Pain Pharma

The "Cuddle Hormone" That Decimated America

Synopsis

The Sackler family owns Purdue Pharma, a now bankrupt company whose main product is Oxycontin.

Oxycontin is an addictive pain killer that was released for sale in 1996. It made the Sacklers billionaires, with their wealth estimated at a whopping $11 billion.

Lawsuits allege that Purdue Pharma misled doctors about how addictive OxyContin was, causing many patients to become hooked on opioids. Many of those patients later turned to illegal drugs like heroin, sometimes laced with lethal drug fentanyl.

Bankruptcy courts across the U.S. have been divided on whether or not legal protections extend to the family.

On May 30, 2023, the United States Court of Appeals for the Second Circuit held that bankruptcy courts have the authority to approve plans with non-consensual releases of direct third-party claims against a non-debtor, which would allow for the Sacklers to walk away without any risk of civil lawsuits pertaining to their handling of OxyContin.

On August 10, 2023, the U.S. Supreme Court decided to hear an appeal about the legality of the settlement shielding the Sackler family. The bankruptcy proceedings for Purdue have been paused and a hearing is set for December 2023.

Today’s post dives into the spotted history of the Sacklers and Purdue Pharma and digs into the bankruptcy case.

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The Sacklers

Harvard. Oxford. Yale. NYU. The Guggenheim Museum. The Met. These are just a small handful of the dozens of institutions that currently or at one time held the Sackler family name as a result of millions of dollars in donations. Individuals of the billionaire variety often attempt to tackle their own mortality by extending their legacy through institutions that will live on well beyond them.

Arthur Sackler got his start as an entrepreneur through advertising and copywriting in 1942. His marketing of tranquilizers like Valium and Librium in the 1960s made him wealthy. His ads promoted the use of Valium for anything and everything, ranging from stressed out students to people with no psychiatric symptoms whatsoever.

Over time, he came to the realization that pharmaceutical marketing should extend not just to the patient, but also to the physician.

In 1952, Mortimer, Raymond, and Arthur Sackler acquired a small medicine company called Purdue Frederick, the company which is now known as Purdue Pharma.

The histories of the Sacklers and Purdue are littered with examples of buying favor with regulators, respected doctors, and likely other influential decision makers at all levels. For example, the FDA examiner who oversaw the approval process for OxyContin left the FDA shortly after and ended up employed at Purdue less than two years later. What a coincidence!

Before OxyContin, Purdue’s best seller was a morphine pill painkiller called “MS Contin". As the patent for that drug expired in the late 80s, Purdue began searching for a replacement.

In 1995, Purdue Pharma introduced OxyContin as a palliative for chronic pain. Under a strategy initiated by Richard Sackler (son of Raymond Sackler) and earlier pioneered by Arthur Sackler, Purdue Pharma aggressively promoted OxyContin to doctors, offering them incentives such as free trips to pain-management seminars and paid speaking opportunities.

OxyContin was advertised as providing prolonged pain control with a lower potential for abuse due to its time-release properties, despite lacking scientific evidence for such claims. The drug's addictive nature was not new, as the addictive quality of opiates has been known for millennia.

It just so happened that around the time that OxyContin was launched, there was growing literature from highly regarded doctors (on the take from Purdue, no doubt) about the stigmas around opioid drugs being addictive, and that concerns about opioid addiction were overstated.

Purdue played a key role in the liberalization of the use of opioids in the treatment of pain, particularly for chronic non–cancer-related pain (a larger market than cancer-related pain).

Between 1997 and 1999, Purdue Pharma was aware of the drug's misuse, with evidence like the drug being snorted or stolen and certain doctors illicitly selling prescriptions. Over a hundred internal memos during this period mentioned terms like "street value," "crush," and "snort."

By 2000, OxyContin abuse became more apparent. A program sponsored by Purdue Pharma highlighted OxyContin as one of the most abused pain medications. By 2012, a study linked Purdue's OxyContin marketing to the U.S.'s heroin epidemic, stating that many heroin addicts started by abusing OxyContin.

