Item 8.01. Other Events.
As previously disclosed, in October 2019, Cardinal Health, Inc. (the "Company")
together with two other national pharmaceutical distributors, agreed in
principle to a settlement framework with a leadership group of state attorneys
general (the "Leadership Group") designed to resolve pending and future opioid
lawsuits by states and political subdivisions. Since that time, the Company has
continued to build out that framework and to negotiate the terms of that
settlement with the Leadership Group and with other representatives of states
and political subdivisions.
On July 21, 2021, the Company announced that it and two other national
distributors have negotiated a proposed settlement agreement (the "Agreement")
and settlement process that, if all conditions are satisfied (including the
approval of the Board of Directors of the Company), would result in the
settlement of the vast majority of opioid lawsuits filed by state and local
governmental entities. In connection therewith, the Company issued the press
release attached hereto as Exhibit 99.1. West Virginia subdivisions and Native
American tribes are not a part of this settlement process and the Company has
been involved in separate negotiations with these groups. The settlement process
does not contemplate participation by any non-governmental or non-political
entities or individuals.
The Agreement is subject to contingencies and will not become effective unless
and until the Boards of Directors of the Company and the two other distributors
each make separate independent determinations that (1) following a sign-on
period, a sufficient number of states have agreed to the Agreement (the
"Settling States"); and, subsequently, (2) following a notice period, that a
sufficient number of states and political subdivisions, including those that
have not sued, have agreed to the Agreement (or otherwise had their claims
foreclosed) to proceed to effectiveness. Prior to the second determination, the
Settling States will also have an opportunity to make a determination as to
whether a sufficient number of political subdivisions have agreed to the
Agreement (or otherwise had their claims foreclosed) to proceed with the
Agreement. This process is currently contemplated to take 194 days, although it
may be extended by agreement.
If these conditions are satisfied, the Agreement would become effective sixty
(60) days after the distributors determine that there is sufficient
participation among political subdivisions. During this 60-day period, the
Settling States and the distributors would cooperate to obtain consent judgments
in each participating state embodying the terms of the Settlement.
On September 30, 2021, the distributors will place the first annual payment into
escrow, pending completion of the process described above. If all contingencies
are satisfied, the first annual payment would be disbursed from escrow on the
effective date of the Agreement, provided that for any Settling State where a
consent judgment has not been entered as of the effective date, their payment
will not be disbursed until 10 calendar days after the entry of the consent
judgement in that state. The companies will make each subsequent annual payment
on July 15. If the conditions are not satisfied, and the Agreement does not
become effective, the amount in escrow will be returned to the distributors.
The Agreement includes a cash component, pursuant to which the Company would pay
up to approximately $6.374 billion, the majority of which would be paid over 18
years. The exact payment amount will depend on several factors, including the
participation rate of states and political subdivisions, the extent to which
states take action to foreclose opioid lawsuits by political subdivisions (e.g.,
laws barring opioid lawsuits by political subdivisions), and the extent to which
political subdivisions in Settling States file additional opioid lawsuits
against the Company after the Agreement becomes effective. Under the Agreement,
the Company expects its first annual payment to be approximately $391.2 million
if all eligible states and territories join the Agreement.
The Agreement also includes injunctive relief terms governing settling
distributors' controlled substance anti-diversion programs, including with
respect to: (1) governance; (2) independence and training of the personnel
operating our controlled substances monitoring program; (3) due diligence for
new and existing customers; (4) ordering limits for certain products; and
(5) suspicious order monitoring. A monitor will be selected to oversee
compliance with these provisions for a period of five years. In addition, the
Company and the two other national distributors will engage a third-party vendor
to act as a clearinghouse for data aggregation and reporting; distributors will
fund the clearinghouse for ten years.
In connection with the matters described above and other opioid-related matters,
the Company expects to record a total pre-tax charge of approximately
$140 million in the three months ended June 30, 2021 in litigation
(recoveries)/charges, net, in the consolidated statement of earnings/(loss).
The foregoing description of the Agreement is qualified in its entirety by
reference to the full text of the Agreement, which is attached hereto as
Exhibit 99.2 and incorporated herein by reference.
Item 9.01. Financial Statements and Exhibits.
Number Exhibit Description
99.1 News release issued on July 21, 2021
99.2 Proposed Settlement Agreement
104 Cover Page Interactive Data File (embedded within the Inline XBRL document)
Important Information Regarding Forward-Looking Statements
This Form 8-K contains forward-looking statements addressing expectations,
prospects, estimates and other matters that are dependent upon future events or
developments. These statements may be identified by words such as "expect,"
"anticipate," "intend," "plan," "believe," "will," "should," "could," "would,"
"project," "continue," "likely," and similar expressions, and include statements
reflecting future results or guidance, statements of outlook and various
accruals and estimates. These matters are subject to risks and uncertainties
that could cause actual results to differ materially from those projected,
anticipated or implied. These risks and uncertainties include the risk that we
may fail to reach a final settlement agreement; that a sufficient number of
states and other political subdivisions may not agree to the Agreement; the
possibility that negotiations with West Virginia subdivisions and Native
American tribes could also fail to result in a settlement or could require us to
pay more than we currently anticipate or agree to additional conditions; risks
associated with the inherent unpredictability of loss contingencies, including
the possibility that unfavorable developments could occur. Cardinal Health is
subject to additional risks and uncertainties described in Cardinal Health's
Form 10-K, Form 10-Q and Form 8-K reports and exhibits to those reports. This
8-K reflects the Company's views as of July 22, 2021. Except to the extent
required by applicable law, Cardinal Health undertakes no obligation to update
or revise any forward-looking statement.
© Edgar Online, source Glimpses