Is Mallinckrodt Pharmaceuticals worse than Martin Shrkeli?

Everyone remembers Martin Shrkeli as the “Pharma Bro” who raised the price of Daraprim from $13.50 to $750 per pill. What if I told you that a company is committing more egregious acts of price gouging flying mostly under the radar. In terms of Senate attention this company is not receiving much. That company is Mallinckrodt Pharmaceuticals which has been highlighted by prominent short sellers such as Jim Chanos of Kynikos Associates and Andrew Left of Citron Research.

Mallinckrodt has one specific drug that that I will highlight, Acthar. Acthar is a drug that was made in 1952. At that time a drug did not have to have efficacious studies, it only had to be safe. The most ridiculous part of Acthar is that its price has gone from $40 a vial in 2001 to around $40000 a vial in 2018. The reason that everyone should take this serious is because if you are a tax payer you are helping foot the bill.

This drug helps treat infants with Infantile Spasms (IS). They are taking advantage of parents who think that this is a life saving drug for their new born child.

I am not a doctor so do not take it from me. Let’s take it from a doctor who works at a company who helps negotiate the best prices for these drugs. When a Citi Group analyst, Liev Abraham, asks Express Scripts executives Chief Medical Officer, Dr. Steve Miller and Everett Neville, Mr Neville, “Understood. And any thoughts around another drug that’s been somewhat controversial, and that’s Aksar?” Everett Neville responds by saying, “I don’t think it’s a very great — it’s a pretty poor drug with a very limited need and certainly Steve could comment. He’s a doctor and I’m just a really bad pharmacist.” Dr. Miller goes on to say, “ Yes, the only thing I would add is — 100% agreement with (Everett) — we have put in place really strict criteria for the Express Scripts book of business. We are a very low user of it because we have such rigorous criteria. And so, because if you look at the data, the indications for the drug are really — while it had, in the compendium, it’s listed under a lot of indications, its real use should be very, very limited. It’s an old drug. There’s better products in the marketplace and so we’re going to continue to be very vigilant in our utilization management.”

I believe that Acthar was misspelled “Aksar” on purpose to confuse trading algorithms. That is my opinion of the mistake but I could be wrong. It could be an accident.

Two executives from a company who make money off selling high priced Acthar do not even like it.

From a financial prospective Acthar is keeping Mallinckrodt in business. In other words they are doing everything in their power to keep sales of this drug as high as possible. A company with a market cap of $1.35 billion with over $6 billion in debt is not a company that is in good financial condition. With operating income of $56 million, how is this company going to service the $6 billion in debt.

I do not see a large pharmaceutical company coming to the rescue to purchase Mallinckrodt, solely because of their debt load then add on the fact that Acthar has no efficacious studies it is dead money.

This one drug that accounts for almost half the company’s revenue and more than half the company’s operating profit also has a whistle blower lawsuit from a former employee that Mallinckrodt does not know what is in the drug.

Lets say I am right and Acthar has no efficacious use for Infantile Spasms then what are the other options. That is where things get complicated there is no real competition for Infantile Spasms. There is very little demand for a competitor because only impacts 1 in 2000 babies. There is a competitor in the works that is going through efficacious studies for a much cheaper price. BioSim Pharmaceuticals is making a drug that rivals Acthar.

If I were a Hedge Fund Manager I would be going on financial media outlets saying I have a small short position. Full disclosure I have no financial position in Mallinckrodt.

I would challenge the United States Senate to investigate the drug pricing of Acthar. If there is nothing that can be done under the current law then they need to change the law. I would also challenge the CEO of Mallinckrodt Mark Trudeau to test the efficacy of his highest selling drug.

Writing about the economy and stocks. Keeping Wall Street accountable. As the old Wall Street saying goes “Often wrong, never in doubt.”

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