The Opioid Crisis: All Dollars, No Sense.
Companies have paid millions, hundreds of millions, soon to be billions of dollars in settlements, but what financial impact does this…
Companies have paid millions, hundreds of millions, soon to be billions, of dollars in settlements — what impact does it have on their bottom line?
Drug overdose is the leading cause of death for those under the age of 50 and sixty percent of those deaths are attributable to opioids. It almost goes without saying that in America, the abuse of opioids has reached epidemic proportions.
Independent of the emotional toll addiction takes on family, friends and colleagues it’s costly to the federal and state governments that have to deal with it. According to the United States Center for Disease Control (CDC) when you consider public healthcare, treatment facilities, law enforcement, criminal justice and jail expenses, drug abuse costs approximately $75 billion per year.
In the past twelve years, both the state and federal government have decided to hold drug companies and distributors accountable. Companies such as Cardinal Health, McKesson Corporation, Purdue Pharma and Janssen Pharmaceuticals (a subsidiary of Johnson & Johnson), but there are many of these companies.
In some cases, these companies have been sued and reached sizable settlements with either the state or federal government, sometimes both. But what is the settlements dollar impact to their bottom line? Did the $11.75 million dollar settlement from Costco Health in 2017 impact their bottom line that year? In a word, no.
It was .59% of their $2 billion dollar net revenue.
While I’m not a financial expert, and don’t pretend to be, I do know how to read an annual return from a public company. Well, to be fair, I know how to navigate the reams of pages loaded with legalese in order to extrapolate the necessary numbers. It turns out, these companies are in good shape, regardless of the settlement amount.
Cardinal Health is an American multinational health care services company headquartered in the heart of America, Dublin, Ohio. It also happens to be the 14th highest revenue generating company in the US. In 2017, Cardinal Health reached a settlement in the amount of $20 million dollars with the state of West Virginia for “not controlling the supply of opiates to the state.”
Between 2007 and 2012, in conjunction with other companies, Cardinal Health distributed an estimated 780 million hydrocodone and oxycodone pills to pharmacies in West Virginia. The West Virginia Charleston Gazette-Mail reported that this amounted to 433 pills per state resident!
Also in 2017, Cardinal Health reached a settlement with the U.S. Department of Justice that includes two separate fines: $34 million related to suspicious orders of controlled substances from its warehouse in Lakeland, Florida, and $10 million to resolve allegations from the U.S. Attorney for the Southern District of New York that a company it acquired, Kinray Inc., didn’t report suspicious orders from pharmacies.
For the year 2017, Cardinal was hit with two settlements totaling around $64 million dollars. For that same year, they had earnings of $309 million on $32 billion in sales in the first quarter ended Sept. 30, 2017.
That accounts for about 21% of their earnings . . . for one quarter. Cardinal Health ended 2017 with $2 billion in cash.
After the settlements, Cardinal Health issued a statement denying the allegations. According to Columbus Business First, the company had settled because they wanted to help curb “the epidemic of prescription drug abuse.”
In 2017, deaths involving opioids in West Virginia were 49.6 deaths per 100,000 persons — three times the national rate of 14.6 deaths per 100,000 persons.
Headquartered in San Francisco, California, McKesson Corporation distributes pharmaceuticals and provides health information technology, medical supplies, and care management tools. It’s one of the nation’s largest distributors of pharmaceuticals.
Like Cardinal Health in 2017, McKesson Corporation settled a lawsuit with the U.S. government for violations of the Controlled Substances Act. The government claimed that they had failed to detect and report “suspicious orders” for controlled substances distributed to its independent and small chain pharmacy customers. Notably, these orders were unusual “in their frequency, size, or other patterns.”
The lawsuit covered the period from 2008 until 2013 — for its malfeasance McKesson paid a $150 million dollar civil penalty. According to their annual report for 2017, McKesson Corporation had $49 billion dollars in revenue and $3.6 billion in net income.
That $150 million dollar settlement represents 3.6% of their net income.
California has one of the lower death rates per 100,000. In 2017 it had dropped to 5.3, again versus the national average of 14.6 deaths per 100,000 attributed to opioids.
Perhaps the company most identified, and vilified, with the opioid crisis is Purdue Pharma, the maker of OxyContin. Headquartered in Stamford, Connecticut, Purdue Pharma is a privately held company owned entirely by members of the Sackler family. As the company is not publicly traded, earnings for Purdue are speculative, but it’s reported that Purdue Pharma’s earnings went from a few billion dollars in 2006 to about $37 billion in 2017.
