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Mallinckrodt's Worries Aren't Over

The specialty pharma firm is overly dependent on this old, expensive drug.
At Closing, April 25th
13.35 USD

It didn't take long for the first specialty pharma scandal of 2017 to materialize.

Mallinckrodt PLC on Wednesday disclosed it will pay $100 million to settle FTC charges that Questcor Pharmaceuticals, which Mallinckrodt bought in 2014, illegally raised the price of its best-selling drug Acthar by 85,000 percent and bought the rights to a cheaper competing drug to keep it out of the U.S. market. The settlement forced Mallinckrodt to give a free limited U.S. license for that cheaper drug to a competitor, Marathon Pharmaceuticals.

Wrong Specialty

Specialty pharmaceutical firms such as Mallinckrodt have taken a beating over the past two years

Source: Bloomberg

While the settlement's optics aren't stellar, its actual impact is harder to gauge. The fine is basically meaningless, amounting to about a third of Acthar's quarterly sales. Licensing the cheaper drug, Synacthen, won't have any effects for a while. Marathon will have to run trials on it. And in a conference call Thursday morning, Mallinckrodt said it expects getting Synacthen to market in the U.S. to challenge Acthar will be "exceptionally difficult, if not impossible."

That claim seems a little rich, as Questcor considered Synacthen threatening enough to outbid at least three other companies for it in 2013. And even if it isn't game-changing, the settlement highlights the risk of Mallinckrodt's dependence on Acthar. 

Acthar accounted for 37 percent of Mallinckrodt's revenue in its most recently reported quarter. Many of the company's specialty peers rely far less on one drug. Its second-largest product, Inomax, accounted for 14.3 percent of revenue. 

Drug Dependence

An unusually large proportion of Mallinckrodt's sales comes from its best-selling drug, Acthar Gel

Source: Bloomberg/company data

*The figure for Mylan represents the company's entire specialty unit; EpiPen provides the vast majority of that unit's sales.

Adding to the concern, Mallinckrodt's branded-drug business, of which Acthar is the largest component, has become the company's biggest growth driver as its generics unit faces tough price competition. 


Mallinckrodt is increasingly dependent on its branded business to drive performance

Source: Bloomberg

The settlement is not the only troubling thing about Acthar. The FDA green-lit the drug in the 1950s, and it's approved for 19 different uses. But there is limited evidence of its effectiveness in treating most of those conditions, beyond infantile and multiple sclerosis spasms, because it was approved before detailed testing was the norm. In 2015 the drug failed a trial in lupus, one of those grandfathered indications. That doesn't exactly bode well for Mallinckrodt's efforts to expand its use.

Those concerns, the drug's age, and its price make it vulnerable to competition in general, even if Mallinckrodt is right that Synacthen is not a threat. If the company is wrong, then the downside risk is even greater.

The market seemed somewhat reassured by Thursday's conference call; shares rebounded 5 percent after falling nearly 6 percent on Wednesday. But Mallinckrodt is still far too vulnerable to Acthar. 

UpdateAdds detail on Mallinckrodt's license.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Max Nisen in New York at mnisen@bloomberg.net

    To contact the editor responsible for this story:
    Mark Gongloff at mgongloff1@bloomberg.net

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