Fulfilling a strategy to substantially invest in the specialty pharmaceutical business, Mallinckrodt announced this morning it has entered into a definitive merger agreement with Questcor Pharmaceuticals, a high-growth biopharmaceutical company, in a transaction valued at about $5.6 billion.
The deal follows a February announcement that Mallinckrodt agreed to buy Cadence Pharmaceuticals, which makes a pain management drug for hospital settings among other products, for $1.3 billion, as part of its goal to be among the top 25% of specialty drug manufacturers.
“We believe this transaction [with Questcor] will provide a strong and sustainable platform for future revenue and earnings growth,” said Mark Trudeau, Mallinckrodt president and CEO. “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. With Questcor, combined with our recently completed acquisition of Cadence Pharmaceuticals, the new Mallinckrodt will have a significant, established presence with prescribers, payers and hospitals.”
Mallinckrodt was spun off from medical device and pharmaceuticals giant Covidien last year. The company develops, manufactures and markets branded and generic pharmaceuticals, active pharmaceutical ingredients (APIs) and diagnostic imaging agents.
Under the purchase agreement, Questcor shareholders will receive $30 in cash and 0.897 Mallinckrodt shares for each of Questcor common stock, for a total value of $86.10 per Questcor share—a 27% premium over Questcor’s April 4 stock price.
A key product in the Questcor acquisition is H.P. Acthar gel, an injectable drug the FDA has approved for 19 indications, including many related to autoimmune and inflammatory conditions such as multiple sclerosis. Sales of Acthar, which is Questcor’s biggest product, rose 50% to $761.3 million in 2013. Total company revenues last year were $799 million. Acthar sales are projected to reach about $1.9 billion in 2018, according to Thomson Reuters data.
In a conference call, Trudeau said Acthar is a very difficult product to be replicated in any way by a generic, and he expects double-digit growth from the injectable gel.
Questcor will operate as a separate business unit within Mallinckrodt’s specialty pharmaceuticals segment.
“I strongly believe Mallinckrodt is the right partner to support the continued growth of Acthar in the highly specialized markets that we serve,” said Don M. Bailey, president and CEO of Questcor, based in Anaheim, Calif. “Given the complementary nature of our business and product portfolios, we expect this to be a seamless transaction.”
But not everyone agrees with Bailey.
Within hours of the merger announcement, law firm Rigrodsky & Long launched an investigation about the financial terms of the Mallinckrodt proposal, claiming Questcor “failed to adequately shop the company and obtain the best possible value for Questcor shareholders before entering into an agreement with Mallinckrodt.” At least one Wall Street analyst, cited by Yahoo Finance, issued a price target for Questcor stock at $99 per share, the law firm noted.
Questcor also is the target of a U.S. Department of Justice inquiry into its promotional practices, which poses a threat of fines and other sanctions. In addition, insurer Aetna has limited reimbursement for the drug, citing cheaper alternatives.
The company’s overnight success with ActharGel, which began as a treatment for young children with severe seizures, has seen the price rise from $50 per vial to $28,000 in December 2012, according to a New York Times investigation in December 2012.
“How the price of this drug rose so far, so fast is a story for these troubled times in American health care—a tale of aggressive marketing, questionable medicine and, not least, out-of-control costs,” the Times concluded.