Mallinckrodt Files Chapter 11 for its Generics Business as it Reaches $1.6 Billion Opioid Settlement
Shares of Mallinckrodt were sent on a wild ride Monday after it was reported the company was closing in on a $1.6 billion opioid settlement that would likely put its generics business into bankruptcy. This morning, the company confirmed a settlement structure and the bankruptcy proceedings.
Company stock fell more than 26% during trading Monday before it closed at $4.17 per share, down 18.44%. The stock has rebounded dramatically this morning though in premarket trading, which erased those losses. In early trading, shares of the company are up more than 50% to $6.22 after Mallinckrodt posted strong fourth-quarter earnings and released its plan to settle the opioid claims.
On Monday, the Wall Street Journal first reported that Mallinckrodt had begun confidential discussions with its creditors regarding the potential bankruptcy. According to the report, a bankruptcy filing of the company’s generic business would allow Mallinckrodt to address debt payments and liabilities regarding the opioid lawsuits the company is involved with. This morning, the U.K.-based company officially announced it had reached an agreement to settle the opioid lawsuits for $1.6 billion that would resolve all outstanding claims against the company. Additionally, Mallinckrodt confirmed that its Specialty Generics subsidiary would file for Chapter 11 Bankruptcy. Mallinckrodt plc and its Specialty Brands-related subsidiaries would not be part of the Chapter 11 filing, the company said in its announcement.
In September, Mallinckrodt hired restructuring advisers to help limit its liabilities regarding the opioid settlement and a potential restructuring. The opioid litigation had caused some concern at the company, including a suspension of its plans to spin off its generics business into a standalone entity due to the opioid litigation, as well as “market conditions.”
Under terms of the settlement announced this morning, the court-supervised process will lead to the creation of a trust, which, as the company said, will “establish an abatement fund to offset the expense of helping to combat opioid addiction and providing support to communities impacted by opioid abuse.” The court-supervised process is also expected to resolve all opioid-related claims against Mallinckrodt and its subsidiaries, the company said.
In its outline of the plan, Mallinckrodt said the plaintiffs against the company will receive $1.6 billion in structured payments. Of that, $300 million will be received upon the Specialty Generics emergence from bankruptcy, and $200 million would be received on the first and second anniversary of that emergence. Another $150 million will be paid annually on the third through eighth anniversaries of the bankruptcy emergence, the company said. The funds would be paid into the trust that will administer them to cover the costs of opioid-addiction treatment and related efforts, Mallinckrodt said. In addition to the $1.6 billion in payments, when the Specialty Generics business emerges from the Chapter 11 process, the trust will receive warrants to purchase shares that would represent approximately 19.99% of the business.
In addition to the settlement and bankruptcy, Mallinckrodt entered into a debt refinancing agreement, including an $800 million loan that will be used to repay some outstanding debt and acquire some outstanding stocks.
Mark Trudeau, president and chief executive officer of Mallinckrodt, said reaching the agreement and undergoing debt refinancing are important steps moving the company forward.
“Importantly, when finalized, we believe the proposed settlement and capital restructuring activities will provide us with a clear path forward to achieving our long term strategy, preserving value for our financial stakeholders and providing us with the flexibility to operate effectively,” Trudeau said in a statement.
Trudeau continued but adding that, while the company has had some uncertainties, it has delivered strong earnings and has a strong pipeline that continues to “build momentum.” Trudeau said the company anticipates seeking regulatory approval of terlipressin and StratGraft in the coming months, as well as the completion of key clinical study results and data readouts across the portfolio.