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General Category => Investment Ideas => Topic started by: Stuart D on August 28, 2019, 01:53:12 AM

Title: MNK - Mallinckrodt
Post by: Stuart D on August 28, 2019, 01:53:12 AM
Pharma company Mallinckrodt (MNK) has entered equity stub territory, with a Trailing twelve month FCF ~$500m and a market cap of ~$300m.

Total liabilities are $7.1b, current assets $1.2b, current liabilities $1.5b.

Their stock plunged 15% yesterday after they lost an appeal in a patent dispute. The patent was over "Inomax" which represents close to 17% of MNK's revenue.

I went through Mallinckrodt's 10-K's from 2013 - 2018 to get an idea of their revenue streams. Revenue percentages below for each of MNK's brands for 2018 (I tried to upload a table but couldn't get the formatting right).

1. 34% H.P. Acathar Gel
2. 17% Inomax
3. 14% "Other Revenue" (I would need to spend some time digging to find out what's in this bucket.)
4. 11% Ofirmev
5. The remaining 24% is made up of 6 brands (Hydrocodone, Oxycodone, Acetaminophen, Amitiza, Therakos, Bio Vectra)

So, while the patent decision on Inomax is bad, I'm not sure if the drop in share price was fully justified given their revenue seems somewhat diversified.

There is high uncertainty around litigation. A couple of days ago Johnson and Johnson were fined $572m for their role in opoids. Mallinckrodt also has opoid lawsuits.

Interest expense for 2018 was $370m. I suppose the question is whether they can continue to cover this amount. If they can, it could be a good buy.

I don't know much about pharma, but I'm a sucker for stocks with P/FCF < 1.
Is anyone else watching this space?
Title: Re: MNK - Mallinckrodt
Post by: kab60 on August 28, 2019, 02:37:36 AM
I've been following Teva pretty closely. They had their blockbuster (Copaxone) come off patent which has been a big hit, but new drugs are about to make up for the continueed losses, so their revenues are expected to start growing a bit. I think it's very tricky to invest in equity stubs if revenues are falling off the cliff.

Anything interesting on the way form Mallinckrodt in the form of new drugs?

Otherwise I think it might be a donut from the numbers you posted. Look at where the bonds trade. They got 700m coming up in 2020, and I don't see how they'd be able to refi if they'll lose 17 pct. of revenue going forward - plus there's litigation risk.

Teva has had a lot of cost levers to pull following a disastrous acquisiton, and there should be more on the way.

I think Teva will survive, but I still haven't felt one gets compensated quiet enough just yet (3xPE, 33 pct. FCF yield).

They also have some debt maturities coming up which adds a joker in that if capital market get rough, their interest will increase quiet a bit, and with almost 30B of debt and 3B FCF, they might be quiet sensitive to higher interest.
Title: Re: MNK - Mallinckrodt
Post by: InelegantInvestor on August 28, 2019, 04:28:40 AM
Between Acthar and opiods, this is too risky to touch. The equity could easily be wiped out in a blink.
Title: Re: MNK - Mallinckrodt
Post by: DeepSouth on August 28, 2019, 06:19:56 AM
Pharma company Mallinckrodt (MNK) has entered equity stub territory, with a Trailing twelve month FCF ~$500m and a market cap of ~$300m.

Total liabilities are $7.1b, current assets $1.2b, current liabilities $1.5b.

Their stock plunged 15% yesterday after they lost an appeal in a patent dispute. The patent was over "Inomax" which represents close to 17% of MNK's revenue.

I went through Mallinckrodt's 10-K's from 2013 - 2018 to get an idea of their revenue streams. Revenue percentages below for each of MNK's brands for 2018 (I tried to upload a table but couldn't get the formatting right).

