5 ms·

I think I've seen this movie before. This looks like it's headed down the path of the Tobacco Master Settlement Agreement [0]. Here's the playbook: 1) A.G.s a

I think I've seen this movie before. This looks like it's headed down the path of the Tobacco Master Settlement Agreement [0]. Here's the playbook: 1) A.G.s and private lawyers start filing lawsuits. 2) Defendants realized there is potentially catastrophic liability here and start negotiating a master settlement agreement ("MSA") whereby the states agree not to sue in the future in exchange for a set payment schedule to the plaintiffs.[1] 3) States A.G.s realize this is a great publicity opportunity to leverage their career into other elected office and governors realize this a real revenue stream. 4) So, interests aligned and there is a settlement. 5) Lawyers make a TON of money on their fee schedule set forth in the MSA. So much so, the Tobacco MSA lawyers were securitizing their future fees in private markets. 6) Bankers swoop in and start pitching states on the securitization of MSA payments for states to cover current deficit shortfalls. 7) Bankers make a point or two on the securitization deal proceeds ($10s or $100s of millions). 8) States leverage their future payments under the MSA to fill budget gaps where ever possible. Some allocate a small portion of the proceeds to the victims of the malfeasance but many do not because there are better ways to get future votes. </rant> Full disclosure: I was once a young public finance analyst working 80-100 hour weeks building financial models to securitize Tobacco MSA payments...slight grudge still held. [0] https://en.wikipedia.org/wiki/Tobacco_Master_Settlement_Agreement https://en.wikipedia.org/wiki/Tobacco_Master_Settlement_Agre... [1] Tobacco stocks jumped on news of the settlement because a large known liability is much better than an unknown one. EDIT: slight clarification.

