Giant opiate producer Mallinckrodt could soon be completely worthless, analyst says
- Patrick Trucchio, one of two remaining analysts covering drugmaker Mallinckrodt, lowered his price target to $1 and said the company shares could fall to $0.
- Shares fell to an all-time low on the news. The stock has fallen more than 85% this year as Mallinckrodt has been criticized for its role in the opioid crisis.
- The downgraded rating is due to increased litigation risk for the company. Trucchio raised his assumption of liability to $3 billion from $1.5 billion for the company.
- Watch Mallinckrodt trade live on Markets Insider.
Mallinckrodt, a pharmaceutical company, could fall to $0 in the worst-bear case scenario according to a Tuesday note from Patrick Trucchio of Berenberg.
In early trading Tuesday, shares of the company fell to an all-time low of $2.28. The slide came after Trucchio, one of only two analysts that cover the company, lowered his price target for the company to $1 from $5, reiterated a "sell" rating on the shares, and warned that the stock could fall even further.Mallinckrodt's stock has plummeted more than 85% this year as the company has become ensnared in the national opioid crisis. It's among the entities that's been accused by states and cities of failing to stem the massive influx of highly addictive opioids into the US.
"The opiate litigation storm is speeding up," Trucchio wrote. "Adverse outcomes or read throughs from these trials may signal further losses to come for MNK and for all the opioid-iverse."
A number of key judgements have been handed down lately in cases about the makers of opioids. In a case in Oklahoma, Johnson & Johnson was ordered to pay $572 million for helping fuel the opioid epidemic. Purdue Pharma, the OxyContin producer, is also mulling a payout of $10 billion to $12 billion to resolve more than 2,000 opioid related lawsuits.
These cases increase the risk that other pharmaceutical companies like Mallinckrodt could face litigation in the future, according to Trucchio. The revised price target is because Trucchio raised his assumption of opioid-related liability to $3 billion from $1.5 billion.
Mallinckrodt has also been accused in a whistleblower lawsuit of bribing doctors and its own staff to increase prescriptions of Acthar, a drug for infantile spasms that became increasingly profitable for the company, Business Insider's Emma Court reported. Shares of Mallinckrodt dropped more than 14% when the news broke in April.If Mallinckrodt is involved in litigation relating to either issue, there's some worry that it would be able to pay out, according to Trucchio.
As it stands right now, the company's historically low stock price means it can't raise capital in the equity market. There's also is some fear that the company will not be able to meet its debt obligations, which Trucchio says would mean a bankruptcy filing is possible.
Mallinckrodt has more than $5 billion of debt, most of which will start to come due in 2020, according to Bloomberg. The company recently announced that it borrowed the final $95 million on its revolving credit line, meaning that it has no more capacity to borrow.