In 2003, the Drug Enforcement Administration claimed that Purdue's aggressive marketing played a significant role in exacerbating OxyContin's widespread abuse.

Between 1995 and 2001, OxyContin generated $2.8 billion in revenue for Purdue Pharma. By 2017, this had risen to $35 billion. The owning family of Purdue Pharma, the Sacklers, have been reported to have a net worth of $11 billion, although some states claim it's even higher. OxyContin represents 80% of Purdue’s business.

According to the Committee of Oversight and Reform, the Sackler family’s assets as of April 2021 were as follows:

• The Sackler family’s total net assets equal approximately $11 billion.

• The Sackler family has more than $950 million in cash.

• The Sackler family holds more than $2.9 billion in marketable securities, hedge funds, and brokerage accounts.

• The Sackler family owns more than an estimated $1 billion in international drug companies.

• The Sackler family owns more than $1 billion in real estate.

• The Sackler family holds more than $1 billion in private equity investments.

• The Sackler family owns more than $250 million in art, jewelry, and other collectibles.

At that level, it’s difficult to estimate what the family’s true net worth is. It’s safe to assume that the Sacklers are highly incentivized to understate the value of their assets.

Understanding OxyContin

Oxytocin is commonly recognized as the hormone related to social bonds, particularly in contexts like love and child-rearing. Its connection to such behaviors has led to its colloquial naming as the “cuddle” or “love” hormone. This is because oxytocin is released during intimate activities.

While oxytocin does play a role in promoting attachment, empathy, and bonding, it also has a darker side. According to Lily Brown, PhD, from the University of Pennsylvania, oxytocin can lead to feelings of jealousy, suspicion, and even the creation of "in" groups and "out" groups. In certain situations, the presence of an individual not deemed as part of one's "tribe" can amplify negative emotions toward them when oxytocin levels are high. Essentially, oxytocin's effects seem to be influenced by the context in which it is activated.

In response to the drug's negative impact, protests and initiatives arose, including artist Nan Goldin's organization P.A.I.N., which aimed to deter cultural institutions from accepting Sackler Family donations.

Not looking to let an opportunity to profit go to waste, in 2018, Purdue Pharma patented a new form of buprenorphine to treat opioid addiction, including addiction to OxyContin. How convenient that such a market opportunity exists!

Robert C. Froemke, PhD, a neuroscientist from New York University, explains that oxytocin should not be oversimplified as merely a "trust hormone" or "love drug". Instead, its function might be likened to a volume dial, amplifying whatever the brain is already processing, rather than universally promoting positive feelings.

Regarding its mechanism in the brain, oxytocin originates from the hypothalamus and is then released into the bloodstream by the pituitary gland. Depending on its function, it can be directed towards the spinal cord or various parts of the brain. Once released under appropriate conditions, oxytocin can manage our emotional responses, influence pro-social behaviors, and even regulate feelings of trust and empathy.

Bankruptcy Timeline

In September 2019, Purdue Pharma filed for bankruptcy after a tentative settlement related to lawsuits regarding the opioid epidemic.

Many states rejected the initial proposed settlement, accusing the Sackler family of hiding funds. The inclination to settle varied with state political affiliations. States aimed to hold the Sackler family accountable, despite Purdue's bankruptcy.

An audit in December 2019 showed the Sacklers withdrew $10.7 billion from Purdue after legal issues began.

The Sackler family tried to secure legal protection against lawsuits tied to the opioid crisis. In response, the U.S. introduced the SACKLER Act to prevent those not in bankruptcy from being shielded from certain lawsuits.

In September 2021, a $4.5 billion plan was approved, converting Purdue Pharma into a public benefit corporation to address the opioid crisis. The plan would protect the Sacklers from civil lawsuits. However, in December 2021, this decision was overturned.

In March 2022, a new settlement was approved: the Sacklers would pay $5.5 to $6 billion to a trust addressing the opioid crisis, shielding them from personal civil liability but not criminal liability.

