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$100 million agreement close in meningitis outbreak case

Mass. pharmacy owners would help pay victims

New England Compounding Center

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The New England Compounding Center, which was blamed for a fatal meningitis outbreak.

The owners and insurers of the bankrupt Framingham pharmacy blamed for an outbreak of fungal meningitis that killed dozens of people last year have tentatively agreed to contribute more than $100 million to compensate victims and creditors of the firm.

The proposed settlement, which needs to be finalized and approved by the US Bankruptcy Court, provides hope that people across the country who received tainted steroid injections made by New England Compounding Center could begin receiving initial payments for their pain and medical expenses as early as next year.

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“We are working very hard to expedite this process and get money to victims as quickly as possible,” said Paul D. Moore, the bankruptcy trustee who took the lead in negotiating the deal. “This is a first step, although a significant one.”

The US Centers for Disease Control and Prevention estimate that at least 751 people contracted meningitis or other infections from the pain shots, including 64 who died in 20 states, making it one of the largest cases of tainted drugs in US history. Overall, as many as 14,000 patients received the tainted injections, and, beyond those diagnosed with meningitis, some reported suffering fatigue or other symptoms.

It is still not clear how much victims and their families would each receive from the deal, since people have until Jan. 15 to file claims with the US Bankruptcy Court. But it will probably amount to at least tens of thousands of dollars, or more, on average.

Roughly one-quarter of the settlement is expected to come from insurance companies, with the rest coming in cash and assets from five members of the Massachusetts families that founded and operated New England Compounding and its sister companies: Barry and Lisa Cadden and Douglas, Carla, and Greg Conigliaro, according to three lawyers who asked not to be named because the details of the settlement have not yet been announced.

The $100 million also includes tax refunds the owners are expected to receive because of business losses resulting from the closing of the companies, as well as the estimated proceeds from selling Ameridose, a Westborough drug maker with ties to the Framingham drug company.

Ameridose, which suspended its operations last year, is already in the process of being sold.

The pharmacy’s spokesman and lawyers representing the owners of New England Compounding and insurers could not be reached late Monday for comment on the deal.

One of the lead lawyers representing victims said the $100 million figure is a compromise but will avoid lengthy and costly litigation.

“This proposal makes it possible for victims to potentially receive funds in 2014,” said Thomas Sobol, managing partner of Hagens Berman’s Boston office. “It’s a realistic amount that could be achieved now.”

The settlement comes as the deadline fast approaches for victims to file claims.

Even if the court approves the settlement, as is expected, a judge must still decide how to divide the money among victims and creditors, as well as how much will go toward fees for the bankruptcy trustee and other professionals involved in the case.

That means checks to victims won’t go out right away.

And there could be multiple rounds of payments. In addition to the initial $100 million, plaintiffs lawyers hope to win tens of millions more by pursuing additional claims against anyone else who could potentially be liable — from hospitals that administered the injections to the companies that designed and maintained the company’s clean room, the dust-free space at the pharmacy where lab workers made sterile drugs.

Federal inspectors found dirty mats, black specks floating in vials, and other signs the room was contaminated.

A few of those parties have already agreed to mediation, but the process could take years to be resolved in court, lawyers cautioned. And victims’ lawyers said they doubt they can ever recover enough money to fully compensate victims, given the extent of deaths and injuries, and the fact that New England Compounding had scant assets.

“By no means is anyone going to say this is enough,” said William R. Baldiga, a partner at the Boston law firm Brown Rudnick who is representing the committee of unsecured creditors owed money by the company. “It’s a matter of personal tragedy.”

The situation is not unprecedented. Within a year after a 2011 listeria outbreak that killed 33 people was traced to tainted cantaloupes from Jensen Farms, lawyers collected only $4 million from the bankrupt company’s estate and insurers. But lawyers are still pursuing claims against other companies that could be liable, such as grocery stores that sold the fruit, in hopes of securing additional compensation.

New England Compounding’s owners and employees still face potential criminal charges in the case.

Carmen Ortiz, the US attorney for Massachusetts, said last month that a yearlong federal investigation in the case was “moving forward” but could not say when indictments might be issued.

Michigan, where many of the victims lived, has said it might pursue criminal charges if it finds state laws were broken.

The episode inspired federal legislation, which President Obama signed into law last month, aimed at increasing federal oversight of compounding pharmacies to avoid similar cases.

Critics say compounding pharmacies, which custom-make medications for individuals who need speciality drugs not available elsewhere, have not traditionally received enough scrutiny because they are mainly overseen by states, rather than the US Food and Drug Administration, even when companies ship large volumes of drugs across state lines like bigger manufacturers. But some watchdogs and industry observers disagree about whether the law will have much impact.

Todd Wallack can be reached at twallack@globe.com. Follow him on Twitter @twallack.
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