Last-Minute Opioid Deal Could Open Door to Bigger Settlement

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For now, Monday’s deal will direct $215 million to Ohio’s Cuyahoga and Summit counties from the country’s top drug distributors: McKesson Corp., Cardinal Health Inc. and AmerisourceBergen Corp. The counties—which encompass the Cleveland and Akron metro areas—will also receive $20 million in cash and the donation of $25 million in addiction-treatment drugs from Israel-based drug manufacturer Teva Pharmaceutical Industries Ltd.

A fifth defendant, Walgreens Boots Alliance, didn’t reach a deal. The trial against it was postponed.

The trial, had it gone forward, would have been the first time documents would be presented and witnesses questioned in open court about how drug distributors allegedly contributed to the opioid crisis. Lawyers negotiated over the phone until nearly 1 a.m. Monday to reach the settlements, even as trial attorneys were putting the finishing touches on opening statements. U.S. District Judge Dan Polster got a call around midnight alerting him the trial might not happen.

Lawyers will now attempt to bridge the deep differences not only between the plaintiffs and defendants, but among the hundreds of states, counties, cities and Native American tribes bringing suits.

The municipalities say they want to avoid the outcome of the 1990s tobacco litigation, in which a $206 billion settlement went to the states and was often spent to fill budget holes. Representatives for the cities and counties say any broader settlement should immediately go toward helping alleviate the impacts of opioid addiction, which was a feature of Monday’s Ohio deal.

“We are going to utilize these funds to get people on the right path,” said Cuyahoga County prosecutor Michael O’Malley, called his county a “poster child” for opioid addiction.

The opioid lawsuits have become a major liability for companies up and down the pharmaceutical supply chain.

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The lawsuits broadly allege that drug manufacturers pushed opioid painkillers for widespread use without adequately warning of the risks of addiction and that distributors allowed high volumes of pills to flood into communities and be diverted for improper use. At least 400,000 people have died in the U.S. from overdoses of legal and illegal opioids since 1999, according to federal data.

One of the opioid litigation’s largest initial targets, OxyContin maker Purdue Pharma LP, filed for bankruptcy in September and is trying to implement a global deal with states and communities it values at between $10 billion and $12 billion. An earlier trial, in Oklahoma, ended with a $572 million verdict against the lone defendant, Johnson & Johnson, though a judge has said he plans to reduce it by at least $100 million because of a mathematical error.

The two Ohio counties’s cases had been selected to go to trial first from more than 2,300 federal-court opioid lawsuits that are consolidated before Judge Polster.

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The three drug distributors, which serve as middlemen that ship drug orders placed by pharmacies and hospitals, have argued that they complied with federal regulations and that they must balance their mission to deliver medicine against efforts to prevent and detect illegal diversion of those drugs.

In a joint statement, they said that while they disputed the allegations against them, settling with the trial counties “is an important stepping stone to achieving a global resolution and delivering meaningful relief.” Teva said separately that it is “pleased to positively contribute to solving the nationwide opioid epidemic.”

Walgreens distanced itself from the other defendants, saying it never manufactured, marketed or wholesaled prescription opioid medications, or sold any opioid medicines to pain clinics, internet pharmacies or “pill mills.” Walgreens, widely known as a pharmacy, had been included in the trial for its role as a drug distributor to its own stores.

Settled Down

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Paying just the two counties helped the companies avoid potentially embarrassing internal documents and details from coming to light but left thousands more cases unresolved.

“This is not a pause, this is not a time to catch our breath,” said Paul Geller, a Florida lawyer representing local and state governments in opioid cases. Monday’s settlement, he said, “does not in any way, shape or form slow down our efforts to reach a global resolution that makes sense.”

Monday’s settlement, lawyers involved say, can’t be directly extrapolated into what a larger deal might look like, since the pressure of an imminent trial often leads to larger payouts.

McKesson, Cardinal Health and AmerisourceBergen shares all traded down on Monday. According to investment bank R.W. Baird, investors are concerned that there is still uncertainty about an ultimate payment in a broad settlement.

A group of state attorneys general have advocated a deal that includes $18 billion to be paid over 18 years from AmerisourceBergen, Cardinal and McKesson; $4 billion from Johnson & Johnson over a shorter time frame; and the donation of drugs from Teva valued at $23 billion plus $250 million in cash.

But the local governments say the money doesn’t come fast enough to help them address the ramifications of the opioid crisis and that too much of the funds would be controlled at the state level.

“It’s got to be fair. It’s got to be now,” Joe Rice, one of the lead plaintiffs’ lawyers in the federal cases, said of what it’ll take to reach a global deal.

The attorneys general of Texas, North Carolina, Tennessee and Pennsylvania, who have been leading talks, said Monday they are working on a resolution that ensures companies change their business practices and is “distributed fairly across states, cities, and counties and used wisely to combat the crisis.”

Texas plaintiffs lawyer Mark Lanier expressed disappointment outside of court Monday that a jury wouldn’t hear the narrative he had crafted for the counties’ opening statements.

He planned to open, he said, by walking jurors through the history of opioid addiction dating into the early 1800s. He planned to show a first-edition copy of L. Frank Baum’s “The Wonderful Wizard of Oz” from 1900, which includes a scene of the heroine Dorothy falling asleep in a field of poppies, overcome by the poison the flowers contain.

He then would have detailed for the jurors the regulatory landscape the drug companies face and allegations against the five companies, including an internal email from one defendant that Mr. Lanier said cavalierly stated, with a misspelling, that “the DEA can suk it,” referring to the Drug Enforcement Administration.

A preacher as well as a lawyer, Mr. Lanier said he spent Sunday giving a sermon and teaching at his church in Houston, celebrating his 59th birthday at his mom’s house, then flying to Cleveland to finish preparing. Well before the settlement was reached, he said, “I was ready to go.”

Write to Sara Randazzo at sara.randazzo@wsj.com