72 Business The EconomistSeptember 21st 2019
1P
owerful opioid painkillers have
helped fuel a crisis of addiction and
death in America in the past two decades. If
one company has become the villain of this
tragic tale, it is Purdue Pharma. The Sackler
family, which controls the drugmaker,
made billions of dollars peddling the
drugs—often, state prosecutors have
charged, and which Purdue and the Sack-
lers deny, with aggressive sales tactics and
questionable marketing campaigns that
downplayed the dangers of OxyContin, its
blockbuster opioid medication.
They will not profit from them any
more. On September 15th the company de-
clared bankruptcy. The move is part of a
sweeping settlement agreed with plaintiffs
in Ohio, where a case against makers and
distributors of the drugs, due to start in a
federal court next month, brings together
claims from some 2,000 states, local gov-
ernments and Native American tribes.
The settlement comes on the heels of a
landmark ruling in August in Oklahoma,
where a state court found that a sales cam-
paign of Johnson & Johnson, a giant drug-
maker, contributed to the state’s opioid cri-
sis and ordered it to pay $572m towards an
abatement plan. j&jrisked a trial rather
than settling (as Purdue had, for $270m,
without admitting guilt) because it felt it
had a strong case; it sold a tiny fraction of
the pills in the state. j&jmaintains its in-
nocence and plans to appeal. But the
judge’s decision has sent a chill through
the opioids supply chain, which suddenly
felt less invincible.
Purdue was the first to crack. Under the
deal, it is to be reconstituted as a public
trust. The plaintiffs in the Ohio case will re-
ceive future proceeds from sales of opioids
and drugs used to treat addiction to them
(which, in a bitter irony, Purdue also
makes). The deal is valued at some $10bn:
perhaps $3bn from the Sacklers and the
rest from their company and other assets.
Neither Purdue nor the family need admit
wrongdoing.
Those who favour the arrangement say
it gives governments some money to pay
for treatment of addicts and other mea-
sures to combat the public-health crisis
caused by opioids. Despite j&j’s loss, the
case against Purdue in Ohio could have
dragged on and proved indecisive. It would
be expensive. Purdue has reportedly spent
$250m so far on legal fees. Better to give
what money it has left to opioid victims,notlawyers,thereasoninggoes.
Othersworrythatthebankruptcyisa fi-
nancialwheezewhichlets thecompany
anditsownersofftooeasily.LetitiaJames,
NewYork’sattorney-general,whotogether
withher opposite numbers in 25 other
statesdeclinedtojointheOhiosettlement,
hascalledthedealwithPurdue“aninsult,
plainandsimple”.
NewYorkhasissuedsubpoenastosev-
eraldozenbanksandfinancialadvisersin
anefforttounderstandthefamily’sfinan-
cialpicture.MsJames’sinvestigatorshave
alreadyunearthed$1bninwiretransfersby
theSacklers.Someofthemoneyendedup
inSwiss bankaccounts. Thismay have
beencompletelylegal,asthefamily as-
serts.Evenso,manyAmericansfindit grat-
ingthatthoughtheSacklerswillnotmake
moremoneyfromopioids,theymaybe
abletokeepmuchofthefortunetheyhave
amassedfromthesecontroversialdrugs. 7NEW YORK
How to divvy up the remains of an
infamous opioid-makerPurdue PharmaPeddler’s gambit
W
ework’s building in Tokyo’s Shi-
buya district is a cross between an
iceberg and a plastic bottle passed through
a shredder. Fitting, then, that the office-
rental firm’s abortive listing, shelved on
September 17th, threatens a financial
shredding for its mastermind, Masayoshi
Son—and that the debacle may be the tip of
an iceberg for his $100bn Vision Fund (vf).
Mr Son bet on Adam Neumann, We-
Work’s charismatic co-founder, after meet-
ing him for half an hour in 2017. SoftBank,
the Japanese group Mr Son controls, and
thevf then gave the firm $4.4bn, despite
its tenuous claim to techiness. Mr Son
would reportedly have handed over anoth-er $16bn this year had Saudi Arabia’s sover-
eign-wealth fund, the vf’s biggest backer,
not objected. But SoftBank gave WeWork
$2bn anyway. All told, the vf and SoftBank
have invested or committed to invest
$10.65bn in the firm and own 29% of it.
Had WeWork gone public at $20bn (less
than half the valuation of $47bn in its latest
funding round), the vf and SoftBank could
under one scenario have faced unrealised
losses of up to $7.5bn, estimates Atul Goyal
of Jefferies, an investment bank. As senti-
ment soured, partly owing to WeWork’s
weak corporate governance, reports sur-
faced of Mr Neumann contemplating a val-
ue as low as $10bn.
WeWork will again attempt to list later
this year—presumably with a better story
about governance and path to profit. Still,
an initial public offering (ipo) may prove
hard. Investors may be disinclined to em-
brace a stock with a good chance of losing
value quickly. If WeWork cannot raise new
capital, Mr Son may have to come up with
cash to keep it going. SoftBank’s own share
price has fallen by 20% since July.
Even with the ipoon ice, and no price
set, the vf and SoftBank may still need to
adjust WeWork’s fair value. That means the
vf’s stated returns may still have to be low-
ered when market prices are eventually
taken into account. In June it reported
$20.2bn of gains on total investments of
$71.4bn. Some were realised; many were
paper gains on hard-to-value investments.
The deeper worry is that unicorn valua-
tions in the private market may have risen
materially above what public-market in-
vestors will pay in an ipo, says Pierre Fer-
ragu of New Street Research. Many of the
vf’s 83 investments could suffer unrealised
losses if and when they go public. True, it
could enjoy post-ipo share-price rises.
Shares in Guardant Health, a vf-backed di-
agnostics firm, have more than tripled in
price since its ipoin 2018. But Uber’s share-
holders have seen 30% of its value wiped
out since it listed in May. The vf is looking
at more unrealised losses, of $3.9bn, on the
ride-hailing firm, Jefferies reckons.The WeWork debacle encapsulates the
worries about the Vision FundMasayoshi SonImpaired vision
Son also fallsSources: PitchBook; Datastream from Refinitiv;
press reports; FT research; The Economist*Apple,Foxconn,Kazakhstan’sNationalInvestmentCorporation,Japanese
banks and others; based on signed memorandums of understandingTotal company valuations of selected
SoftBank Vision Fund investments,$bnInvestorsinSoftBankVisionFunds,$bn2013 14 15 16 17 18 19050100150200250UberDidi ChuxingArmWeWorkVisionFund1, 2017 ($97bn)VisionFund2, 2019 ($108bn)SoftBank 38.0SoftBank 33.1 Saudi Arabia’s PublicInvestment Fund 45.0Abu Dhabi’s
Mubadala 15.0Apple, Foxconn,
Qualcomm & Sharp 3.9Others* 70.0