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Mallinckrodt Eyes Restructuring Ahead Of Cleveland Opioid Trial: 'Bankruptcy A Real Option'

Shanthi Rexaline

Mallinckrodt PLC (NYSE: MNK) shares have been on an extended downtrend since the middle of 2015. From over $130 in early 2015, the stock is now barely above $1.

Much of the downside is attributable to allegations regarding opioid addiction and opioid overdose deaths that implicate not only Mallinckrodt, but a host of companies, including Purdue Pharma and Teva Pharmaceutical Industries Ltd (NYSE: TEVA).

Bankruptcy Option On The Table

Mallinckrodt shares were tumbling yet again Thursday, dropping about 45%, after Bloomberg reported that the company is exploring options that include a possible bankruptcy filing, ahead of a trial in Cleveland coming up next month.

The company has reportedly hired law firm Latham & Watkins and turnaround firm AlixPartners to assist in tackling the legal onslaught.

Endo International PLC (NASDAQ: ENDP) and Allergan plc (NYSE: AGN) have settled claims by agreeing to make payments ahead of the trial in Cleveland federal court.

Mallinckrodt is in talks with lawyers representing plaintiff cities and counties to wriggle out of the Cleveland trial, Bloomberg said, citing people familiar with the talks.

For Mallinckrodt, the problem at hand is exacerbated by its precarious cash position. The company has a debt pile of $5 billion, with only $550 million in cash on hand.

It has also depleted the last of its borrowing capacity, Bloomberg said, quoting analysts.

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BMO No Longer Recommends Equity 

With the situation turning from bad to worse, BMO Capital Markets analyst Gary Nachman downgraded Mallinckrodt from Outperform to Market Perform and lowered the price target from $19 to $3.

The analyst had previously stuck with his bullish view on the premise that the shares were undervalued and due to hopes the company can ultimately emerge from the opioid-related uncertainties and the significant pressure faced by its key Acthar franchise.

"However, with the rapidly mounting pressures related to the opioid litigation, we can no longer rule out the possibility of bankruptcy," the analyst said in a Wednesday downgrade note. 

"But it appears that is now a real option being considered and we can no longer recommend the equity."

Legal Woes Abound

Apart from the opioid entanglement, Mallinckrodt is facing other legal woes. It has locked horns with Praxair over a patent infringement lawsuit pertaining to the latter's nitric oxide drug product delivery system.

Further, the company has ongoing litigation with the U.S. government over the latter's decision to have the company change the base date average manufacturer price used to calculate Medicaid drug rebates for Acthar gel.

Mallinckrodt shares were down 39% at $1.58 at the time of publication Thursday. 

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Latest Ratings for MNK

Date Firm Action From To
Sep 2019 Downgrades Outperform Market Perform
Aug 2019 Maintains Equal-Weight
Jun 2019 Initiates Coverage On Equal-Weight

View More Analyst Ratings for MNK
View the Latest Analyst Ratings

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