Mallinckrodt Drops on Mention by Valeant Foe Citron Research

  • Drugmaker `far worse offender' of reimbursement system: Citron
  • Mallinckrodt doesn't have a stake in specialty pharmacies

Mallinckrodt Plc shares plummeted after the drugmaker was mentioned on Twitter by Citron Research, the stock-commentary site whose scrutiny helped lead to a rout of Valeant Pharmaceuticals International Inc.’s stock.

Mallinckrodt has “significantly more downside” than Valeant and is “a far worse offender” of the reimbursement system, Citron said in a tweet. The firm, led by short-seller Andrew Left, said it would have “more to follow,” without providing details.

Shares of Mallinckrodt fell 17 percent to $58.01 at the close in New York, the biggest one-day drop since the company was spun off from Covidien Plc in 2013.

“The market has been so focused on Valeant that they forgot about other platform companies who are levered and face the same headwinds in reimbursement,” Left said in an e-mail. “We already see these challenges at Mallinckrodt.”

A Mallinckrodt spokesman said while the company doesn’t typically respond to market speculation, “we are fully confident in our business model and remain focused on executing on our long-term growth strategy.”


Valeant shares have fallen more than 40 percent since Citron’s report examined the drugmaker’s relationship with specialty pharmacies and questioned whether the company was faking sales through its distribution channel -- an allegation Valeant has denied and analysts have said doesn’t hold up.

Mallinckrodt said last month that unlike Valeant, it doesn’t own or have a stake in specialty pharmacies. The company does have contractual arrangements with specialty pharmacies for the distribution of H.P. Acthar Gel, a treatment for lupus and other disorders of the immune system that the drugmaker gained when it agreed to buy Questcor Pharmaceuticals Inc. last year for about $5.6 billion.

Mallinckrodt Chief Executive Officer Mark Trudeau said on a conference call in August that the company was facing resistance from insurers to reimbursement for products like Acthar, its biggest seller. The company had expanded its distribution channel to six specialty pharmacies, from one, he said. But Mallinckrodt said then that revenue growth from the drug would be "towards the lower end of our range for the next several quarters until we can make further progress on the payer environment." In October, Trudeau said the company was making headway with insurers.

Citron had previously published several reports criticizing Questcor’s labeling of Acthar’s ingredients before Mallinckrodt acquired the company.

Mallinckrodt had net debt of $5.13 billion in net debt at the end of June, with annualized earnings before interest, tax, depreciation and amortization of about $1.2 billion.

Like Valeant, Mallinckrodt has faced scrutiny for acquiring older drugs and increasing their prices. In October, Bloomberg News reported on how Mallinckrodt spent $1.3 billion early last year to buy a company that sold an injectable form of acetaminophen, then more than doubled the price of the drug, called Ofirmev. Large hospital systems like Johns Hopkins Medicine and New York University Langone Medical Center said that increase sent their expenses surging $1 million a year or more. Some hospitals were able to fight back by seeking other options, cutting into Mallinckrodt’s projected sales growth.

The company said at the time that it has worked with doctors and hospitals to show the benefits of Ofirmev as an alternative to opioid painkillers. The company said an increasing number of hospitals are seeing the value of the drug, which is “driving positive momentum in Ofirmev volume.”

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