McKesson : Opioid Settlement Tax Breaks Sought by Four Drug Companies

By Joseph Walker and Sara Randazzo

Four pharmaceutical companies in settlement talks with states to resolve claims related to their involvement in the national opioid crisis stand to reap about $1 billion each in tax breaks if a combined payout of more than $26 billion is finalized, according to company filings.

The drug distributors McKesson Corp., AmerisourceBergen Corp. and Cardinal Health Inc., along with Johnson & Johnson, plan to deduct the payouts from their taxes, filings show.

Cardinal, which expects to pay $6.6 billion as part of the settlement, said in a regulatory filing earlier this month that it anticipates receiving a $943 million tax benefit as a result of losses it incurred because of the payout charge. The company said it has filed for an income tax refund it expects to receive in the next 12 months.

Cardinal, based in Dublin, Ohio, said $420 million of the benefit would come from offsetting profits from prior tax years when there was a higher corporate income-tax rate, taking advantage of a provision created by Congress as part of its Covid-19 economic-relief package last March

"We recorded a net operating loss for tax purposes in our second quarter, which, as permissible under current federal law, will be carried back to recover previously paid federal taxes," a Cardinal spokeswoman said in an email.

Cardinal's use of the tax break was criticized by some lawmakers who have pushed -- unsuccessfully so far -- to change the law. "Many of the same Americans who were victimized by opioid hucksters are now being asked, as taxpayers, to finance almost $1 billion of the belated settlement for Cardinal Health through a special interest tax provision buried in pandemic relief legislation," said Rep. Lloyd Doggett (D., Texas) and Sen. Sheldon Whitehouse (D., R.I.) in a joint statement.

McKesson, based in Irving, Texas, said earlier this month that it had recorded a charge of $8.1 billion to cover its settlement payments, but that the amount would be reduced by $1.4 billion after tax deductions. AmerisourceBergen, based in Chesterbrook, Pa., said in a November financial filing that its planned $6.6 billion settlement payment would be offset by about $1.1 billion in tax benefits.

McKesson didn't respond to a request for comment. An AmerisourceBergen spokeswoman declined to comment beyond what was in the company's financial statements.

Johnson & Johnson said in a regulatory filing that it expects to pay about $5 billion for its part of the settlement at an effective tax rate of 21.4%, which would result in a $1 billion deduction. A spokesman declined to comment beyond what was stated in the company's filings.

The Washington Post earlier reported the potential tax deductions related to the opioid settlement.

Drugmakers, distributors and pharmacies have been under pressure for years to take accountability for the nation's opioid crisis. More than 3,000 lawsuits have been filed by states, local municipalities, Native American tribes and others against industry players, alleging they contributed to the crisis through aggressive marketing of prescription painkillers and lax distribution practices.

The companies have pushed back on the allegations while engaging in talks to resolve the lawsuits. Cardinal, AmerisourceBergen, McKesson and Johnson & Johnson have been working to broker a deal with state attorneys general and local municipalities since late 2019.

The overall value of the deal rose last year to more than $26 billion, with the distributors' contributions to be paid over 18 years. No final agreement has been reached and the delay of court trials in New York, Ohio and West Virginia because of the pandemic has removed some sense of deadline pressure.

So far, the only nationwide opioid deal has been reached with the consulting firm McKinsey & Co., which agreed last week to pay nearly $600 million for its work advising drugmakers, including Purdue Pharma LP and Johnson & Johnson, on ways to boost sales.

While announcing the McKinsey deal, several state attorneys general said they hoped the firm's cooperation would serve as a model for others in negotiations.

"We want to get fair settlements now," Colorado Attorney General Phil Weiser said last week. "Others need to follow suit."

Mike Kaufmann, chief executive of Cardinal Health, declined to say in an interview Feb. 5 whether the lack of a global settlement so far is due to either industry or governments in particular. He said that Cardinal continues to have productive talks with states and attorneys for local governments and that Cardinal is "ready to be part of the solution." Mr. Kaufmann said, "It's complex so it's not for lack of trying on either side. Both sides want to get this to conclusion."

Kare Schultz, the chief executive of the generic drugmaker Teva Pharmaceutical Industries, said Wednesday in an interview that the McKinsey settlement was a positive development showing that states could have such widespread agreements in resolving an opioid-crisis legal dispute. Teva offered in 2019 to donate addiction-treatment drugs along with a smaller cash payment to resolve lawsuits filed against it.

Mr. Schultz said the inclusion of thousands of local governments in addition to states makes the drug industry's legal dispute more complicated in reaching a resolution, despite the progress made. "We probably need a firm trial date to really push everybody to sign on the dotted line," he said.

--Richard Rubin and Jared S. Hopkins contributed to this article.

Write to Joseph Walker at [e-mail] and Sara Randazzo at [e-mail]

(END) Dow Jones Newswires

02-12-21 2008ET