Earlier this month a whistleblower sued Mallinckrodt (MNK) and claimed no one knew exactly what was included in vials of Acthar sold by the company. The company has represented Acthar is the only therapeutic adrenocorticoropic hormone (“ACTH”) product sold in the U.S. However, former Mallinckrodt employee, Rasvinder Dhaliwal, claimed in addition to ACTH 1-39 the company has added ATH 1-14, ACTH 1-17 and ACTH 1-9 – all smaller fragments of ACTH – which allegedly helped “give Acthar its potency and physiological effects.”
Acthar generates about 38% of Mallinckrodt’s total revenue. It is also part of the specialty brands segment that represent over 85% of the company’s total operating income. The drug is extremely important to a company that has been hiving off assets to part is $6.7 billion debt load at nearly 5x run-rate EBITDA … The bond market appears to be price in the worst case scenario. The company’s 4.75% coupon bonds due April 2023 currently yield above 12%. The bonds had an 8% yield in April 2017, declined to as much as 6.6% in August 2017 and spiked to 12% after the whistleblower lawsuit was revealed. The company’s current interest expense is at an implied rate of nearly 6%. If the company has to borrow new money then it could be at twice the interest rate it is currently paying. Rising interest expense and declining EBITDA could be foreboding.
Hey, Michael. Yeah, agreed, the EBITDA margins don”t excite me much; it”s the growth of asset values that I find offensive. I agree that the shock to the system is most likely to come on the revenue side, too. I just question the timing. We”ll see.