Citron's latest target has two critical things in common with Valeant

Mallinckrodt Pharmaceuticals is going the way of Valeant.

The company’s stock fell by more than 22% after Citron Research tweeted:

Citron’s Andrew Left has grabbed investor’s attention recently as a short-seller who triggered a massive drop in Valeant Pharmaceutical’s share price, after he questioned whether it was an Enron-like fraud. Valeant has rejected the charge and Left hasn’t proven any fraud took place at the Canadian company.

But he did draw attention to two aspects of Valeant’s business model that investors had been questioning for some time: that it depends on debt-fuelled acquisitions and huge increases in drug prices to sustain growth.

Certainly in its short life as an independent company — Mallinckrodt was spun out of Covidien in 2013 — the company has imitated Valeant in several ways.

The company has struck over $US10 billion of acquisitions in the past two years, according to Bloomberg, and like Valeant, it is being scrutinised for price gouging, the practice of buying an older drug with little or no competition and drastically raising the price.

After Hilary Clinton tweeted about the issue of price gouging in in SeptemberMorgan Stanley analysts flagged Mallinckrodt is one of the pharmaceutical companies at high risk amid the scrutiny. 

“The market has been so focused on Valeant that they forgot about other platform companies who are levered and face the same headwinds in reimbursement,” Left told Business Insider’s Julia La Roche.

According to Mallinckrodt’s website, its products treat patients with pain, central nervous system disorders, autoimmune diseases, and rare diseases. It’s considered a specialty pharmaceutical company because it markets and develops drugs that are often complicated to administer or have small patient populations. 

Mallinckrodt has been called out for purchasing a company that makes injectable acetaminophen, a painkiller used in liquid form (acetaminophen is also known as Tylenol in tablet form), and then doubling the price of the drug. Bloomberg reports this price increase put hospitals that administer the drug in a tight spot. The drug rose from 17.70 per vial at the time it was purchased to $US42.48 a vial after the deal went through.

“Mallinckrodt generally does not respond to market speculation,” a spokesperson for the company said in an emailed statement. “That said we are fully confident in our business model and remain focused on executing on our long-term growth strategy. We very much look forward to reporting our fourth quarter earnings results on November 23, followed by our scheduled Investor Briefing on December 7.”

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