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Mallinckrodt Plunge to Record Low Is a Win for Short Sellers

Bailey Lipschultz

(Bloomberg) -- Mallinckrodt Plc crashed to an all-time low after the drugmaker filed a lawsuit against the U.S. government over a regulatory move that would change Medicaid rebates for its best-selling Acthar Gel.

Mallinckrodt is looking to reverse a decision that it says would “substantially eliminate” the 10% of Acthar Gel sales that come from Medicaid, the company said in a statement on Tuesday. The shares fell as much as much as 35%, their biggest decline since November 2017.

The company has now seen roughly $2.2 billion wiped from its market value since August as short sellers continue to bet on its decline. More than 30% of shares available for trading are sold short, according to financial analytics firm S3 Partners. That’s up from an August low of about 25%.

The stock’s most bearish analyst, Berenberg’s Patrick Trucchio, slashed his price target in half to $5 and reiterated his sell-equivalent rating on Tuesday. “The timing of this disclosure is potentially problematic” as the company doesn’t seem to have warned investors of this risk despite its disagreement with the government dating back to 2016, Trucchio said in a note to clients.

Mallinckrodt said it has flagged potential risks tied to government rebate programs in annual filings and disclosed this specific matter when it determined it to be necessary to do so.

In the statement, General Counsel Mark Casey said the drugmaker was disappointed in the government’s decision and after repeated attempts to discuss the issue, “we find ourselves with no other choice than to vigorously defend our position, through the courts.”

(Adds company comment in fifth paragraph.)

To contact the reporter on this story: Bailey Lipschultz in New York at blipschultz@bloomberg.net

To contact the editor responsible for this story: Catherine Larkin at clarkin4@bloomberg.net

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