arcticfox 9y ago
Fascinating! With your unique experience, do you see opportunity at any stage to tip that playbook onto a better course?
- pferde 9y ago
  Global nuclear wipeout. Humans are, and always will be, incurably greedy. Give some other species a chance instead.
  - test1235 9y ago
    Other species are the same and would do the same given the opportunity - they're just not as capable as we are.
    - pferde 9y ago
      We do not know that.
      - averagewall 9y ago
        Yes we do. Evolution selected for the greedy. An exception might be organisms who're newly introduced into an environment and there are still too many resources for their needs so they can sit around not trying hard to get whatever they can. Once populations stabilize though, they have to fight to survive.
        pferde 9y ago
        While that is true, different species could have different thinking patterns, and therefore different propensity to prioritize their own greed before other interests and motivations when making choices. I'm just spitballing here, but the fact is that until we meet some other similarly advanced species and get to know their psychology, we can but theorize.
        eveningcoffee 9y ago
        http://www.stuartmcmillen.com/comic/st-matthew-island/ http://www.stuartmcmillen.com/comic/st-matthew-island/
baseten 9y ago
Ohio AG Mike DeWine is running for governor next year. He's Quite the opportunist. Consider this suit a campaign soft-launch. Don't know if he'll get a settlement before the election, but there will be plenty of quid pro quo cash to go around.
- cinquemb 9y ago
  Their could be an opportunity here to launch some websites and drum up public interest against such deal being made, wait for the tickers to drop and settle off, then go long, wait for the inevitable settlement, then dump post settlement spike? And to think of the bonds that will come from this that will be tied to tax revenue from such products that will probably decline as patients and doctors avoid using them, probably a way to get exposure to short positions on those as well.
oxide 9y ago
I came in ready to blab about what a pointless, impotent move this is to address the issue of opiate abuse. Instead, I found a new perspective that helped me to see that this isn't about opiate abuse at all. It's about cashing checks.
- Quequau 9y ago
  It's always about cashing checks.
- averagewall 9y ago
  What difference does the motive of individual participants make? There's a system in place which incentivises people to sue to stop this kind of abuse and punish the companies doing it. I'd much rather that's done for money than waiting and hoping for a good Samaritan to come along and save people out of the goodness of his heart.
  - sbarre 9y ago
    Except in this case the payouts won't exactly stop or truly punish the offenders, and the payouts also might not go to help the victims..
    - 75dvtwin 9y ago
      @sbarre what makes you think that the payouts will not punish the offenders? are the pharma, not one of the categories of offenders in this case? Just curious.
      - sbarre 9y ago
        I mean real meaningful punishment (for the companies and the individuals responsible for the decisions), not just a settlement payout that represents a fraction of the profits they actually made by causing this tragedy, or "the cost of doing business" as you often hear in these situations..
zdrummond 9y ago
Super interesting insight, and fascinating walkthrough of the finance side.. However, you paint the whole thing as a corrupt failure. Hasn't smoking use dropped dramatically? Sure, lots of people got paid/power along the way, but we did make a large dent in the problem.
- scott_karana 9y ago
  That's probably why it's so successful. Pockets get lined and the deal is seen publically as a moral victory. It would be politically hard to oppose the arrangement without looking pro-Tobacco, or at least without getting smeared that way by the beneficiaries...
- twakefield 9y ago
  Yes, my rant tag was trying to be a subtle admission of the bias. I'm sure there were some good aspects of the MSA that I failed to mention. The restrictions on marketing is one that comes to mind without a lot of thought. I think the biggest problem (that I remember) was money getting allocated to pay for things other than programs to help the original victims.
- Tuna-Fish 9y ago
  As a part of the deal, the tobacco companies were "exempted from private tort liability regarding harm caused by tobacco use". A much more just settlement would have allowed everyone who was harmed by tobacco (at least the ones who started smoking in the period between when the tobacco companies knew that tobacco was harmful, and when the publicly acknowledged it) to sue the companies for the cost of their harm. This would of course have immediately bankrupted every tobacco company.
  - twakefield 9y ago
    The perverse outcome of the tobacco MSA was that state's payments were tied to tobacco usage. So if tobacco usage went down, so did their payments. This pretty much obligated the states to transfer their interests to investors of the securitizations in order to reduce the obvious conflict of interest.
intended 9y ago
Man, the grudges you hold after you have to dig into an industry, deep enough to model it.
Alex3917 9y ago
I don't think there is going to be the same level of liability. In the tobacco case, people who started smoking Marlboros were dying from smoking Marlboros. With OxyContin, this isn't the case. E.g.: - User switches to heroin or some other generic opiate because it's too hard to get a legal prescription and dies. - User mixes drug with alcohol or benzodiazepines and dies. - User dies from APAP poisoning, which the government requires to be added. There might be 50,000 opiate-related deaths per year or whatever, but the actual number of accidental opiate ODs on solely OxyContin is no more than the number of deaths from Tylenol or Ibuprofen. The Supreme Court already ruled that drug manufacturers can't be held responsible for the safety of generics. So even if Purdue is held entirely responsible for the rise in opiate addiction, there are enough mitigating factors in terms of the actual harms of addiction that I think it will be hard to see a tobacco-style settlement.
- MereInterest 9y ago
  Would this be affected by the marketing of Oxycontin as a 12-hour pain medication, when it was known that it wears off earlier than that for a significant fraction of the population? Not a lawyer, and so I have no idea how that would affect liability. http://www.latimes.com/projects/oxycontin-part1/ http://www.latimes.com/projects/oxycontin-part1/
  - Alex3917 9y ago
    I think that's good for around a billion dollars in fines and maybe a few prison sentences, but not for 100+ billion. The basic issue is that even if they purposely got millions of Americans addicted to opiates, being addicted to opiates isn't especially dangerous or harmful in and of itself. If most of the harms come from unrelated government policies then there's only so much damages you can pin on the Pharma companies.
miej 9y ago
But this is also in light of the recent MA RICO conspiracy charges, which from my understanding is not really a...small deal, right? From what I've read, RICO is usually reserved for the likes of the mafia and even still is rarely used due to the overwhelming burden of proof required. Definitely despicable behavior though, with doctors taking bribes in exchange for breaking their Hippocratic oath Source: https://www.justice.gov/usao-ma/pr/pharmaceutical-executives-charged-racketeering-scheme https://www.justice.gov/usao-ma/pr/pharmaceutical-executives...
rlucas 9y ago
There's a missing epilogue: 9) The states themselves, as well as a large interest group formed by the purchasers of whatever deals were securitized, are now financially interested in the continued financial health of the malfeasors. In other words: the opioid producers now have the states and bondholders rooting for them to continue selling opioids. (In fairness: if the pharmas are not pure plays this will not be as dismal as it was with tobacco. But in the tobacco case, it was pretty clearly laid out that the continued payment streams were secured only by MSA revenues based on continuing cigarette sales. So the states, or the bondholders, were rooting for continued cigarette sales.)

