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Mallinckrodt (MNK) Stock Down 70.8% YTD on Numerous Lawsuits

Zacks Equity Research

Shares of Mallinckrodt plc MNK have plunged 70.8% year to date compared with the industry’s decline of 8.9%.


It has been a dismal year for this Dublin, Ireland-based company, which develops, manufactures, markets and distributes branded and generic specialty pharmaceutical and biopharmaceutical products.

While the company beat on earnings in the recently-reported second quarter, it is currently facing multiple challenges.

The company is currently under the scanner for the sale and marketing of opioid drugs, which contributed to the ongoing opioid epidemic in the United States. It is facing multiple lawsuits related to the same.

Earlier, allegations against its lead drug Acthar’s previous owner, Questcor, for conducting illegal sales and marketing activities related to the drug negatively impacted Mallinckrodt’s shares. Per the company, the original action was filed in 2012, prior to its ownership of Acthar Gel, and consisted of two complaints filed by former Questcor employees.

It reached an agreement in principle with the U.S. Department of Justice (DOJ) regarding the Questcor litigation to resolve the previously-disclosed government investigation of the drug's legacy sales and marketing activities. Mallinckrodt expects to pay $15.4 million related to legacy Questcor activities, per the civil False Claims Act settlement.

Earlier, shares of the company had plunged after it filed suit in federal district court against the U.S. Department of Health and Human Services (HHS) and Centers for Medicare and Medicaid Services (CMS) to protect Medicaid patient access to Acthar. The lawsuit was filed against the agency’s decision, which required Mallinckrodt to change the base date average manufacturer price (AMP) used to calculate Medicaid drug rebates for the drug. Per the company, the attempted reversal, which CMS seeks unlawfully to make retroactive, would substantially eliminate Medicaid net sales of Acthar.

In December 2018, the company announced that it intends to spin-off the Specialty Generics business into a new company. However, based on current market conditions and developments, including increasing uncertainties regarding the opioid litigation, the company has shelved this plan for now. Mallinckrodt continues to evaluate a range of options for the separation of the Specialty Generics business.

The aforementioned factors have led to a significant decline in the share price. Nevertheless, there is some hope for Mallinckrodt as other companies like Endo International plc ENDP recently reached a settlement in principle with the County of Cuyahoga, Ohio; the County of Summit, Ohio; and certain related persons in connection with the pending lawsuits related to opioid medications. Bigwigs like Johnson & Johnson JNJ and generic maker Teva Pharmaceuticals TEVA are embroiled in similar lawsuits as well.

Mallinckrodt carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here..

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