Mallinckrodt has essentially walked back its promise to pay $1.7 billion in an opioid settlement thanks to the company's second bankruptcy in just two years.
A U.S. bankruptcy judge on Tuesday approved Mallinckrodt’s new debt-reducing plan, which allows the company to cut $1 billion from the sum that it owed governments and individuals affected by the opioid crisis.
The bankruptcy scheme will wipe out $1.9 billion in debt from Mallinckrodt’s balance sheet once the drugmaker re-emerges from Chapter 11 toward the end of the year. The restructuring arrangement is also facing Irish legal proceedings given that Mallinckrodt is incorporated in Dublin.
“With substantially less debt and additional financial flexibility, we will be better positioned for the future as we continue delivering therapies that improve outcomes for patients with severe and critical conditions and executing on our strategic priorities,” Mallinckrodt CEO Siggi Olaffson said in a statement Tuesday.
As part of its first bankruptcy, filed in 2020, Mallinckrodt had agreed to pay $1.7 billion over eight years to resolve allegations that it used illegal tactics to boost opioid sales. The settlement barred opioid victims from suing Mallinckrodt ever again.
The first bankruptcy already eliminated a big chunk of debt for Mallinckrodt. But the company still struggled to make ends meet and unveiled the new bankruptcy bid in August.
Despite the significantly reduced obligation to the opioid fund, the majority of Mallinckrodt’s creditors still approved the debt restructuring plan. Before the Chapter 11 filing, Mallinckrodt made one last payment worth $250 million to the trust.
In approving the deal, the bankruptcy judge said the new bankruptcy was “a reasonable exercise” of business judgment.
Meanwhile, Mallinckrodt’s overall business has shown some signs of recovery, returning to revenue growth in the second quarter.
In parallel with the bankruptcy scheme, Mallinckrodt talked to investors about selling some of its assets, including the opioid business, The Wall Street Journal reported last month. Painkillers belong to Mallinckrodt’s specialty generics segment, which bought in $195 million in sales in the second quarter.
On the branded drugs front, Mallinckrodt last September won FDA approval for Terlivaz to improve kidney function in patients with hepatorenal syndrome. The drug generated $3.4 million in the second quarter, and Mallinckrodt said in August that it expects the drug to reach peak annual sales between $200 million and $300 million.
The company’s top-selling drug, Acthar, which is used as a treatment for certain inflammatory disorders, is under pressure from “continued scrutiny on overall specialty pharmaceutical spending and competition,” Mallinckrodt said in August. For 2023, Mallinckrodt expects the drug’s sales to decline by 15% to 20%. Acthar pulled down $593 million last year.