arcticfox 9y ago

Fascinating! With your unique experience, do you see opportunity at any stage to tip that playbook onto a better course?

pferde 9y ago
Global nuclear wipeout. Humans are, and always will be, incurably greedy. Give some other species a chance instead.
- test1235 9y ago
  Other species are the same and would do the same given the opportunity - they're just not as capable as we are.
  - pferde 9y ago
    We do not know that.
    - averagewall 9y ago
      Yes we do. Evolution selected for the greedy. An exception might be organisms who're newly introduced into an environment and there are still too many resources for their needs so they can sit around not trying hard to get whatever they can. Once populations stabilize though, they have to fight to survive.
      - pferde 9y ago
        While that is true, different species could have different thinking patterns, and therefore different propensity to prioritize their own greed before other interests and motivations when making choices. I'm just spitballing here, but the fact is that until we meet some other similarly advanced species and get to know their psychology, we can but theorize.
        eveningcoffee 9y ago
        http://www.stuartmcmillen.com/comic/st-matthew-island/ http://www.stuartmcmillen.com/comic/st-matthew-island/

baseten 9y ago

Ohio AG Mike DeWine is running for governor next year. He's Quite the opportunist. Consider this suit a campaign soft-launch. Don't know if he'll get a settlement before the election, but there will be plenty of quid pro quo cash to go around.

cinquemb 9y ago
Their could be an opportunity here to launch some websites and drum up public interest against such deal being made, wait for the tickers to drop and settle off, then go long, wait for the inevitable settlement, then dump post settlement spike? And to think of the bonds that will come from this that will be tied to tax revenue from such products that will probably decline as patients and doctors avoid using them, probably a way to get exposure to short positions on those as well.

oxide 9y ago

I came in ready to blab about what a pointless, impotent move this is to address the issue of opiate abuse. Instead, I found a new perspective that helped me to see that this isn't about opiate abuse at all. It's about cashing checks.

Quequau 9y ago
It's always about cashing checks.
averagewall 9y ago
What difference does the motive of individual participants make? There's a system in place which incentivises people to sue to stop this kind of abuse and punish the companies doing it. I'd much rather that's done for money than waiting and hoping for a good Samaritan to come along and save people out of the goodness of his heart.
- sbarre 9y ago
  Except in this case the payouts won't exactly stop or truly punish the offenders, and the payouts also might not go to help the victims..
  - 75dvtwin 9y ago
    @sbarre what makes you think that the payouts will not punish the offenders? are the pharma, not one of the categories of offenders in this case? Just curious.
    - sbarre 9y ago
      I mean real meaningful punishment (for the companies and the individuals responsible for the decisions), not just a settlement payout that represents a fraction of the profits they actually made by causing this tragedy, or "the cost of doing business" as you often hear in these situations..

zdrummond 9y ago

Super interesting insight, and fascinating walkthrough of the finance side.. However, you paint the whole thing as a corrupt failure. Hasn't smoking use dropped dramatically? Sure, lots of people got paid/power along the way, but we did make a large dent in the problem.

