Mallinckrodt bets $5.6B on Questcor and its controversial Acthar drug

Courtesy of Questcor

Ireland's Mallinckrodt ($MNK) has been on a major growth spurt since its spinoff last spring from medical device maker Covidien ($COV)--and it made another big move Monday in its bid to become a major specialty pharma company.

Mallinckrodt agreed to pay $5.6 billion for the California-based biotech company Questcor ($QCOR), maker of Acthar, a drug approved to treat 19 conditions, most of which are inflammatory and autoimmune disorders.

At $86.10 per share, the cash-and-stock deal marks a 27% premium over Questcor's closing price on Friday, according to The Wall Street Journal. On news of the deal, Questcor's stock surged 30% in pre-market trading to $88.55.

The marriage is surely welcome news for Questcor shareholders, who saw the company's stock plummet to below $20 a share in 2012, when U.S. investigators launched a probe into the company's marketing of Acthar. More recently, Questcor got into a war of words with short seller Citron, which claimed Acthar doesn't include all the active ingredients it claims to and could be at risk of getting yanked off the market by the FDA.

Questcor's fortunes have turned around a bit lately. Sales of Acthar rose 50% last year to $761.3 million. In its announcement about the deal, Mallinckrodt said it expected the deal to be immediately accretive to 2014 earnings and "significantly accretive" to 2015 results. "Acthar is increasingly being employed by specialty physicians in the treatment of a range of serious, difficult-to-treat autoimmune and inflammatory conditions, where patients often have exhausted other good therapeutic options," said CEO Mark Trudeau in the statement.

This is the second big purchase by Mallinckrodt in as many months. In February, the company said it would buy Cadence Pharmaceuticals ($CADX) for $1.3 billion, a deal that brought it the fast-growing specialty pain drug Ofirmev.

There is one other sweetener to this deal: tax synergies. Questcor paid a 35% tax rate in the last quarter of 2013, while Mallinckrodt paid just 29%, Bloomberg points out. Moving Questcor offshore, then, should lower the tax burden for the combined companies.

- here's the release
- read the Bloomberg story
- get more at WSJ (sub. req.)

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