Which Drug Makers Are Most At Risk?
Below is a description of Mallinckrodt, Insys and Endo and why I believe they are most vulnerable due to their high debt load or the amount of opioids they sold.
Mallinckrodt
Mallinckrodt is known for its its top-selling drug, Acthar, which treats infantile spasms. Acthar represents over 35% of Mallinckrodt’s total revenue. As early as Q3 2015 its Specialty Generics segment, which houses opioids like Hydrochodone and Oxycodone, generated $297 million in revenue and represented 38% of the company’s total revenue. At Q4 2017 the segment generated $196 million in revenue and was only 25% of the company’s total. Mallinckrodt put the segment up for sale in the first half of 2017, but received no takers.
It also agreed to pay a $35 million settlement last year for failure to report suspicious orders of pharmaceuticals and for violating certain provisions of the Controlled Substances Act (“CSA”). After its acquisition of Sucampo its debt/EBITDA could exceed 5x. The company is highly-indebted and currently lacks the liquidity to fund a large legal settlement. At Q4 2017 Mallinckrodt had about $1.3 billion in cash on hand. I expect nearly $1.2 billion will eventually to go to pay for the Sucampo deal. Another $300 million is needed to make a principal payment in the next few months. I doubt it has any excess liquidity to fund a major legal pay out related to opioid sales.
Endo Pharmaceuticals
Endo’s sales consist of generics and branded drugs, which includes pain-related drugs like Opana, Percocet, Voltaren and Lidoderm. Its revenue is currently in free fall – Q4 revenue fell 38% Y/Y. Generics revenue was hurt due to disappointing launches of new drugs and a diminution of pricing power in North America. Branded revenue was off 28% Y/Y and currently represents nearly 30% of Endo’s total revenue. The Branded segment has been hurt by lawmakers’ tamping down on opioid prescriptions.
What about Purdue, the greatest offender.
Are you not interested because they are not public?
Joe Smoe,
Agreed. Purdue is one of the biggest offenders. Since it is not publicly-traded the Shock Exchange rarely writes about it. He usually only covers publicly-traded companies.
Jo Smoe,
The Shock Exchange is interested in Purdue. He rarely writes about it since it’s not publicly-traded. Purdue is likely the king of opioids and trumps Endo, Mallinckrodt, Allergan, J&J, Teva, Depomed, and Insys.