The CDC estimates that most newheroin addicts first became hooked on prescription pain medicationbefore graduating to heroin, which is stronger and cheaper. (Photoby John Moore/Getty Images) 

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(Bloomberg) — The threelargest U.S. drug distributors and a major generic-drugmanufacturer have agreed to pay $260 million to settle the firstfederal trial over the companies' role in fueling the U.S. opioidepidemic.

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Drug distributors McKesson Corp., Cardinal Health Inc. andAmerisourceBergen Corp., plus drugmaker Teva PharmaceuticalIndustries Ltd., entered into the agreement with two Ohio countiesjust before the start of the trial Monday in Cleveland.

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The agreement will buy more time for a wider industry settlementin other opioid cases. McKesson, Cardinal and AmerisourceBergen,which together control 90% of the U.S. drug-distribution market,have proposed an $18 billion settlement for more than 2,000 otherlawsuits filed by states, counties and cities, according to peoplefamiliar with those negotiations. No deal has been reached on thatoffer.

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The settlement was announced in court on Monday morning.Walgreens Boots Alliance Inc., the last remaining defendant, hasn'tyet reached a deal and will face a trial at a later point withother companies. A separate trial, involving claims by WestVirginia municipalities, is scheduled for next year.

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"The allegations against Walgreens are very different, andWalgreens is completely unlike the wholesalers involved in thenational opioid litigation," company spokesman Phil Caruso said."We never manufactured, marketed or wholesaled prescription opioidmedications. We never prescribed any opioid medication, and neversold opioid medications to pain clinics, internet pharmacies or the'pill mills' that fueled the national opioid crisis."

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Joe Rice, one of the lead lawyers for the plaintiffs, said aftercourt the distributors will pay $215 million and Teva willcontribute $20 million in cash and $25 million of Suboxone, ananti-addiction treatment.

'Incremental step'

"This incremental step will change a small corner of the globeravaged by opioids," Mark Lanier, who was slated to be the leadtrial lawyer, said after court. "We need to make this a step ladderto a larger resolution."

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Shares of the companies fell in New York. McKesson dropped 4.0%at 11:09 a.m., AmerisourceBergen was down 4.0%, Cardinal lost 2.9%and Teva declined 2.8%.

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"We're in the early to middle innings of a lengthy process, andI just don't see this as bringing us much closer to a globalsettlement," Piper Jaffray & Co analyst David Amsellem said inan interview. "The government wants to extract a pound of flesh.States and municipalities want money in their coffers as soon aspossible to help deal with the epidemic. To be frank, I think thereare competing political and pragmatic considerations."

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Representatives for McKesson, AmerisourceBergen, Cardinal andTeva couldn't immediately be reached for comment.

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The deal involving Summit and Cuyahoga counties was reached atmidnight after weekend-long talks in Cleveland. Other defendants inthe case had already settled.

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On Monday, a small distributor, Henry Schein Inc., said it willpay $250,000 of Summit County's expenses and will make a $1 milliondonation for a pain-management education foundation.

More settlements

Last week, drugmaker Johnson & Johnson agreed to settle the Ohiocounties' case for $20.4 million. J&J has separately offered $4billion to settle all the opioid lawsuits against it, though nodeal has been reached.

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The other defendants settled last month. Generic-opioidmanufacturer Mallinckrodt Plc settled for $30 million. A unit ofEndo International Plc offered to pay $10 million and donate $1million worth of drugs to avoid the trial, and Allergan Plc agreedto pay $5 million.

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More than 400,000 Americans have died of opioid overdosesover two decades as U.S. addiction rates surged, and localcommunities have sued to recover expenses on more drug treatmentand police services.

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Drugmakers and distributors have been accused in thousands oflawsuits of turning a blind eye to red flags about unusually largeopioid shipments and employing lax compliance standards to rake inbillions in profits. The lawsuits are being overseen by U.S.District Judge Dan Polster.

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The companies have been in talks with states, cities andcounties in hopes of reaching an overarching agreement to resolveall the litigation.

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For the companies, "there's a lot to lose if you're not a partof that ultimate settlement agreement," Morningstar analyst SooRomanoff said.

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The case is In Re National Prescription Opioid Litigation,17-md-2804, U.S. District Court, Northern District of Ohio(Cleveland).

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