Mallinckrodt suspends plan to spin-off specialty generics business due to market conditions, opioid litigation

Mallinckrodt announced Tuesday that it has suspended the planned spin-off of its specialty generics business due to "current market conditions" and "increasing uncertainties created by the opioid litigation" in the US. The company disclosed last year that it would separate the unit into a new company in the second half of 2019 or sooner. 

According to Mallinckrodt, its goal is still "to be an innovation-driven biopharmaceutical company," adding that it "continues to actively consider a range of options intended to lead to the ultimate separation of the specialty generics business." 

The drugmaker is also among several others facing lawsuits from municipalities and states across the US accusing them of fuelling the country's opioid crisis. However, it has not established legal reserves to cover the lawsuits, many of which have been consolidated in Ohio. 

Commenting on the news, Berenberg analyst Patrick Trucchio estimated that Mallinckrodt could face as much as $6.4 billion in liabilities associated with the litigation. However, CEO Mark Trudeau noted that "at this point, there is only litigation risk, no litigation liability." 

The latest news also comes as generic drugmakers face growing competition and more political pressure in the US to reduce prices on prescription products. Trudeau remarked that recent deal activity, including a proposed merger between Mylan and Pfizer's Upjohn off-patent drug business, was "certainly less of a factor" in its decision to suspend the spinoff. "We had always said that our plans to separate would somewhat depend on market conditions," the CEO commented, adding "at the moment, market conditions are not favourable."

Meanwhile, Mallinckrodt also announced its second-quarter results on Tuesday, with net sales of $823.3 million, down slightly from $825.5 million in the year-ago period, while net income fell to $6.8 million, versus $15.6 million the same time last year. Full-year earnings are expected to range from $8.40 per share to $8.70 per share, raised by $0.10 on both ends from its prior forecast

The company recently agreed to pay $15.4 million to resolve a US probe into allegations of bribery and illegal marketing of Acthar Gel (corticotropin) by its Questcor Pharmaceuticals unit. It is also suing the US Department of Health and Human Services and the Centers for Medicare and Medicaid Services over a change in the way Medicaid drug rebates are calculated for the treatment.

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