Mallinckrodt floats $1.6B opioid deal, bankruptcy for specialty generics unit

Mallinckrodt
Mallinckrodt agreed to the speciality generics bankruptcy after retaining two consultants in September. (Mallinckrodt)

Hamstrung by opioid lawsuits and mounting debt, opioid maker Mallinckrodt has spent the past few months taking a hard look at bankruptcy to help cover its debts. Now, with a massive opioid settlement in the works, Mallinckrodt's specialty generics business will enter court-supervised restructuring to help secure its hefty payments.

Mallinckrodt has agreed to a $1.6 billion "agreement in principle" with a plaintiff's executive committee representing thousands of lawsuits the drugmaker faces in a Clevelend multidistrict litigation as well as 47 state and territory attorneys general, the company said Tuesday. 

In order to cover that settlement, Mallinckrodt said its specialty generics business, including its opioid portfolio, would undergo court restructuring into a public trust that "would establish an abatement fund to offset the expense of helping to combat opioid addiction and providing support to communities impacted by opioid abuse," Mallinckrodt said in a release.

The restructuring would not affect Mallinckrodt's speciality drugs business, including the controversial H.P. Acthar Gel, and would allow for a "channeling injunction" against further opioid lawsuits as well as grease the skids for a sale of the company's opioid products. 

RELATED: Mallinckrodt postpones split-up plan as opioid lawsuits cloud spinoff's future

On Monday, Mallinckrodt's shares tumbled on the heels of a Wall Street Journal report the drugmaker was considering bankruptcy for its U.S. generics business with another round of opioid suits heading for trial next month.

The Irish drugmaker's bankruptcy talks come just weeks after it closed an out-of-court exchange with an investor to cut nearly $400 million off the business' debt load, the Journal says, and months after the company exhausted the remaining $95 million on its revolving credit facility in August. 

Mallinckrodt faces not only a possible seven-figure settlement but also mounting debt that could impede its ability pay that agreement off. As an answer, Mallinckrodt announced Tuesday it had secured an additional four-year, $800 million loan specifically targeting debt repayment. 

Under the terms of its proposed agreement, Mallinckrodt would shell out the $1.6 billion over eight years: $300 million after the speciality generics business wraps its restructuring, $200 million in anniversary payments for years one and two, and $150 million in anniversary payments for years two through eight. 

The post-restructuring trust would also receive warrant options to purchase up to 19.99% of the company's stock at $3.15 per share, Mallinckrodt said.

Jefferies analysts noted that the unsigned deal was only a "stepping stone to a final contract," leaving the hard details in Mallinckrodt's proposal up for debate. Jefferies also pointed out Mallinckrodt didn't specify whether the warrant options applied to the restructured trust or the remaining global Mallinckrodt business. 

RELATED: Mallinckrodt postpones split-up plan as opioid lawsuits cloud spinoff's future

Mallinckrodt's bankruptcy has been a subject of investor worry for months: In September, shareholders fled in droves following a Bloomberg report the company had retained two bankruptcy consultancy firms. Just days before, Mallinckrodt agreed to settle a bellwether opioid trial with two Ohio counties in September for $24 million in cash and $6 million in donated drugs. 

The previous month, Mallinckrodt postponed plans to spinoff the U.S. generics business, citing uncertainty around its ongoing opioid litigation. 

The spinoff would have created a new company under the Mallinckrodt name consisting of its specialty generics products, including oxycodone, active pharmaceutical ingredients and constipation drug Amitiza. What's left over—the company's specialty brands, including H.P. Acthar Gel—would operate under a new, as-yet-undetermined name and without the burden of potentially hefty opioid liabilities, the drugmaker said. 

A possible bankruptcy is only expected to affect Mallinckrodt's U.S. generics unit and not the rest of its global business, the Journal reports. The drugmaker reportedly changed its severance policy in September to allow for departing executives to receive lump-sum payouts rather than installments. That move would stay in place even if the company changes ownership, restructures or liquidates, the Journal says.

RELATED: Mallinckrodt unloads its CDMO for $250M as potential liabilities mount

Even though opioid lawsuits have dogged Mallinckrodt, the drugmaker's legal liabilities have also stretched deep into its specialty drugs business, including the much-maligned Acthar Gel. 

In June, the Department of Justice (DOJ) slapped federal kickback charges on Mallinckrodt, which acquired Acthar-maker Questcor Pharma in 2014 for $5.6 billion, accusing the company of funneling money through front funds to illegally subsidize Medicare copays and jack up the drug’s list price by 85,000%.

The charges filed in Pittsburgh federal court fell on the same day the drugmaker agreed in principle to a $15.4 million settlement on separate charges tied to two whistleblower kickback suits the DOJ joined in early May.

Humana joined the party in August, claiming it overpaid for Acthar by $700 million because of Mallinckrodt’s widespread campaign to stifle competition and pay doctors and patients to choose the pricey med, the insurer said. 

Humana accused Mallinckrodt of a “complex, multipart scheme involving monopoly, bribery, racketeering, fraud, and other deceptive and unfair practices” to fuel the drug’s skyrocketing price increases and induce physicians to boost prescriptions. 

Those ongoing financial worries led to Mallinckrodt's agreement in September to sell BioVectra, its Canada-based contract manufacturer that produced the API for Actor Gel, to H.I.G. Capital for $250 million. The deal came just months after the U.K.-based drugmaker said it would expand BioVectra’s manufacturing with support from Canada. 

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