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The Opioid Crisis Can’t Be Engineered Away

Max Nisen

(Bloomberg Opinion) -- There’s no quick fix to the opioid crisis, and there’s no easy way out for the companies who allegedly helped spur it.

Mallinckrodt Plc announced on Tuesday that it’s suspending a planned spinoff of its generic and opioid drug unit. The move could have helped shield its branded drug business from legal risk. The culprit for the delay? “Current market conditions and developments, including increased uncertainties created by the opioid litigation,” according to a statement. The update overshadowed second-quarter earnings that beat Wall Street expectations, and Mallinckrodt shares slumped as much as 20%.

Mallinckrodt was a large manufacturer of generic opioids as the crisis escalated and could face billions in liabilities, along with other drugmakers from Johnson & Johnson to Teva Pharmaceutical Industries Ltd. Management still wants to find a way to split the business but in the aftermath of the suspension, it’s clear that it won’t be a quick or easy process. In another part of the industry, Tuesday also saw drug distributors including McKesson Corp and AmerisourceBergen Corp. propose paying $10 billion to settle state lawsuits over their role, according to Bloomberg News report. The states countered with a $45 billion demand — as if investors needed another reminder of the issue’s scale and complexity.

Mallinckrodt is under heavy pressure to cut opioid risk, and that’s because it’s not the company’s only trouble spot. The drugmaker has limited cash reserves and heavy debt, and its best-selling product, a decades-old drug called Acthar — used in infantile spasms and other conditions — is facing reimbursement issues. Splitting the business could partially untangle concentrated risks that have seen Mallinckrodt’s market value drop from over $15 billion to under $500 million in less than five years. But it appears the specter of opioid liabilities is much too toxic for the transaction to be feasible.

Mallinckrodt’s troubles serve as a reminder that the opioid reckoning is still in its early stages. Investors can draw the same conclusion from the distributor settlement proposal, which is but an opening bid. Those negotiations only cover certain states; the companies also face thousands of additional city and county suits, and there is no guarantee that other groups will sign on to the deal. Every involved set of the industry — pharmacies and pharmacy benefit managers included — will likely have to deal with a similar dynamic. It will be years before investors have a clear picture of how big the risk is.

Some problems are too big to engineer your way out of. Sooner or later, drugmakers, distributors and retailers will likely have to pay up in a big way.

To contact the author of this story: Max Nisen at mnisen@bloomberg.net

To contact the editor responsible for this story: Beth Williams at bewilliams@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Max Nisen is a Bloomberg Opinion columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

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