Mallinckrodt Updates Facts Refuting Short-Seller Claims
Updated June 6, 2017
Two recent “research reports” by self-acknowledged short sellers – one containing references from the handful of sensationalized media stories and blogs resulting from their erroneous theories – are not based on fact. This updated statement serves to present additional important facts, and to correct inaccuracies in those reports and stories. Mallinckrodt is an organization committed to making a difference in patient’s lives. Our mission remains to improve the lives of patients through our medications and partnership with all members of the healthcare system and all of our employees live this mission every day.
Allegations that Mallinckrodt carries $8 billion in debt are incorrect. As disclosed in Mallinckrodt’s most recent quarterly report from March 31, 2017, the company’s debt was approximately $6 billion and Mallinckrodt’s debt, net of cash, was $5.8 billion.
Recent theories that should H.P. Acthar® Gel revenues drop by 50%, Mallinckrodt would be in “default on all debt covenants and go bankrupt,” are patently untrue. Detailed information regarding the company’s debt agreements is publicly available in its U.S. Securities and Exchange Commission filings. Though these agreements do include customary limitations to protect the interests of debtholders, there are no provisions exclusively tied to the company’s EBITDA to net-debt leverage. The company does maintain a $900 million revolving credit facility which, if utilized in excess of $225 million (or 25%), requires that the company maintain net-debt leverage below 5.25x. Mallinckrodt currently has no outstanding borrowings against this facility, and the net-debt leverage ratio as reported in its May 8, 2017 quarterly filing is 3.8x .
Importantly, though H.P. Acthar Gel makes a substantial contribution to Mallinckrodt’s overall profitability, claims that the company would be unable to meet the interest payments on its debt or go bankrupt without the contribution of H.P. Acthar Gel are simply wrong, and significantly underestimate the contributions of the rest of the company’s diversified portfolio. Mallinckrodt does not publicly disclose the profitability of any individual product.
In fiscal 2016, Mallinckrodt had $617 million in GAAP operating income and non-adjusted operating income (OI) of more than $1.4 billion. While Mallinckrodt has not commented on or issued guidance related to OI for 2017, current consensus OI estimates for the company are well in excess of $1 billion on a non-GAAP basis. Speculation that Mallinckrodt’s annualized OI for 2017 will be $300 million based on results from the most recent quarter is erroneous.
Value and Investments
H.P. Acthar Gel’s efficacy in its approved indications is strongly supported by evidence. The U.S. Food and Drug Administration (FDA) reviewed the label in 2010, and determined there in fact was sufficient scientific and clinical evidence to support the 19 indications now in the current label. The drug makes a significant difference in the lives of thousands of very sick patients with high unmet medical needs. Mallinckrodt prices its products responsibly, and in a way that reflects the value they offer patients, providers and the U.S. healthcare system as a whole.
Since acquiring H.P. Acthar Gel in 2014, Mallinckrodt has invested more than a quarter of a billion dollars into the drug, including building a larger body of evidence for the drug through clinical trials and health economic outcomes research data; payer engagement; manufacturing modernization; and other medical affairs and research activities. Since adding the drug to its portfolio, Mallinckrodt has initiated six well-designed, company-sponsored randomized, controlled clinical studies, targeting combined enrollment of more than 1,100 patients.
MNK-1411 (formerly Synacthen®Depot) is simply not a "generic competitor to Acthar" - the two products are very different drugs. MNK-1411 is not approved by the FDA for any indications, and has never been commercialized in the United States. H.P. Acthar Gel is biologically derived and amongst its many components includes a 1-39 peptide chain so includes more than simply ACTH, while MNK-1411 is a synthetic 24-peptide chain. Importantly, the company believes the regulatory path for any corticotropin-type new drug application would require FDA approval and could take many years if successful.
In the commercial reimbursement space, the majority of lives covered by commercial payers have an established pathway for the use of H.P. Acthar Gel in those patients for whom it is appropriately prescribed – those with conditions covered by the FDA-approved label and for whom the product’s extensive existing data and clinical experience support H.P. Acthar Gel’s use as a proven therapy. The prior-authorization and reimbursement processes used by commercial payers rely on these criteria, and are not bypassed through co-pay programs. Notably, the business continues to see strengthening in Acthar formulary positions and access for appropriate patients in both the commercial and public environments.
Partners to Help Reach Patients
Mallinckrodt engages with a variety of partners in all parts of the industry value chain to ensure access for appropriate patients who are prescribed H.P. Acthar Gel. The company engages and has contracts with the majority of the largest Pharmacy Benefit Managers in the U.S, including Express Scripts.
Mallinckrodt has individual contracts with a network of independent specialty pharmacies, utilizing them to process prescriptions and deliver H.P. Acthar Gel directly to patients’ homes (a common practice for self- administered, injectable products such as this drug which are not stocked at neighborhood pharmacies and require special climate-controlled handling). The network pharmacies are selected based on a number of criteria, including their overall ability to fulfill prescriptions and provide product to patients in a timely manner. Accredo, an independent specialty pharmacy owned and operated under the Express Scripts umbrella, is in Mallinckrodt’s network.
