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Justice Department reaches first settlement with opioid manufacturer

Attorney General Jeff Sessions said in a statement that “Mallinckrodt’s actions and omissions formed a link in the chain of supply that resulted in millions of oxycodone pills being sold on the street.” (James Lawler Duggan/Reuters)

The Justice Department and Mallinckrodt Pharmaceuticals reached a $35 million settlement Tuesday to resolve allegations that the company failed to report signs that large quantities of its highly addictive oxycodone pills were diverted to the black market in Florida, where they helped stoke the opioid epidemic.

The agreement is the first with a major manufacturer of the opioids that have sparked a crisis of overdoses and addictions across the country. The Justice Department said the deal establishes “groundbreaking” new standards that require the company to track its drugs as they flow through the supply chain to consumers in an effort to control the epidemic.

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The company had argued that once it passed the drugs to wholesale distributors, it was not responsible for illegal diversion of the painkillers as they were sent to retailers and then pain patients.

“The Department of Justice has the responsibility to ensure that our drug laws are being enforced and to protect the American people,” Attorney General Jeff Sessions said in a statement. “Part of that mission is holding drug manufacturers accountable for their actions. Mallinckrodt’s actions and omissions formed a link in the chain of supply that resulted in millions of oxycodone pills being sold on the street.”

The Washington Post reported a tentative settlement between the two sides in April, highlighting the frustration of investigators with the Drug Enforcement Administration who had spent six years trying to hold Mallinckrodt responsible for its role in the epidemic. At one point, the government calculated that it could have assessed the company $2.3 billion in fines for nearly 44,000 violations of the federal Controlled Substances Act, according to confidential government documents obtained by The Post.

The settlement and the relatively small fine reflected the government’s difficult legal challenge in proving that Mallinckrodt — or any drug manufacturer — knew its product was being sold and used illegally by people far down the supply chain.

Between 2008 and 2012, about 500 million of Mallinckrodt’s pills ended up in Florida, 66 percent of all oxycodone sold in the state, The Post reported.

Nearly 180,000 people died of overdoses of prescription painkillers between 2000 and 2015, and the abuse of pharmaceutical opioids is widely blamed for a crisis that now involves many thousands of overdoses on heroin and fentanyl.

The civil settlement, which includes U.S. attorney’s offices in Michigan and New York, also holds Mallinckrodt responsible for record-keeping violations at its manufacturing plant in Hobart, N.Y. The agreement covers alleged violations during the years 2008 to 2011.

In a statement, Mallinckrodt, one of the largest manufacturers of generic oxycodone, denied wrongdoing and said that it had previously set aside enough money to cover the cost of the settlement. The company is based in Britain.

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“While Mallinckrodt disagreed with the U.S. government’s allegations, we chose to resolve the legacy matter in order to eliminate the uncertainty, distraction and expense of litigation and to allow the company to focus on meeting the important needs of its patients and customers,” Michael-Bryant Hicks, the company’s general counsel, said in the release.

Joseph T. Rannazzisi, who supervised DEA efforts to control diversion of opioids for a decade before he retired in 2015, said Tuesday that multimillion-dollar fines have not deterred large pharmaceutical corporations accused of failing to report suspicious orders of pain pills to the DEA.

“These fines mean nothing to Fortune 500 companies,” he said. “Large corporations see these fines as the cost of doing business. Unless there are meaningful sanctions brought against these companies, they will continue to violate the law.”

The government has reached nearly a dozen such settlements with wholesale distributors of opioids, including one that brought a record $150 million fine against McKesson Corp. Other large settlements have been reached with major retail drug chains.