Mallinckrodt crashes 34% after saying it might file for Chapter 11 bankruptcy due to opioid litigation (MNK)

Associated Press

• Mallinckrodt crashed as much as 34% on Tuesday after the pharmaceutical company said it was exploring the possibility of filing for Chapter 11 bankruptcy due to a number of factors including litigation related to its sale of opioids.
• Mallinckrodt is in the midst of a $1.6 billion settlement for its sale of opioids, and is also on the hook for a $650 million bill to Medicaid related to its Acthar Gel product.
• "Looking ahead, we expect our current challenges to continue in the back half of the year," CEO Mark Trudeau said.
• Mallinckrodt shares are down 58% year-to-date.
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Mallinckrodt investors may be left holding the bag after the pharmaceutical company said in its second quarter earning release that it was exploring strategic options with external advisers that include filing for Chapter 11 bankruptcy.

Mallinckrodt plummeted as much as 34% to $1.48 in Tuesday trades.

While the pharmaceutical company posted earnings that beat analyst estimates, that wasn't enough to offset the challenges the company is facing due to its opioid litigation settlement, its Acthar Gel medicaid repayment issue, and its high debt levels.

In February, Mallinckrodt said it reached an "agreement in principle" for a global opioid settlement that would entail the company making structured payments over a period of eight years totaling $1.6 billion.

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On top of that, in March, a federal judge said the company was on the hook to pay back Medicaid $650 million for its Acthar Gel, due to claims that Mallinckrodt underpaid for the drug for years and overcharged Medicaid.

Acthar Gel is used to treat multiple sclerosis and cost Medicaid upward of $150,000 per patient, despite a cheaper alternative being available for $800. In a lawsuit, a subsidiary of Mallinckrodt was accused of bribing doctors to sell Acthar.

Mallinckrodt acquired Acthar Gel when it bought Questcor in 2014.

Finally, Mallinckrodt has an immense pile of debt to address. At the end of the quarter, the company had $5.3 billion in outstanding debt, and paid $64.2 million in interest debt. Mallinckrodt's market cap was just $141 million as of Tuesday, according to data from YCharts.com.

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Mallinckrodt CEO Mark Trudeau said, "looking ahead, we expect our current challenges to continue in the back half of the year."

Mallinckrodt shares are down 58% year-to-date.

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