The legal challenges at Mallinckrodt, the drugmaker Wall Street loves to hate, are piling up.
An employee of the company is suing the company and its leadership, alleging they lied about its dependence on its controversial blockbuster drug, Acthar.
The employee bought shares as part of the company’s stock purchase plan, so he’s also suing on behalf of the plan.
The complaint is that Mallinckrodt’s failure to disclose that up to 60% of Acthar’s revenue comes from Medicare and Medicaid put its revenues at greater risk than management led on. From the complaint:
Throughout the Relevant Period, Defendants made false and misleading statements and failed to disclose material adverse facts about the long-term sustainability of the Company’s monopolistic Acthar revenues and the exposure of Acthar to reimbursement rates by Medicare and Medicaid. Specifically, Defendants made false and/or misleading statements and/or failed to disclose that Acthar’s monopoly status as the only FDA-approved ACTH preparation was the product of unlawful anticompetitive practices and failed to disclose that its increasing reliance on Medicare and Medicaid meant that the Company’s monopolistic Acthar revenue would be threatened if the government took action to limit the price paid for this drug by taxpayers.
“While certain of its officers and current and former Directors of Mallinckrodt are named in the suit, we are confident that our executives and board members take their fiduciary duties very seriously,” the company said in an e-mailed statement, noting that the lawsuit was only being refiled in Missouri now after earlier being filed and withdrawn from a different venue.
True, but Wall Street has been pummelling Mallinckrodt over Acthar for more than a year, and as it has the bets against the stock have risen. By last month, such so-called short-sales accounted for one fifth of the stock’s free float, according to Reuters.
The drug dates back to the 1960s, before FDA required trials for approval, so it was grandfathered into approval status. That means the drug has yet to undergo the kind of clinical trials required today for many of the indications that it is prescribed for.
It used to be really cheap, but it now costs almost $US38,000, and Mallinckrodt acquired it when it bought a company called Questcor. The company’s already agreed to pay $US100 million to settle allegations that Questcor broke antitrust laws as it raised the price of Achtar while keeping competitors out of the market.
If the employee lawsuit seems uncommon, Mallinckrodt is also being sued by the city of Rockford, Illinois over the cost of Acthar.
But the list of complaints about Acthar, raised by short sellers who profit from its decline as well as academics and lawmakers focused on drug pricing, is longer than that. I’ve written about them all.
These include that:
- Only 1% of doctors in the country prescribe Acthar, yet it is one of Medicare’s biggest spends (in the top 20 among drug costs in 2015).
- The fact that it’s one of Medicare’s big spends is weird since the primary use of the drug is for infants and that program is for the elderly. Senators have been asking questions about that.
- Mallinckrodt has a cosy, questionable relationship with Express Scripts, a pharmacy benefit manager that handles Acthar’s sales, distribution and any charitable need a patient might have. The Feds are also looking into Express Scripts for its dealings with pharmaceutical manufacturers and its clients.
Earlier this week a judge invalidated a number of Mallinckrodt patents on INOmax, a respiratory treatment for babies that made up 15% of its revenue — a move that would only serve to increase exposure to Acthar.
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