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Opioid Crisis Fallout Earns Short-Sellers an $880 Million Payday

Cristin Flanagan and Bailey Lipschultz

(Bloomberg) -- Bearish bets against some of the top suppliers of opioid painkillers are paying off big as their stocks plunge on the potential of a costly reckoning for their role in fueling an epidemic of addiction to the drugs.

Short-sellers in Mallinckrodt Plc, Endo International Plc and Teva Pharmaceutical Industries Ltd., which are among the most exposed to opioid litigation, have pocketed $880 million since May 1, according to data from financial analytics firm S3 Partners. Shares of the three companies have lost between 67% and 95% in the last year as Wall Street attempts to quantify the billions of dollars in liabilities they could face and bankruptcy concerns mount.

Bearish bets against Mallinckrodt have been the most profitable. Short-sellers have cleared $495 million since the start of May, when activity “started getting very active,” Ihor Dusaniwsky, S3’s head of research said by email. It was also right after new details of Mallinckrodt’s dispute with the Centers for Medicare and Medicaid Services over rebates for its top-selling drug Acthar emerged.

Mallinckrodt’s shares have since plunged to less than $2 from more than $15. A Bloomberg report on Wednesday that the company had hired a restructuring firm to advise on options sparked concerns from analysts that a bankruptcy filing could be imminent.

Teva and Endo have troubles of their own beyond the opioid crisis as the copycat drugmakers are also named in litigation alleging that they colluded to fix prices for generic drugs. Endo bears are up $123 million since the beginning of May, while Teva shorts have reaped $262 million in mark-to-market profits, according to S3 data.

While Mallinckrodt shares on Friday were clawing back some of Thursday’s 39% plunge, they were still down about 95% from a year ago. The company should be able to meet obligations on $700 million in debt coming due in April 2020, it’s the outcome of the ongoing opioid suits that’s the “wild-card” putting Mallinckrodt “in a precarious position,” SVB Leerink analyst Ami Fadia told clients in a note. She cut her price target to $2 from $7.

To contact the reporters on this story: Cristin Flanagan in New York at cflanagan1@bloomberg.net;Bailey Lipschultz in New York at blipschultz@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Richard Richtmyer

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