Citron Research on Mallinckrodt PLC  MNK

Citron provides New PROOF (post-SALT Conference) why Mallinckrodt (NYSE:MNK) is on its way to ZERO.

Express Scripts lets the genie out the bottle!!!!

When Jim Chanos Speaks – Citron Listens.

First Enron, Then Valeant, Now Mallinckrodt.

Mallinckrodt is the most reviled company in the pharmaceutical industry. Its unsavory business practices have only survived in the “post Valeant” era because of the direct business support of Express Scripts, their “co-conspirator”.

Two weeks ago at the SALT conference in Las Vegas, legendary short seller Jim Chanos described this unholy alliance, likening the Express Scripts companies’ role to Valeant’s Philidor.

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While Express Scripts was supposed to protect the healthcare system from gouges like Acthar, they were actually distributing the drug through their CuraScript division, managing the hub that is tasked with getting approvals for the drug through their United BioSource division, and then making very healthy profits dispensing the drug through their specialty pharmacy Accredo.

Acthar's dependence on Express Scripts has been detailed for many years in the press:

Business Insider:

http://www.businessinsider.com/achtar-drug-shows-flaws-in-drug-pricing-payment-system-2017-2

New York Times:

https://www.nytimes.com/2016/12/23/business/drug-price-medicare-mallinckrodt-acthar.html

Barrons:

http://www.barrons.com/articles/express-scripts-unit-handles-high-priced-speciality-drugs-1448084792

Most recently, this alliance re-appears as Express Scripts has been added as a co-defendant in a lawsuit filed by the City of Rockford, Il., which accuses Mallinckrodt and Express Scripts of monopolistic practices and price gouging. The city accused the two of conspiring to charge over $54,000 a vial for the drug.

http://www.rockfordil.gov/media/pressreleases/2017.04.06_Complaint_FILED.pdf

http://www.businessinsider.com/rockford-sues-mallinckrodt-over-acthar-price-2017-4

Express Scripts has been kicked to the curb by their former largest customer, Anthem Healthcare. Worse, it is now being investigated by multiple Attorneys General for representing both the pharmaceutical companies and the insurance companies.

In the case of Acthar, while they were supposed to be protecting insurers from system abusers, they were actively obtaining authorizations and selling it thought their own "specialty" pharmacies.Those days are done. This Genie cannot be put back in the bottle.

Express Scripts Has FINALLY changed its stance on Acthar and the effect will send shares of Mallinckrodt to ZERO.

In an investor conference call for Express Scripts hosted by Citi last week, as a reaction to Mr. Chanos comments at the SALT Conference, Express Scripts was forced by analysts to explain their position on HP Achtar Gel.

https://ir.citi.com/l2GW3%2FspXqa99R2rvpFJS8QKZpf%2BRi62n5DFshd7bPciqQPr7uiAlekB%2FjbbEhWR

All insurance companies and Medicare take notice; these are the words of Express Scripts management, the lifeline of the Acthar cash machine.

No more editorializing.

Let's turn it over to Everett Neville, Senior Vice President, Supply Chain and Specialty Pharma:

“I don’t think it’s a very great – it’s a pretty poor drug with a very limited need and certainly Steve could comment…. “ -- Everett Neville, SVP Supply Chain and Specialty Pharma

““Completely, you know, and Steve, you could chime in here too, but I think Steve and I both would agree, and I think everybody in our company would agree, that the product is vastly overpriced for the value...” -- Everett Neville, SVP Supply Chain and Specialty Pharma

“I personally told their management team their drug is hugely overpriced. I know Steve has as well “ -- Everett Neville, SVP Supply Chain and Specialty Pharma

Then there are the words of Dr. Steve Miller, Chief Medical Officer, Express Scripts:

“If you look at the data, the indications for the drug are really – while it had, in the compendium, it’s listed under a lot of indications, its real use should be very, very limited. ITS AN OLD DRUG . THERE”S BETTER PRODUCTS IN THE MARKETPLACE and so we’re going to continue to be very vigilant in our utilization management.” -- Dr. Steve Miller, SVP Supply Chain and Specialty Pharma

Citron notes this comment stands in sharp contradiction to Daniel Yunger, a Mallinckrodt spokesman who told the NY Times 6 months ago, "Acthar is not a drug with no immediate competition."

https://www.nytimes.com/2016/12/23/business/drug-price-medicare-mallinckrodt-acthar.html?_r=0

In the same call Dr. Miller discusses a more responsible and efficient future for Express Scripts:

“Yes. So as you know, we have already told people that we are going after the multiple sclerosis market this next year….. Lots of things, lots of new entrants, but also drugs going generic and other things. We believe this is the perfect time in which we can start reining in this class that’s been a real expense driver for our plan sponsors. .” -- Dr. Miller, SVP Supply Chain and Specialty Pharma

So Express Scripts finally admits in a public forum that the drug is overprescribed with low efficacy and it is far too expensive.

The status quo cannot continue. There is nothing the analyst community can say or do to defend against these statements.

So Why Didn't the Market React?

Incredibly, the transcript for this damning conference call misspelled Acthar ["Aksar"] So the bots, website crawlers indexers, and the AI text analyzers hooked up to algo trading computers never picked it up.

That is why you have Citron.

Mallinckrodt PLC (MNK)

Article by Citron Research