Mallinckrodt faces investor lawsuit for allegedly making false statements about its financial health

In June of last year, after Mallinckrodt Pharmaceuticals emerged from a Chapter 11 reorganization and agreed to a $1.7 billion settlement to resolve opioid claims, the troubled company trumpeted its “new beginning.”

“We emerge well-positioned for long-term success, with a substantially stronger capital structure,” Paul Bisaro, Mallinckrodt’s chairman, added in a press release.

But 13 months later, the company is back in desperate straits. In regulatory filings, Mallinckrodt has admitted its failure to make its annual $200 million opioid settlement payment and suggested that bankruptcy again is in the offing.

And last week, its investors piled on, filing a class-action lawsuit against the company. In federal court in New Jersey, the investors accused Mallinckrodt of making false and misleading statements about the financial health of the company.

The plaintiffs filed the lawsuit on behalf of anyone who acquired Mallinckrodt securities between June 17, 2022, and June 14 of this year. The lawsuit accuses three company leaders—CEO Siggi Olafsson, Chief Financial Officer Bryan Reasons and Bisaro—of misleading investors. A court summons requires them to appear in court within 21 days.

In accusing the company of painting an incorrect picture of its financial status, the plaintiffs cite conference calls, press releases, quarterly earnings reports and regulatory filings with the Securities and Exchange Commission.

On June 2 of this year, when The Wall Street Journal reported that the company was having difficulty making its opioid settlement payment and was considering bankruptcy, Mallinckrodt’s shares tumbled 40%, from a price of $1.47 to $0.98, sparking the lawsuit.

Mallinckrodt did not respond to a request for comment.

Revenues for the 156-year-old company peaked at more than $3 billion from 2016-19 but are projected to fall between $1.7 billion and $1.82 billion this year. Mallinckrodt, which does most of its business in the U.S. but is headquartered in Ireland for tax purposes, has been brought down by numerous missteps.

In 2020, a month after a U.S. bankruptcy court signed off on the company's plan to reorganize, Mallinckrodt agreed to a $260 million settlement with the U.S. government for underpaying Medicaid rebates and using a foundation to pay illegal copay subsidies. Those allegations surrounded the company's management of its controversial anti-seizure drug Acthar Gel.

It’s not been all bad news over the last year for Mallinckrodt. In September, the FDA signed off on the company’s hepatorenal syndrome drug Terlivaz after issuing it two complete response letters. Cantor Fitzgerald has tagged its peak sales potential at $300 million.