Mallinckrodt Puts Off Planned Generics Spinoff Amid Opioid Cases

Mallinckrodt Plc said it would suspend the spinoff of its specialty-generics business as it grapples with a wave of lawsuits related to opioid painkillers and a bruising marketplace for copycat medicines.

The company is still considering a range of options for splitting off the business and hopes to separate it “sooner rather than later” through a spinoff or sale, Chief Executive Officer Mark Trudeau said on a call with investors.

Mallinckrodt shares have fallen 60% this year on concern about the company’s possible exposure to litigation over the U.S. opioid crisis. They sank as much as 4.6% to $6.18 in New York trading on Tuesday.

Berenberg analyst Patrick Trucchio has estimated that generic-drug makers may be responsible for 30% of opioid-related liabilities, with Mallinckrodt facing a potential hit of as much as $6.4 billion. As of Monday, the company had a market capitalization of $543 million. It posted 2018 sales of $3.22 billion, according to data compiled by Bloomberg.

Mallinckrodt and several other pharmaceutical companies and drug distributors are defendants in lawsuits by state and local governments that have been consolidated before a federal judge in Ohio. The company hasn’t established legal reserves to address the litigation.

“At this point, there is only litigation risk, no litigation liability,” said Trudeau.

Numerous generic-drug makers have been struggling in recent years amid increasing competition and continued pressure in Washington to reduce U.S. prescription-drug spending. Mylan NV, one of the largest generics makers, agreed last week to a deal that would combine the company with Pfizer Inc.’s Upjohn unit.

Trudeau said the Mylan-Upjohn merger and other recent deal activity was “certainly less of a factor” in the decision to suspend the spinoff.

“We had always said that our plans to separate would somewhat depend on market conditions,” he said. “At the moment, market conditions are not favorable.”

The company also reported second-quarter results, raising its annual guidance for profit excluding some costs by 10 cents to as much as $8.70 a share.