scott_karana 9y ago
That's probably why it's so successful. Pockets get lined and the deal is seen publically as a moral victory. It would be politically hard to oppose the arrangement without looking pro-Tobacco, or at least without getting smeared that way by the beneficiaries...
twakefield 9y ago
Yes, my rant tag was trying to be a subtle admission of the bias. I'm sure there were some good aspects of the MSA that I failed to mention. The restrictions on marketing is one that comes to mind without a lot of thought. I think the biggest problem (that I remember) was money getting allocated to pay for things other than programs to help the original victims.
Tuna-Fish 9y ago
As a part of the deal, the tobacco companies were "exempted from private tort liability regarding harm caused by tobacco use". A much more just settlement would have allowed everyone who was harmed by tobacco (at least the ones who started smoking in the period between when the tobacco companies knew that tobacco was harmful, and when the publicly acknowledged it) to sue the companies for the cost of their harm. This would of course have immediately bankrupted every tobacco company.
- twakefield 9y ago
  The perverse outcome of the tobacco MSA was that state's payments were tied to tobacco usage. So if tobacco usage went down, so did their payments. This pretty much obligated the states to transfer their interests to investors of the securitizations in order to reduce the obvious conflict of interest.

intended 9y ago

Man, the grudges you hold after you have to dig into an industry, deep enough to model it.

Alex3917 9y ago

I don't think there is going to be the same level of liability. In the tobacco case, people who started smoking Marlboros were dying from smoking Marlboros. With OxyContin, this isn't the case. E.g.: - User switches to heroin or some other generic opiate because it's too hard to get a legal prescription and dies. - User mixes drug with alcohol or benzodiazepines and dies. - User dies from APAP poisoning, which the government requires to be added. There might be 50,000 opiate-related deaths per year or whatever, but the actual number of accidental opiate ODs on solely OxyContin is no more than the number of deaths from Tylenol or Ibuprofen. The Supreme Court already ruled that drug manufacturers can't be held responsible for the safety of generics. So even if Purdue is held entirely responsible for the rise in opiate addiction, there are enough mitigating factors in terms of the actual harms of addiction that I think it will be hard to see a tobacco-style settlement.

MereInterest 9y ago
Would this be affected by the marketing of Oxycontin as a 12-hour pain medication, when it was known that it wears off earlier than that for a significant fraction of the population? Not a lawyer, and so I have no idea how that would affect liability. http://www.latimes.com/projects/oxycontin-part1/ http://www.latimes.com/projects/oxycontin-part1/
- Alex3917 9y ago
  I think that's good for around a billion dollars in fines and maybe a few prison sentences, but not for 100+ billion. The basic issue is that even if they purposely got millions of Americans addicted to opiates, being addicted to opiates isn't especially dangerous or harmful in and of itself. If most of the harms come from unrelated government policies then there's only so much damages you can pin on the Pharma companies.

miej 9y ago

But this is also in light of the recent MA RICO conspiracy charges, which from my understanding is not really a...small deal, right? From what I've read, RICO is usually reserved for the likes of the mafia and even still is rarely used due to the overwhelming burden of proof required. Definitely despicable behavior though, with doctors taking bribes in exchange for breaking their Hippocratic oath Source: https://www.justice.gov/usao-ma/pr/pharmaceutical-executives-charged-racketeering-scheme https://www.justice.gov/usao-ma/pr/pharmaceutical-executives...

rlucas 9y ago

There's a missing epilogue: 9) The states themselves, as well as a large interest group formed by the purchasers of whatever deals were securitized, are now financially interested in the continued financial health of the malfeasors. In other words: the opioid producers now have the states and bondholders rooting for them to continue selling opioids. (In fairness: if the pharmas are not pure plays this will not be as dismal as it was with tobacco. But in the tobacco case, it was pretty clearly laid out that the continued payment streams were secured only by MSA revenues based on continuing cigarette sales. So the states, or the bondholders, were rooting for continued cigarette sales.)