(Reuters) - Five states have agreed to facilitate settlement talks by dropping objections to a bid by Insys Therapeutics Inc (INSYQ.PK) in bankruptcy court to put on hold their lawsuits alleging the drugmaker helped fuel the opioid epidemic.
The agreement was announced on Tuesday by a lawyer for Chandler, Arizona-based Insys during a hearing before a federal bankruptcy judge in Wilmington Delaware, who was set to consider whether to block the states from moving forward with their cases.
Insys requested the injunction when it filed for Chapter 11 bankruptcy protection on June 10, becoming the first drugmaker accused in lawsuits by state and local governments of contributing to the deadly opioid epidemic to do so.
Insys filed for bankruptcy days after striking a $225 million settlement with the Justice Department resolving claims it paid doctors bribes to prescribe Subsys, the company’s addictive fentanyl spray.
A federal jury in Boston in May found Insys founder John Kapoor and four other former executives guilty of engaging in a racketeering conspiracy involving Subsys marketing practices.
Filing for bankruptcy normally halts active litigation against a company while it reorganizes. But a longstanding exception in U.S. bankruptcy law allows for lawsuits to proceed enforcing government officials’ “police powers.”
Lawyers for Maryland and Minnesota, where Insys faced upcoming administrative trials in August and September, last week opposed Insys’ motion to stay their cases, citing that exception. New York, New Jersey and Arizona joined them.
A ruling on Insys’ motion could have influenced whether OxyContin maker Purdue Pharma LP - another opioid manufacturer facing some 2,000 lawsuits - decides to file for bankruptcy protection, according to a person familiar with the matter and legal experts.
But at Tuesday’s hearing, Ronit Berkovich, a lawyer for Insys, told U.S. Bankruptcy Judge Kevin Gross that the five states, as well as North Carolina, had agreed to stay their cases in order to support a settlement negotiation protocol.
After hearing arguments over the proposal’s merits, Gross agreed to approve it, saying it initiates negotiations that need to take place to avoid draining cash-strapped Insys of money.
“We don’t want to reduce that money by litigating and the like,” he said.
Cities and counties pursuing hundreds of similar cases against Insys are not part of the deal, nor are several states that had already agreed to put their lawsuits on hold.
But Berkovich said they would be invited to participate in the negotiation process, which she said envisions putting Insys in a position to file a restructuring plan for the court’s approval by Sept. 2.
Reporting by Nate Raymond in Boston; Editing by Bill Berkrot