Drug distributors and Johnson & Johnson reach $26 billion deal to end opioids lawsuits

After nearly two years of wrangling, the country’s three major drug distributors and a pharmaceutical giant have reached a $26 billion deal with states that would release some of the biggest companies in the industry from all legal liability in the opioid epidemic, a decadeslong public health crisis that has killed hundreds of thousands of Americans.

The agreement, announced Wednesday afternoon by a bipartisan group of state attorneys general, lays the framework for billions of dollars to begin flowing into communities across the country for addiction treatment, prevention services and other steep expenses from the epidemic.

The deal comes as the addiction crisis is worsening. Overdose deaths from opioids hit a record high in 2020, the Centers for Disease Control and Prevention reported earlier this month, a rise driven partly by the isolation and shutdown of services during the coronavirus pandemic. In all, more than 500,000 have died from overdoses to prescription and illegal street opioids since 1999, according to federal data.

“The urgency of the problem continues. It’s just relentless,” said Attorney General Herbert H. Slatery III of Tennessee at the news conference announcing the deal. Tennessee, whose own spike in opioid deaths was particularly sharp in 2020, could receive more than $500 million if the agreement is finalized.

The four companies that would be bound by the settlement — Johnson & Johnson and the drug distributors Cardinal Health, AmerisourceBergen and McKesson — are widely seen as having some of the deepest pockets among the corporate opioid defendants and this agreement was eagerly anticipated as a major pillar in the national litigation.

The distributors, which by law are supposed to monitor quantities of prescription drug shipments, have been accused of turning a blind eye for two decades while pharmacies across the country ordered millions of pills for their communities. Johnson & Johnson, which supplied opioid materials to other companies and made its own fentanyl patches for pain patients, is accused of downplaying the products’ addictive properties to doctors as well as patients.

In an emailed statement, Michael Ullmann, executive vice president and general counsel of Johnson & Johnson, said: “We recognize the opioid crisis is a tremendously complex public health issue, and we have deep sympathy for everyone affected. This settlement will directly support state and local efforts to make meaningful progress in addressing the opioid crisis in the United States.”

In a joint statement, the three distributors said: “While the companies strongly dispute the allegations made in these lawsuits, they believe the proposed settlement agreement and settlement process it establishes are important steps toward achieving broad resolution of governmental opioid claims and delivering meaningful relief to communities across the United States.”

A separate deal between the companies and Native American tribes is still being negotiated.

Wednesday’s agreement leaves thousands of other lawsuits still unresolved against many other pharmaceutical defendants, including manufacturers, drugstore chains and smaller distributors. Most of those companies are working on negotiating their own deals, which could potentially bring even more money to states, cities, counties and tribes. Purdue Pharma, the maker of OxyContin and its owners, members of the billionaire Sackler family, are negotiating a $4.5 billion settlement with plaintiffs as part of a bankruptcy restructuring.

Attorney General Josh Stein of North Carolina, whose state could get up to $750 million from the agreement with the distributors and Johnson & Johnson, said that the total so far that could be gained from the opioid litigation, when combining Wednesday’s deal with other potential settlements underway was almost $33 billion.

Under Wednesday’s agreement, the country’s three distributors would make payments totaling $21 billion over 18 years. Johnson & Johnson would pay $5 billion over nine years. A key feature of the agreement is that the distributors would establish an independent clearinghouse to track and report one another’s shipments, a new and unusual mechanism intended to make data transparent and send up red flags immediately when outsize orders are made.

In return, the states and cities would drop thousands of lawsuits against the companies and pledge not to bring any future action.

But there are daunting obstacles remaining before any checks are actually cut.

The agreement will now go out to the states and all their municipalities for formal approval. The states and the District of Columbia will have 30 days to review the offers and structure, including how much money they each would ultimately receive.

The attorneys general did not offer a firm list of states on board on Wednesday, saying that many states have not yet had the chance to scrutinize the deal.

A huge majority of states must sign on, for the deal to proceed, although the companies have not specified an exact number. If that threshold is not met, the companies could walk away and litigation would resume.

Although the announcement of the agreement — by attorneys general from North Carolina, Pennsylvania, New York, Delaware, Louisiana, Tennessee and Connecticut — suggests that a critical mass of states have agreed in principle to the deal, at least one was already refusing to sign on.

“The settlement is, to be blunt, not nearly good enough for Washington,” said Bob Ferguson, Washington’s attorney general. “It stretches woefully insufficient funds into small payments over nearly 20 years.”

He added: “We are looking forward to walking into a Washington state courtroom to hold these companies accountable for their conduct. Washington families devastated by the opioid epidemic deserve their day in court.”

States must also persuade their localities — both those who have filed lawsuits and those who have not — to agree to the deal. The greater the number of local governments that sign on, the greater the amount of money each state will receive. Indeed for a state to receive 100% of the money apportioned to it under the deal, nearly 100% of its local agreements would have to sign on.

The agreement, which runs hundreds of pages, lays out a complex tier system, marked by incentives and holdbacks, intended to urge the maximum number of states and subdivisions to sign up in a timely fashion.

“The lawyers will do a lot of the strong-arming of their clients, the localities, into agreeing to the settlements, because if the deal doesn’t go through, the lawyers won’t get paid,” said Elizabeth Burch, a law professor at the University of Georgia who has followed the litigation closely.

More than $2 billion of the $26 billion agreement would not go to states and localities at all. It would be used to pay fees and costs for the private lawyers representing thousands of counties and municipalities, as well as some states, in the opioid litigation. Although many states are represented by their own salaried lawyers, others needed to rely on outside counsel to mount such a costly, all-consuming litigation, as did most cities and counties.

While states are deciding whether to sign on, trials against the companies will continue, including one in California state court against Johnson & Johnson and a local West Virginia trial in federal court against the distributors. At least a half-dozen other trials are scheduled to begin in the fall and early winter.

The plaintiffs’ executive committee, who negotiated on behalf of local governments, said that while Wednesday’s announcement was a milestone moment, “Reaching agreement is just step one.”

Joe Rice, a lead negotiator on the committee, noted that some states would have to pass laws locking in how the opioid settlement money would be used and precluding future litigation.

But he emphasized that from the outset of the negotiation, the payments had been intended to be used almost exclusively to address the opioid epidemic. Rice, who also helped negotiate the Big Tobacco settlements more than 20 years ago, acknowledged that much of that money had ultimately been diverted to balance state budgets rather than directed to the treatment of smoking-related problems.

The new agreement, he said, had much tougher guard rails to ensure that funds went to prevention, treatment, medicines, education and other opioid-related problems.

Most states will likely work up their own disbursement plans with their local governments. Ohio, North Carolina, Arizona, Texas, Florida and others have already brokered internal formulas. Last month, the New York legislature passed bills to ensure that all funds from the opioid litigation settlement would go into a “locked box,” to be used only to address the crisis.

Notably, the settlement funds are not intended to compensate families of the victims of the two-decade-long opioid crisis.

These cases were brought largely by state, municipal and tribal governments under a theory known as “public nuisance”— that the opioid-supply-chain companies were responsible for creating a disaster that interfered with public health. The remedy for a public nuisance claim is “abatement”— money for programs to reduce the “nuisance.”

While critics of the current settlement argue that the distributors have a leisurely 18 years to pony up their share, the deal’s defenders note that for programs like addiction prevention, education and treatment to take root, infusions of cash will be needed over a long period.