The company is no stranger to setting large lawsuits related to opioids.
In 2007, Purdue settled a federal case for $600 million dollars, which remains one of the largest pharmaceutical settlements in U.S. history. The settlement included a $34 million dollar fine shared among the company’s then president, top lawyer and chief medical officer for misbranding the potency and addictive nature of OxyContin. In addition to the $34 million dollar fine, the three heads were charged with a felony and given 400 hours of community service in drug treatment programs.
In March of 2019, Purdue Pharma settled a lawsuit with the state of Oklahoma for $270 Million dollars. The state claimed Purdue’s opioids contributed to the death of thousands of people. Which is entirely plausible if you consider that Oklahoma providers wrote 88.1 opioid prescriptions for every 100 persons. It’s worth nothing that this is a 30% decline from 2012 when the opioid prescription rate was 127 prescriptions per 100 persons.
Since the company is private, there is no way to know what the gross or net revenue is for Purdue Pharma. However, using the estimated $37 billion dollars the company earned in 2017 (which we can presume is their gross revenue), the recent $270 million dollar settlement would represent .73% of that.
Now for years the Sackler family lived a rather quiet life as they accumulated their wealth. None of the Sackler had been personally named in any lawsuits stemming from the opioid crisis. They only had public relation issues to deal with. Like in March of 2019 when the National Portrait Gallery and the Tate galleries in the UK announced they would no longer accept donations from the Sackler family.
Quickly following their lead, the American Museum of Natural History, the Guggenheim Museum and the Metropolitan Museum of Art all quickly announced that they would no longer accept donations from the Sackler’s.
What could the Sackler family contribute to in the museums stead? I’m sure there are a few drug rehabilitation facilities that could benefit.
At the same time museums were turning their back on the Sackler’s, the Southern District of New York shattered the Sackler families personal immunity by filing suit against eight Sackler family members. Additionally, 36 states were in the process of suing Purdue Pharma and now more than 1,600 lawsuits are outstanding.
While the lawsuits work their way through the labyrinth that is the U.S. justice system, the company has turned its attention to the global market. Their sister companies, Napp Pharmaceuticals and Mundipharma sell their signature opioid products globally.
Since Purdue Pharma consider themselves to be a “pioneer in developing medications for reducing pain” they’re also creating new drugs under different company names like Adlon Therapeutics and Imbrium. These companies will continue to focus on pain management and attempt to avoid the stigma attached to Purdue Pharma.
For the Sackler family and Purdue Pharma, the potential cost of these lawsuits is likely to be hundreds of millions, if not billions, of dollars. Potentially involving settlements that are more than just financially punitive. In the meantime, it’s business as usual.
Now these are just three companies, they’re hardly the only manufacturers and distributors of opioids.
To date, these lawsuits have settled with the companies “not accepting any responsibility.” That remains unlikely to change. Also unlikely to change is the lack of financial impact to these companies. In each of these cases, the dollar amounts settled impacted one year, while the companies had profited off the drugs for many years.
If you were to factor in all of the years for which they were settling the lawsuits, that impact percentage would be even smaller. For example, the $150 million dollar settlement McKesson Corporation paid represents 3.6% of their net income, for one year . . . yet the lawsuit covers six years. A closer look at their annual report includes 2016 net income which was $4.4 billion dollars. Combining their net revenue for 2016 & 2017, then that $150 million settlement is cut in half and becomes 1.8% of their net income.
The opioid epidemic is a layered and complex issue that involves many hot button topics like healthcare, the pharmaceutical industry, addiction and, perhaps most of all, the marketing of these drugs.
Perhaps for the companies, the 130 people that die each day in America as a result of opioid related overdoses is just the cost of doing business. And the business is great for them . . . not so great for the rest of us.
If there were truly a war on drugs, many of the defendants would be middle aged white men wearing thousand dollar suits.
What isn’t layered and complex about this is the fact that this crisis is impacting someone’s brother or sister or father or mother or son or daughter; the chances are strong that there is only a couple degrees of separation between you and someone suffering from this or that has died.
That’s not something that can be put on a balance sheet and calculated.
The opioid crisis in America shouldn’t be a zero sum game and it can’t just be about dollars and cents. It’s capitalism, so money matters, but it should be about dollars and sense.