Mallinckrodt splitting into 2 with generic spin-off plan
- Mallinckrodt on Thursday announced a plan to spin off its specialty generics business and establish two independent, publicly traded companies, roughly two years after the drugmaker's began contemplating options for its generic business.
- The new generic company will be based in St. Louis and assume Malinckrodt's name and stock ticker on the New York Stock Exchange. The spinoff will also assume responsibility for the slate of opioid lawsuits the company has faced in recent years.
- The remaining specialty pharma will adopt a new name and consist of products that made up roughly 70% of Mallinckrodt's sales over the past year. Company leaders said they expect to complete the spinoff in the second half of 2019 or sooner. The deal will be subject to final approval by the board.
The specialty generic company will keep the company's name, but not the bulk of its revenue.
Going by product sales from the last 12 months ending with September, the generics spin-off will take over drugs with total net sales of roughly $850 million, while the branded company will oversee nearly three times that amount.
The branded company will center around H.P. Acthar Gel (repository corticotropin injection), which made up about 45% of the company's net sales through the first nine months of 2018, according to a recent Securities and Exchange Commission filing.
Next year will be a critical one in determining the future potential of that product. The company expects to give topline readouts for clinical trials of the therapy in rheumatoid arthritis and multiple sclerosis in the first half of 2019. It also hopes to complete enrollment for three additional Acthar studies by year's end: Phase 4 studies in uveitis and lupus and a Phase 2 trial in amyotrophic lateral sclerosis, or ALS.
Compelling clinical data will be particularly needed in quieting market skeptics, led prominently by short-seller Andrew Left, who runs Citron Research and has routinely criticized Mallinckrodt. Critics have attacked a sales strategy they see as rooted in an exponentially increased list price for Acthar coupled with payments to physicians.
Medicare spending on the drug has grown ten-fold. In a report from June, the Medicare Payment Advisory Commission reported Medicare spending on Acthar increased from $49 million to $504 million between 2011 and 2015. Furthermore, less than 2,000 doctors prescribed the drug, with 71% of them receiving "at least one nonresearch payment from the manufacturer of Acthar related to the drug," the commission found.
"These financial relationships raise questions about conflicts of interest among prescribers of Acthar," the independent U.S. commission wrote, which advises Congress on issues related to Medicare.
Medicare spending on Acthar further increased in 2016, with total spending reaching $636 million.
The price of Acthar has gone up from $40 per vial in 2001 to a list price of more than $38,000 currently, according to a recent report by GoodRx. When Mallinckrodt acquired Acthar in 2014 by buying Questcor, the drug had a list price of approximately $32,000.
On the other side of the restructuring, the generic spin-off will take the branded constipation drug Amitiza (lubiprostone), which netted $119 million in sales and royalty payments through the first nine months of 2018. The spinoff's CEO is expected to be Matthew Harbaugh, currently Mallinckrodt's chief financial officer and president of specialty generics, the company stated in a Dec. 6 release.
The spin-off will also take on active pharmaceutical ingredient manufacturing, Mallinckrodt said.
In an investor note, Leerink analyst Ami Fadia said Amitiza could provide an immediate source of cash flow before facing generic competition of its own. However, the spinoff has some stark questions to face, Fadia said, including little transparency on what its pipeline will look like and a tough market for generics.
Additionally, the spinoff business will take responsibility for ongoing opioid litigation, Fadia noted. Mallinckrodt disclosed it was named in 1,275 lawsuits that were either rolled into or expected to be transferred into a multidistrict litigation established in December 2017. Several state attorneys general have also sued the company, including in Florida, New Mexico and Kentucky.
On the other hand, Fadia remarked the deal could provide a source of liquidity for the new branded company to further build its pipeline. Mallinckrodt's current chief executive, Mark Trudeau, will lead that business.
While Mallinckrodt's stock has modestly rebounded in the past few months since hitting an all-time low valuation in May with a share price of about $12, the pharma opened Thursday trading at $22.86, about one-fifth of a 2015 peak.
After the company rolled out its restructuring plan Thursday morning, its stock dropped by more than 5% in the first few hours of trading.
Correction: A previous version of this article incorrectly identified Mallinckrodt as responsible for increases of Acthar's list price between 2001 and 2014. Mallinckrodt bought the drug in 2014 through an acquisition of Questcor.