Andrew Left: Dump Mallinckrodt

 | Nov 16, 2016 | 12:25 PM EST
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Famed short-seller Andrew Left of Citron Research told  Real Money on Wednesday it's time to dump Mallinckrodt (MCK)   , giving the Irish pharmaceuticals giant a $20 price target vs. the stock's Tuesday close at $67.77 a share.
 
"The Republicans want to dismantle Medicare, they want the right to negotiate drug prices -- and Mallinckrodt might be the dose that the party needs to dismantle Medicare," Left said in an interview with Real Money ahead of releasing a  scathing analysis of the firm.
 
Left has long been short on MNK, and his report helped drive the stock down 12% to close Wednesday at $59.65. Mallinckrodt did not immediately respond to a request for comment, but Left wrote in his analysis that "President-Elect Trump has made it a promise to cut waste, fraud, and abuse from the government's health-care reimbursement system. With Medicare's own data, Citron has now proven that Mallinckrodt is the embodiment of all three."
 
He predicted that Mallinckrodt was about to take a serious blow to its earnings because the U.S. government's Centers for Medicare & Medicaid Services (CMS) this week listed the company's chief drug, H.P. Acthar Gel, as the most expensive drug that Medicare and Medicaid cover. The CMS reported that the government spent $162,371 per patient on H.P. Acthar Gel in 2015 -- or more than $503 million in total.
 
Left also wrote that Medicare and Medicaid represent 61% of sales for H.P. Acthar Gel, which treats multiple sclerosis and lupus. He told Real Money that Mallinckrodt is "an over-levered company that's really dependent on one drug -- and their one drug has just been exposed as one of the most expensive drug by Medicare reimbursement. ... Of all the drugs in the universe, which one has the highest cost to the government? H.P. Acthar Gel."
 
On the leverage front, Mallinckrodt last booked about $6.3 billion in long-term debt vs. just a $199 million profit in its fiscal third quarter.
 
Left has previously slammed H.P. Acthar Gel for exorbitant price hikes, saying it's particularly at risk to a U.S. government crackdown on drug-price hikes that has so far focused on companies such as Mylan (MYL) and Valeant Pharmaceuticals (VRX) . The short-seller told Real Money on Tuesday that H.P. Atchar Gel "dwarfs" Mylan's controversial EpiPen in terms of sales, and that he believes the drug hasn't sufficiently proven its efficacy in clinical trials. In fact, Left said in a May interview on CNBC's Halftime Report that he would donate $1 million to a charity of choice if Mallinckrodt conducted a proper clinical study on the flagship drug.

Acthar is Mallinckrodt's top-selling product, representing 31% of the company's second-quarter net sales, based on its most recent filing with the Securities and Exchange Commission. As Left told Real Money this summer: "The company lives and breathes on Acthar."

(This column has been updated to reflect Mallinckrodt's closing stock price.)

 

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