Mallinckrodt plc (MNK) said it voluntarily filed for bankruptcy protection as it deals with a mountain of lawsuits related to the opioid epidemic, which the company was accused of helping to fuel by aggressively promoting the use of painkillers.

Mallinckrodt is now the third major opioid manufacturer to seek bankruptcy protection – after Purdue Pharma and Insys Therapeutics.

The company said the filing -- in the U.S. Bankruptcy Court for the District of Delaware – was designed to “modify its capital structure, including restructuring portions of its debt, and resolve several billion dollars of otherwise unmanageable potential legal liabilities.”

Mallinckrodt said it hoped the filing leads to an amended proposed opioid claims settlement that would, among other things, reduce the company's total debt by about $1.3 billion and resolve opioid-related claims against it.

The opioid agreement was reached with state attornies general and lawyers for cities and counties who sued Mallinckrodt to compensate for billions in tax dollars expended on the treatment of opioid addictions.

The company also came under pressure after a judge validated a federal government push to force Mallinckrodt to pay higher rebates to state Medicaid programs for its multiple-sclerosis drug H.P. Acthar Gel.

Between 2001 and 2019, the price for the drug skyrocketed from $50 per vial to $38,892 in 2019. Acthar Gel accounted for 30.1% of the company’s net sales last year.

"After many months of deliberation, negotiation and consideration of alternatives, Mallinckrodt's management and board of directors determined that implementing a Chapter 11 restructuring provides the best opportunity to maximize the value of the enterprise and position the company for the future in light of the current challenges it faces,” said Mark Trudeau, president and chief executive officer of Mallinckrodt.

Under terms of the settlement agreement with opioid claimants, $1.6 billion will be transferred to one or more trusts through structured payments.

Opioid claimants would also receive warrants for about 19.99% of the company's fully diluted outstanding shares.

With respect to Acthar Gel, the company said it agreed to pay $260 million over seven years and “reset Acthar Gel’s Medicaid rebate calculation as of July 1, 2020, such that state Medicaid programs will receive 100% rebates on Acthar Gel Medicaid sales, based on current Acthar Gel pricing.”

Mallinckrodt was bracing for two major trials related to the opioid crisis – the company was accused of illegally marketing its painkillers, while failing to oversee large shipments of the pills. However, Bloomberg reported these cases will probably be halted by a judge as the company conducts its reorganization plan.

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