Mallinckrodt pursues core quest with Questcor merger
This article was originally published in Scrip
Executive Summary
Just nine months after spinning out from Covidien, Mallinckrodt is maintaining its ambition to grow its speciality pharma business aggressively with the planned $5.6bn merger with Questcor Pharmaceuticals. The announcement came only weeks after Mallinckrodt closed its $1.3bn acquisition of Cadence Pharmaceuticals (www.scripintelligence.com, 12 February 2014) and continues to fulfil the commitment Mark Trudeau, Mallinckrodt’s president and CEO, made to investors and analysts last fall.
Just nine months after spinning out from Covidien, Mallinckrodt is maintaining its ambition to grow its speciality pharma business aggressively with the planned $5.6bn merger with Questcor Pharmaceuticals. The announcement came only weeks after Mallinckrodt closed its $1.3bn acquisition of Cadence Pharmaceuticals (www.scripintelligence.com, 12 February 2014) and continues to fulfil the commitment Mark Trudeau, Mallinckrodt’s president and CEO, made to investors and analysts last fall.
“With regards to acquisitions, the way we think about this is there is clearly opportunity for us to enhance and significantly enhance shareholder value through doing targeted acquisitions. We’ve got sufficient financial flexibility, resources and capability to take on acquisitions that could either be tuck-in or potentially transformational,” Mr Trudeau told analysts and fund managers at an investors briefing convened by the company 14 November.
By merging with Questcor, Mallinckrodt will maintain its strategic ambition of building a branded specialty pharma business by adding Acthar, a self-injectable corticotropin gel, approved by the FDA for 19 indications, although primarily prescribed for the treatment of multiple sclerosis relapses in adults, proteinuria associated with nephrotic syndrome, certain rheumatology-related conditions, and infantile spasms.
In 2013, Acthar net sales totalled $761m, up from $509m in 2012 and $218m in 2011, and represented about 95% of Questcor’s business. Interestingly, Don Matthew Bailey, Questcor’s president and CEO, conceded to delegates, at the recent JPM meeting, that Acthar’s market penetration in many of these markets was very modest if not very low and so has potential to grow. Moreover, in June 2013, Questcor acquired from Novartis rights to develop and commercialize the melanocortin therapeutic Synacthen in the US and certain other markets.
Commenting on the transaction, Mr Trudeau said: "After significant due diligence, we have concluded that Questcor is another ideal strategic fit with Mallinckrodt. With the exceptional talent and expertise Questcor brings, combined with the financial strength, portfolio breadth and geographic reach of the combined company, we believe we are now well on our way to becoming a leader in the development and commercialization of specialty therapeutics around the world."
Under the terms of the transaction, Questcor shareholders will receive $30.00 per share in cash and 0.897 Mallinckrodt shares for each share of Questcor common stock they own, for a total approximate consideration of $86.10 per Questcor share. Following completion of the merger, Mallinckrodt shareholders will own approximately 50.5% and former Questcor shareholders will own approximately 49.5% of the combined company's stock.
Based on the closing price of Mallinckrodt and Questcor on 4 April, 2014, the total per share consideration represents a premium of approximately 27% per share over Questcor's stock price, and a premium of approximately 33% over Questcor's trailing 20-trading-day volume-weighted average price.