If you think Valeant (VRX) is bad, it may be worth taking another look at Mallinckrodt (MNK).
Shares of the Dublin-based pharmaceutical company are down 52% over the last year and fell as much as 10% in Tuesday's trading. Mallinckrodt attracted media attention in November after known short-seller Andrew Left of Citron Research said on CNBC that one of the company's drugs, Acthar, was the "poster child" of price gouging.
"Mallinckrodt is squeaking by without anyone talking about it. Mallinckrodt makes Valeant look like a bunch of choirboys," Left said in an interview with Real Money on Tuesday.
Acthar is a drug that is used to treat seizures in babies. Mallinckrodt acquired rights to the drug through its $5.9 billion acquisition of Questcor in August 2014. In acquiring Questcor, Mallinckrodt also acquired a legacy of problems.
In 2013 Questcor acquired Synacthen Depot, the synthetic version of Acthar, from Novartis (NVS) for $135 million. The acquisition raised two concerns. First, it was seen as a way for Questcor to step over a lower-cost competitor. Second, the acquisition was under investigation by the federal government to see if the deal violated antitrust laws.
Acthar had attracted attention before. In 2012, The New York Times reported that the price of Acthar shot up to $23,000 a vial in 2007 from $1,650. In the report, the Times said that Questcor raised the price of the drug because it was losing money on it, as the drug's market had only 800 patients a year. Today, a vial costs more than $30,000.
Synacthen also had its own issues tied to price gouging. In November, Real Money report that the price of Synacthen in Canada rose to $680 a vial from $33.05. Mallinckrodt told Real Money that it had been losing money on the drug and was faced with the decision of taking the drug off the market or investing in its future.
Still, the efficacy of the drugs, Acthar and Synacthen, have never been compared against each other, Left said in an interview with Real Money in November. Instead, the drugs have only been tested against a placebo, which Left says is insufficient for determining the proper standard of care. While it is indeed true that the generic and synthetic form of a drug may not treat an illness in the same manner, it would seem to make sense that they be tested against each other -- especially when there is such a steep difference in price.
Amid the difficulties posed by Acthar and Synacthen, Mallinckrodt has not been able to do what investors expected it to do, which is deliver growth through M&A and also organically.
Additionally, the company has a total debt load of $6.5 billion, which is rated below investment grade at BB- by Standard & Poor's Ratings Services.
"At least Valeant can say, 'Hey, look at our products.' Mallinckrodt has one product that's never been tested," Left said, referring to Acthar.