Shares of Mallinckrodt plc (NYSE:MNK) gained 7% after it announced the execution of a definitive settlement agreement with Cuyahoga and Summit Counties in Ohio concerning the lawsuits pending in multidistrict opioid litigation (MDL) in the U.S. District Court for the Northern District of Ohio.
The settlement fully resolves the Track 1 Cases against all named Mallinckrodt entities that are currently scheduled to go to trial later in the month in the MDL. The Track 1 Cases assert various claims related to the opioid business operated by SpecGx LLC.
Per the terms, Mallinckrodt will pay a total sum of $24 million in cash and donate $6 million to the generic business, which includes addiction treatment products. The agreement also requires a $500,000 payment in two years in recognition of the counties' time and expenses.
Moreover, Mallinckrodt has agreed that the two plaintiff counties will receive the value, which would have been received under such a resolution in the event of a comprehensive resolution of government-related opioid claims.
The resolution comes as a major relief for Mallinckrodt’s shares. The shares have plunged 84.7% year to date compared with the industry’s decline of 7% due to pricing pressure in the generic segment and the rising menace of penalties regarding opioid litigations.
Mallinckrodt's shares depreciated after a Bloomberg report suggested that the company may file bankruptcy to limit its liabilities related to the pending opioid litigations. Per the report, the company hired restructuring advisers to explore options to avoid the MDL. Earlier, allegations against its lead drug Acthar’s previous owner, Questcor, for conducting illegal sales and marketing activities related to the drug negatively impacted Mallinckrodt’s shares.
Apart from Mallinckrodt, many pharma companies like Endo International (NASDAQ:ENDP) and Teva Pharma (NYSE:TEVA) are embroiled in multiple opioid litigations filed by several states, counties and political subdivisions in the United States regarding the abuse of opioid-based drugs. The industry players are accused of faulty marketing practices, which downplayed addiction risks from these drugs and spurred their consumption instead.
Last month, Endo too executed a definitive settlement agreement with the County of Cuyahoga, Ohio; the County of Summit, Ohio; and certain related persons in connection with the lawsuits pending in the U.S. District Court for the Northern District of Ohio.
Earlier, Johnson & Johnson (NYSE:JNJ) received an unfavorable ruling in the court case filed by the state authorities of Oklahoma, pertaining to the abuse of its opioid-based drugs.
Mallinckrodt currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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