Andrew Left, a short-seller and editor of Citron Research called Mallinckrodt as a poster child for price gouging during an interview with CNBC’s Fast Money: Halftime Report today.
Mallinckrodt worse than Valeant
Yesterday, the stock price of Mallinckrodt suffered a huge decline (as much as 18.47%) after Mr. Left tweeted that the company is a “far worse offender” of the reimbursement system than Valeant Pharmaceuticals. He added that the company has more downside than Valeant at its current price.
During the interview, Mr. Left reiterated, “Mallinckrodt is not Valeant, it is worse.” The short-seller recently accused Valeant of accounting fraud. According to him, Valeant created fraudulent sales and inflated its growth rate using pharmacies including Philidor RX Services. He also stated that Valeant’s stock price has a better chance of going zero than Herbalife.
Last year was a banner year for hedge funds in general, as the industry attracted $31 billion worth of net inflows, according to data from HFM. That total included a challenging fourth quarter, in which investors pulled more than $23 billion from hedge funds. HFM reported $12 billion in inflows for the first quarter following Read More
The shares of Valeant plunged from its highest level of $263.81 per share to its current trading price if $83.65 per share, down 2% around 3:02 PM in New York.
When asked if he was just repackaging an old story to take advantage of new stories regarding Valeant and drug pricing and other issues, Mr. Left said he put thousands of hours researching about Achthar, Questcor, and Mallinckrodt. He admitted that he has been writing reports about Mallinckrodt in recent years, and he’s been shorting the stock “on and off.”
He said, “Being a short-seller, you’ve been burdened with being right and the right timing.” He emphasized that the right timing is not always there, but it doesn’t mean that the information is wrong. He added, “It just means it wasn’t the right timing at the time. What makes this more compelling than anything else out there is you see my research actually playing out.”
Left questions Mallinckrodt’s Acthar sales
He questioned whether Mallinckrodt’s represented the efficacy of H.P. Acthar Gel, a high-priced specialty drug for infantile spasm and certain autoimmune conditions.
He questioned the company’s sales of the drug and indicated that Mallinckrodt may have problems with reimbursement from insurance companies.
Mallinckrodt reported a nearly 50% increase in net sales to $965 million for the third quarter driven by the inclusion of Acthar. Mr. Left noted that Mallinckrodt was supposed to report in its proxy statement around $1.5 billion in sales of Acthar, but the number came in less than a billion dollar. He said, “that’s a colossal miss.”
Furthermore, Mr. Left emphasized that Acthar is a 65 years old drug that has no real clinical trial behind it since 1952. He said Mallinckrodt is price gouging at $27,000 per vial of Achtar.
The New York Times reported that Achtar’s price went up from $40 to more than $28,000 per vial over the past ten years.
Mallinckrodt hits back at Citron Research
On the other hand, Mallinckrodt CEO Mark Trudeau hist back at Citron Research during a separate interview with CNBC. He rejected that Mr. Left’s argument that the company would face challenges reimbursing Achtar.
Mr. Trudeau pointed out that Acthar is used by patients with very limited options. He added that the original price hike on the specialty drug happened eight years ago before it was acquired by Mallinckrodt.
According to him, the average cost increases for Acthar was only 5% annually, and the company’s profit margins from the drug did not increase since its acquisition. Mr. Trudeau added that Mallinckrodt continues to invest in research to expand Acthar’s use.
The stock price of Mallinckrodt surged more than 7% to $62.44 per share at the time of this writing around 3:42 PM in New York.