Mallinckrodt considering bankruptcy for its troubled U.S. generics unit: report

By | February 25, 2020

In a move to save face, Irish drugmaker Mallinckrodt last year proposed divesting its struggling U.S. generics business to help clear the company’s tarnished name. Now, with possible opioid liabilities and debt due dates on the near horizon, Mallinckrodt is reportedly looking for court supervision to help cover its accounts. 

Mallinckrodt is weighing Chapter 11 bankruptcy for its U.S. generics business to free itself from mounting debt and possible liabilities from a raft of opioid lawsuits the drugmaker faces, the Wall Street Journal reported Monday. 

The Irish drugmaker’s reported bankruptcy talks come just weeks after it closed an out-of-court exchange with an investor to cut nearly $ 400 million off the business’ debt load, the Journal says, and months after the company exhausted the remaining $ 95 million on its revolving credit facility in August. 

A Mallinckrodt spokesman declined to comment. On the heels of the Journal’s report, Mallinckrodt’s share price dropped from $ 5.06 to $ 3.06, eventually picking back up to $ 4.16 by market close.

RELATED: Mallinckrodt postpones split-up plan as opioid lawsuits cloud spinoff’s future

The updated bankruptcy threat is nothing new for Mallinckrodt: Investors fled in droves in September following a Bloomberg report the company had retained two bankruptcy consultancy firms. Just days before, Mallinckrodt agreed to settle a bellwether opioid trial with two Ohio counties in September for $ 24 million in cash and $ 6 million in donated drugs. 

The previous month, Mallinckrodt postponed plans to spinoff the U.S. generics business, citing uncertainty around its ongoing opioid litigation. 

The spinoff would have created a new company under the Mallinckrodt name consisting of its specialty generics products, including oxycodone; active pharmaceutical ingredients; and the constipation drug Amitiza. What’s left over—the company’s specialty brands, including H.P. Acthar Gel—would operate under a new, as-yet-undetermined name and without the burden of potentially hefty opioid liabilities, the drugmaker said. 

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A possible bankruptcy is only expected to affect Mallinckrodt’s U.S. generics unit and not the rest of its global business, the Journal reports. The drugmaker reportedly changed its severance policy in September to allow for departing executives to receive lump-sum payouts rather than installments. That move would stay in place even if the company changes ownership, restructures or liquidates, the WSJ says.

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Even though opioid lawsuits have dogged Mallinckrodt, the drugmaker’s legal liabilities have also stretched deep into its speciality drugs business, including the much-maligned Acthar Gel. 

In June, the Department of Justice slapped federal kickback charges on Mallinckrodt, which acquired Acthar-maker Questcor Pharma in 2014 for $ 5.6 billion, accusing the company of funneling money through front funds to illegally subsidize Medicare copays and jack up the drug’s list price by 85,000%.

The charges filed in Pittsburgh federal court fell on the same day the drugmaker agreed in principle to a $ 15.4 million settlement on separate charges tied to two whistleblower kickback suits the DOJ joined in early May.

Humana joined the party in August, claiming it overpaid for Acthar by $ 700 million because of Mallinckrodt’s widespread campaign to stifle competition and pay doctors and patients to choose the pricey med, the insurer said. 

Humana accused Mallinckrodt of a “complex, multipart scheme involving monopoly, bribery, racketeering, fraud, and other deceptive and unfair practices” to fuel the drug’s skyrocketing price increases and induce physicians to boost prescriptions. 

Those ongoing financial worries led to Mallinckrodt’s agreement in September to sell BioVectra, its Canada-based contract manufacturer that produced the API for Actor Gel, to H.I.G. Capital for $ 250 million. The deal came just months after the U.K.-based drugmaker said it would expand BioVectra’s manufacturing with support from Canada. 

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