Mallinckrodt also contracts with two other Express Scripts subsidiaries to assist in the delivery of H.P. Acthar Gel. Under a fee-for-service contract, the company uses Express Scripts’ subsidiary CuraScript SD as a warehouse/distribution center to distribute product to Mallinckrodt’s network of independent specialty pharmacies. Mallinckrodt also has two other contracts with another separately owned Express Scripts subsidiary, United BioSource Corporation – one to manage order processing for the product, and another to conduct income or means testing for a program under which Mallinckrodt provides free product to low-income, uninsured or underinsured patients who qualify. Utilization of all these services is a standard industry practice for most specialty pharmaceutical drugs, of which H.P. Acthar Gel is one.
For further information regarding H.P. Acthar Gel, please see: http://www.mallinckrodt.com/about/news-and-media/2263463
About H.P. Acthar® Gel (repository corticotropin injection)
H.P. Acthar Gel is an injectable drug approved by the FDA for the treatment of 19 indications. Of these, today the majority of Acthar use is in these indications:
- As an orphan monotherapy medication for the treatment of infantile spasms (IS) in infants and children under 2 years of age.
- Inducing a diuresis or a remission of proteinuria in nephrotic syndrome without uremia of the idiopathic type or that due to lupus erythematosus.
- Treatment of acute exacerbations of multiple sclerosis in adults.
- Use during an exacerbation or as maintenance therapy in selected cases of systemic lupus erythematosus.
- Use during an exacerbation or as maintenance therapy in selected cases of systemic dermatomyositis (polymyositis).
- Use as adjunct therapy for short-term administration in select cases of rheumatoid arthritis, to tide patients over an acute episode or exacerbation.
- Treatment of symptomatic sarcoidosis.
Important Safety Information
- Acthar should never be administered intravenously.
- Administration of live or live attenuated vaccines is contraindicated in patients receiving immunosuppressive doses of Acthar.
- Acthar is contraindicated where congenital infections are suspected in infants.
- Acthar is contraindicated in patients with scleroderma, osteoporosis, systemic fungal infections, ocular herpes simplex, recent surgery, history of or the presence of a peptic ulcer, congestive heart failure, uncontrolled hypertension, primary adrenocortical insufficiency, adrenocortical hyperfunction or sensitivity to proteins of porcine origins.
Warnings and Precautions
- The adverse effects of Acthar are related primarily to its steroidogenic effects.
- Acthar may increase susceptibility to new infection or reactivation of latent infections.
- Suppression of the hypothalamic pituitary adrenal (HPA) axis may occur following prolonged therapy with the potential for adrenal insufficiency after withdrawal of the medication. Cushing's Syndrome may occur during therapy but generally resolves after therapy is stopped. Monitor patients for signs and symptoms.
- Monitor patients for elevation of blood pressure, salt and water retention, and hypokalemia.
- Acthar often acts by masking symptoms of other diseases/disorders. Monitor patients carefully during and following discontinuation.
- Acthar can cause gastrointestinal (GI) bleeding and gastric ulcer with an increased risk for perforation with certain GI disorders. Monitor for signs of bleeding.
- Acthar may be associated with central nervous system (CNS) effects ranging from euphoria, insomnia, irritability, mood swings, personality changes, depression, and psychosis. Existing conditions may be aggravated.
- Patients with comorbid disease may have that disease worsened. Caution should be used in patients with diabetes and myasthenia gravis.
- Prolonged use of Acthar may produce cataracts, glaucoma and secondary ocular infections.
- Acthar is immunogenic and prolonged use may increase the risk of hypersensitivity reactions.
- There is an enhanced effect in patients with hypothyroidism and those with cirrhosis of liver.
- Long-term use may have negative effects on growth and physical development in children. Monitor pediatric patients.
- Decrease in bone density may occur. Monitor during long-term therapy.
- Pregnancy Class C: Acthar has been shown to have an embryocidal effect and should be used during pregnancy only if the potential benefit justifies the potential risk to the fetus.
- Common adverse reactions include fluid retention, alteration in glucose tolerance, elevation in blood pressure, behavioral and mood changes, increased appetite and weight gain.
- Specific adverse reactions reported in IS clinical trials in infants and children under 2 years of age included: infection, hypertension, irritability, Cushingoid symptoms, constipation, diarrhea, vomiting, pyrexia, weight gain, increased appetite, decreased appetite, nasal congestion, acne, rash, and cardiac hypertrophy. Convulsions were also reported, but these may actually be occurring because some IS patients progress to other forms of seizures and IS sometimes mask other seizures, which become visible once the clinical spasms from IS resolve.
Please see full Prescribing Information here for additional Important Safety Information.
Mallinckrodt is a global business that develops, manufactures, markets and distributes specialty pharmaceutical products and therapies. Areas of focus include autoimmune and rare diseases in specialty areas like neurology, rheumatology, nephrology, pulmonology and ophthalmology; immunotherapy and neonatal respiratory critical care therapies; and analgesics and hemostasis products. The company's core strengths include the acquisition and management of highly regulated raw materials and specialized chemistry, formulation and manufacturing capabilities. The company's Specialty Brands segment includes branded medicines and its Specialty Generics segment includes specialty generic drugs, active pharmaceutical ingredients and external manufacturing. To learn more about Mallinckrodt, visit www.mallinckrodt.com.
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Coleman N. Lannum, CFA
Senior Vice President, Investor Strategy and IRO
Daniel J. Speciale, CPA
Director, Investor Relations
Senior Communications Manager
Chief Public Affairs Officer
A reconciliation to the most directly comparable GAAP financial measure can be found on the Investor Relations page of our website at www.mallinckrodt.com.