.

Charles M. Tatelbaum, a bankruptcy attorney with Tripp Scott in Fort Lauderdale, Florida, said he doesn't recall a situation like this in his decades-long career.

"We're in new territory," Tatelbaum said in a telephone interview Friday.

"Trustees will have a real balancing act to do," he said, weighing the need to generate revenues against public health concerns of generating a whole new generation of OxyContin addicts.

The U.S. Department of Justice announced an agreement with Purdue Pharma LP and its owners, the Sackler family, resolving criminal and civil cases on Wednesday

Under the proposed deal, the new company would be run by trustees approved by U.S. Bankruptcy Judge Roger D. Drain of the Southern District of New York. In re: Purdue Pharma, 19-23649 (S.D.N.Y. Bankruptcy Court, filed Sept. 15, 2019),

There could be a single trustee, or multiple trustees representing groups -- such as state governments and other plaintiffs' attorneys -- with an interest in how the company runs, Tatelbaum said.

The Justice Department said the corporation would "deliver legitimate prescription drugs in a manner as safe as possible" while directing profits to opioid abatement programs.

"I am not aware of a situation quite like this," said Robert C. Bird, a University of Connecticut business professor. "It's a creative solution to a somewhat unique problem."

It's also not the way these types of cases are usually handled. In the past, a company would be sold to a private buyer with government regulators overseeing it.

Joseph W. Cotchett, a founding partner of Cotchett, Pitre & McCarthy LLP who represents San Mateo County in one of many lawsuits against the company pending in the Northern District of Ohio, calls the agreement preposterous.

"Why do we need a publicly run pharmaceutical company?" he asked. "They are letting the Sackler family off the hook."

He said the company should be put out of business and that members of the Sackler family involved in running Purdue Pharma should face jail time.

If the deal is approved, the new company could be incorporated as a B-corporation in Delaware. The goal of a public benefit corporation is not to maximize profits, but to balance those interests against the public good.

"There will be competing interests to make enough money to pay the victims without doing harm while you're doing it," Tatelbaum said. "They may decide it's too difficult to continue selling OxyContin if they find there's no way to sell it and be safe."