In May 2022, a U.S. appeals court debated the legality of shielding the Sacklers from debts, despite them not filing for bankruptcy. There were differing opinions on whether this was permissible under U.S. bankruptcy law.

In May 2023, the 2nd U.S. Circuit Court of Appeals in New York approved the $6 billion settlement, making the Sackler family relinquish Purdue ownership and using all profits to combat opioid addiction. This ruling also provided legal protection to the Sacklers, even though they didn't file for bankruptcy.

On August 10, 2023, the U.S. Supreme Court decided to hear an appeal about the legality of the settlement shielding the Sackler family. The bankruptcy proceedings for Purdue were paused, with a hearing set for December 2023.

Third-party Releases

Estimates state nearly $11 billion was taken out of Purdue and dispersed through trusts and shell companies around the world to the benefit of the Sackler family in the eleven years leading up to the bankruptcy. As part of the settlement, members of the family would contribute up to $6 billion over ten years, subject to the condition that they receive third party releases.

“The plan’s release “absolutely, unconditionally, irrevocably, fully, finally, forever[,] and permanently release[s]” the Sacklers from every conceivable type of opioid-related civil claim -- even claims based on fraud and other forms of willful misconduct.”

Here’s some inside baseball: releases are quite common in bankruptcies. The debtor’s management/board will essentially threaten to hold the plan hostage unless releases are granted. Creditors, who are often funds and other commercial entities, want value to be distributed so they can move on. In the end, there is some back and forth, perhaps a few arguments, and creditors will try to extract some additional value in exchange for releases.

Most circuit courts allow these releases under certain circumstances, but there is ambiguity as to whether these non-consensual third-party releases are permitted by the Bankruptcy Code.

Note that these are releases from civil liability. If the Sacklers are released from civil liability, people or entities affected by the opioid crisis (such as victims, states, or municipalities) would not be able to sue the Sackler family in civil court to recover damages. Essentially, this would protect the Sackler family's personal wealth from lawsuits seeking financial compensation.

The Sacklers could still face criminal liability. In a criminal case, charges are brought by the government (state or federal), and the outcome can involve penalties like fines, imprisonment, or other forms of punishment. If members of the Sackler family were found to have broken the law (for example, if they were found to have knowingly contributed to the opioid epidemic through illegal actions), they could still be prosecuted and, if convicted, face criminal penalties.

Putting our citizen’s hat on, the Sacklers are clearly responsible for perpetuating opioid addiction for over two decades. Walking away from this by forking over some capital and remaining billionaires (which is a direct result of the sale of OxyContin, representing 80% of their business) doesn’t quite sit right.

Per the plan, Purdue would transform into a “public benefit corporation” focused on addressing the opioid issue. The remaining funds of the estate would cover operational costs and then be allocated to different creditor funds. The majority of these allocations would be dedicated to addressing the opioid problem. Based on this allocation method, an individual affected by opioids, even those with severe damages, might get an amount ranging from $3,500 to $48,000. Some of these payments could be distributed over a decade.

The family will also allow their name to be removed from buildings and scholarships.

Beyond bankruptcy courts, this case is politically important. The Biden Administration has challenged the ruling that would provide legal protections to the Sacklers. While surely we would all like to see them held accountable for the deaths associated with the opioid crisis, the longer the bankruptcy goes on, the longer it takes for victims and their families to receive their settlement. There are over 135,000 personal injury filings.

The initial plan of reorganization was approved by the bankruptcy court back in September 2021. Since then, the chief issue has been whether the Sackler family should be shielded from civil lawsuits associated with OxyContin (along with some amendments around contributions from the Sacklers).

If we were to bet, we’d bet that the Supreme Court rejects these third-party releases. We’re likely to find out in early 2024!

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Disclaimer: We are not financial advisors. This content is for educational purposes only and merely cites our own personal opinions. All analysis, including valuation, debt, liquidity, etc. is illustrative in nature and subject to revision.