Mallinckrodt Plans to Spin off Its Generics Business

Mallinckrodt logo on outdoor sign

Shares of Mallinckrodt Pharmaceuticals are down nearly 2 percent in morning trading after the company announced it will spin off a new company that includes its specialty generics business to shareholders by the second half of 2019.

Over the past couple of years, the company has dangled its generics business to potential buyers. Mallinckrodt said it was exploring the sale of the generics business as a way for the company to pivot toward its higher-margin branded drugs. Potential buyers have reportedly walked away from a deal. While Mallinckrodt has had a significant generics business, the company has seen a decline in that area in recent years, particularly because some of its products are opioid-based painkillers, which have fallen out of favor with prescribers. The company is facing a number of opioid-related lawsuits and has also seen a drop in revenue due to falling generic prices.

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On Thursday, the company announced its spinoff plan that will create two independent publicly traded companies. One will be focused on “innovative specialty pharmaceutical brands,” while the other company will be concentrated primarily in “niche specialty generic products and API manufacturing.” The separation will be conducted through a pro-rata distribution of common stock to Mallinckrodt's shareholders. The spinoff company is expected to be listed on the New York Stock Exchange and will assume the Mallinckrodt name and ticker symbol (MNK).

The new spinoff company will include its acetaminophen business, as well as a portfolio of API and generic finished dose forms of controlled substances and other drugs. Additionally, the generics business will include the company’s laxative product, Amitiza, and a “strong U.S. manufacturing footprint.” The new generics business already has an eye to launch up to five new products in 2019, the company said. It will be headquartered in St. Louis.

Matthew Harbaugh, who is currently Mallinckrodt's chief financial officer and president of the Specialty Generics business, is expected to become CEO of the new company when the spinoff is completed. In preparation of the separation, Harbaugh has stepped down from his role as CFO, but will continue to helm the specialty generics business.

“Mallinckrodt has a more than 150-year legacy of operations in St. Louis and a proud history of supplying the highest quality products to customers. As an independent, U.S.-based company, I am confident that we will be well positioned to advance our R&D capabilities and continue to maintain our category leadership in controlled substances,” Harbaugh said in a statement.

As for the remaining part of Mallinckrodt’s business, the new independent specialty pharmaceutical brands company will focus on its portfolio of marketed and development products. It will be helmed by current president and chief executive officer Mark Trudeau. The specialty pharmaceutical brands company will be renamed at a later date, Mallinckrodt said in its announcement.

Trudeau said the spinoff of the specialty generics business will create an “exciting new business” that he believes will be well-positioned to grow. By allowing the business to operate independently, the new company will be able to “more rapidly capitalize on its growth opportunities to enhance value,” he said.

“Today's announcement is another important step forward in our journey to become an innovation-driven, pure-play, specialty pharmaceutical brands growth company. We believe this separation will further enhance our strategic focus and strengthen our balance sheet. It should also provide us with additional liquidity to support investments in our in-line brands and development portfolio and strategically allocate capital,” Trudeau said in a statement.

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