Mallinckrodt in $5.6-billion deal to acquire Questcor, gaining rights to H.P. Acthar gel

Mallinckrodt announced Monday a definitive merger agreement to acquire Questcor Pharmaceuticals through a cash and share transaction valued at approximately $5.6 billion, gaining rights to the latter's H.P. Acthar gel. Mallinckrodt CEO Mark Trudeau said the deal "will provide a strong and sustainable platform for future revenue and earnings growth," adding "it will substantially increase the scale, diversification, cash flow and profitability of our business, while expanding and enhancing the breadth and depth of our specialty pharmaceutical platform."

Questcor's H.P. Acthar gel is approved by the FDA for 19 indications, many related to autoimmune and inflammatory conditions, and generated sales of $761.3 million in 2013, up 49.6 percent over the prior year. "We currently expect solid double-digit revenue growth for Acthar to continue in the future, driven by educational efforts and further expansion into indications currently on the Acthar label," remarked Trudeau, adding "longer term, there's also the possibility of adding new...indications." Trudeau said "Acthar has significantly durability in the marketplace," explaining that "it will be very difficult for this product to be replicated in any way from a generic."

Analysts project revenue of about $1.9 billion for H.P. Acthar gel by 2019 despite a report earlier this year that questioned the quality of the product. Piper Jaffray analyst David Amsellem noted that the therapy continues to sell well even though Questcor "was probably the most controversial name in the biopharma space." In 2012, the US government opened a probe of the company's marketing practices, while health insurer Aetna announced that its coverage of H.P. Acthar gel would only include the treatment of infantile spasms.

Under the term of the deal, Questcor shareholders will receive $30 per share in cash and 0.897 Mallinckrodt shares for each share of Questcor common stock they own, representing a total consideration of approximately $86.10 per share. The total transaction price represents a premium of 27 percent over Questcor's closing stock price on April 4. The companies noted that following completion of the merger, Mallinckrodt shareholders will own approximately 50.5 percent and former Questcor shareholders will own approximately 49.5 percent of the combined drugmaker.

Trudeau will serve as CEO of the combined company, while three Questcor executives, including CEO Don Bailey, will be added to Mallinckrodt's board of directors. Mallinckrodt will continue to operate as an Irish firm, with Questcor's commercial operations functioning as a separate unit within the former's specialty pharmaceuticals segment. Mallinckrodt chief financial officer Matthew Harbaugh noted that the tax rate on Questcor's business will drop by about 10 percent following the deal.

The transaction, which is expected to close in the third quarter, has been unanimously approved by the boards of both companies. Mallinckrodt, which was spun-out from Covidien in 2013, suggested that the acquisition will boost earnings in 2014 and substantially increase profit in 2015, adding that it will provide guidance for the combined company after completion of the transaction.

The acquisition follows Mallinckrodt's $1.4-billion purchase of Cadence Pharmaceuticals last month as the company aims to be among the top 25 percent of specialty drug manufacturers. "We are now well on our way to becoming a leader in the development and commercialisation of specialty therapeutics around the world," Trudeau said.

To read more Top Story articles, click here.