1. 34% H.P. Acathar Gel
2. 17% Inomax
3. 14% "Other Revenue" (I would need to spend some time digging to find out what's in this bucket.)
4. 11% Ofirmev
5. The remaining 24% is made up of 6 brands (Hydrocodone, Oxycodone, Acetaminophen, Amitiza, Therakos, Bio Vectra)

So, while the patent decision on Inomax is bad, I'm not sure if the drop in share price was fully justified given their revenue seems somewhat diversified.

There is high uncertainty around litigation. A couple of days ago Johnson and Johnson were fined $572m for their role in opoids. Mallinckrodt also has opoid lawsuits.

Interest expense for 2018 was $370m. I suppose the question is whether they can continue to cover this amount. If they can, it could be a good buy.

I don't know much about pharma, but I'm a sucker for stocks with P/FCF < 1.
Is anyone else watching this space?

The sub bonds trade in the 40s/50s. Acthar is a terminally declining scam facing litigation. Inomax will face terminal decline. They are one of the opioid kingpins in the US and could be the only large public player to get bk'd by settlements.

If you want to own risk like this, Endo probably better. At least it's a real company.
Title: Re: MNK - Mallinckrodt
Post by: havingheart on August 28, 2019, 10:26:24 AM
https://twitter.com/apark_/status/1151888329589383170?s=20
Title: Re: MNK - Mallinckrodt
Post by: Stuart D on August 28, 2019, 11:43:50 PM
Anything interesting on the way form Mallinckrodt in the form of new drugs?

From having a look through MNK's most recent 10-K (2018) and 10-Q's (Mar & June, 2019), it seems there are 4 drugs currently in the pipeline:
- Terlipressin (phase 3)
- Stratagraft (phase 2 and phase 3)
- Xenon gas for inhalation(phase 3)
- MNK-6105/6106 ("Currently working with the FDA to initiate phase 3 trials")

Note: Terlipressin and Xenon were described in the 10-K but not the 10-Q's.
Title: Re: MNK - Mallinckrodt
Post by: Stuart D on August 29, 2019, 12:05:58 AM

The sub bonds trade in the 40s/50s. Acthar is a terminally declining scam facing litigation. Inomax will face terminal decline. They are one of the opioid kingpins in the US and could be the only large public player to get bk'd by settlements.

If you want to own risk like this, Endo probably better. At least it's a real company.

Where did you find a quote on the sub bonds?

I could find some of their debt at the cbonds website, e.g.   http://cbonds.com/emissions/issue/163639

But I didn't see any prices in the 40s/50s.
Thanks,
Title: Re: MNK - Mallinckrodt
Post by: DeepSouth on August 29, 2019, 08:33:07 AM

The sub bonds trade in the 40s/50s. Acthar is a terminally declining scam facing litigation. Inomax will face terminal decline. They are one of the opioid kingpins in the US and could be the only large public player to get bk'd by settlements.

If you want to own risk like this, Endo probably better. At least it's a real company.

Where did you find a quote on the sub bonds?

I could find some of their debt at the cbonds website, e.g.   http://cbonds.com/emissions/issue/163639

But I didn't see any prices in the 40s/50s.
Thanks,

bloomberg terminal broker runs:
'23s offered 46
'25s offered <50
'24 TLB offered 77
Title: Re: MNK - Mallinckrodt
Post by: Jurgis on August 29, 2019, 08:41:14 AM
Fido has some 2023 at ~$45.
Title: Re: MNK - Mallinckrodt
Post by: Stuart D on August 29, 2019, 10:58:50 PM
Thank you!
Title: Re: MNK - Mallinckrodt
Post by: Stuart D on August 30, 2019, 01:29:31 PM
I know the litigation is extremely negative, but it seems like they still have options before the $700m bonds mature:

- If the bonds are trading at 50, they could start buying back large chunks now;
- They own 11 facilities across the U.S., Canada, Ireland and Japan totaling ~2.3 million square feet. They could sell some facilities, or pursue sale and lease-backs;
- They have $500m in receivables. They could use factor financing if the company gets desperate closer to the maturity date; and finally
- They still have 6+ months to cut back on CapEx and generate FCF.
Title: Re: MNK - Mallinckrodt
Post by: havingheart on September 04, 2019, 02:36:48 PM
https://seekingalpha.com/news/3497166-mallinckrodt-minus-23-percent-reportedly-taps-restructuring-firms
Title: Re: MNK - Mallinckrodt
Post by: Gregmal on September 04, 2019, 03:54:14 PM
I'd been looking at this space, and the big 3(TEVA, MNK, ENDP) and last Friday decided to buy a little ENDP and TEVA for shits. As much as I wanted to buy MNK, its just such a garbage company riddled with self inflicted wounds, horrible acquisitions, and questionable offerings. I think Endo probably ends up a 0 as well, although Par IMO is potentially worth as much as all of the current EV. Obviously this isn't including any opioid related liability. Which I still can't really handicap, because Im not quite sure what these companies did wrong here? Market their product? If anything people should be suing the FDA...
Title: Re: MNK - Mallinckrodt
Post by: roark33 on September 04, 2019, 06:18:43 PM
Stock down 50% in after hours, this company is probably going to file for bankruptcy before this thread hits 20 messages. 
Title: Re: MNK - Mallinckrodt
Post by: Stuart D on September 04, 2019, 11:09:10 PM
Im not quite sure what these companies did wrong here? Market their product? If anything people should be suing the FDA...

^good point. I hadn't thought of it like that before.
Title: Re: MNK - Mallinckrodt
Post by: Stuart D on September 04, 2019, 11:37:38 PM
Stock down 50% in after hours, this company is probably going to file for bankruptcy before this thread hits 20 messages.

^It's falling so quickly!

Just a thought... if the probability of bankruptcy is 90%, at what price is the equity worth it? e.g. Market cap = $10m?
If the equity survives & you got in at $10m it's a potential 100-bagger.

Title: Re: MNK - Mallinckrodt
Post by: UK on September 05, 2019, 12:41:36 AM
I'd been looking at this space, and the big 3(TEVA, MNK, ENDP) and last Friday decided to buy a little ENDP and TEVA for shits. As much as I wanted to buy MNK, its just such a garbage company riddled with self inflicted wounds, horrible acquisitions, and questionable offerings. I think Endo probably ends up a 0 as well, although Par IMO is potentially worth as much as all of the current EV. Obviously this isn't including any opioid related liability. Which I still can't really handicap, because Im not quite sure what these companies did wrong here? Market their product? If anything people should be suing the FDA...

If opioids was the only problem to figure out, than maybe ENDP but especially TEVA would be very interesting. But I am not sure what to think about their generic part of the businesses. I remember years ago generics traded at the premium (growing new market etc), but it seems this business never lived up to the expectations and in the last 2-3 years its economics resembles more oil&gas or shipping, than some kind of sustainable competitive low cost manufacturing. Maybe this is/will change, but I just have no idea how to handicap this question?
Title: Re: MNK - Mallinckrodt
Post by: scorpioncapital on September 05, 2019, 12:49:26 AM
I think MYL is a safer bet. And their merger with Upjohn I think it's cheap but less distressed than TEVA.
Title: Re: MNK - Mallinckrodt
Post by: Gregmal on September 05, 2019, 05:30:43 AM
I'd been looking at this space, and the big 3(TEVA, MNK, ENDP) and last Friday decided to buy a little ENDP and TEVA for shits. As much as I wanted to buy MNK, its just such a garbage company riddled with self inflicted wounds, horrible acquisitions, and questionable offerings. I think Endo probably ends up a 0 as well, although Par IMO is potentially worth as much as all of the current EV. Obviously this isn't including any opioid related liability. Which I still can't really handicap, because Im not quite sure what these companies did wrong here? Market their product? If anything people should be suing the FDA...

If opioids was the only problem to figure out, than maybe ENDP but especially TEVA would be very interesting. But I am not sure what to think about their generic part of the businesses. I remember years ago generics traded at the premium (growing new market etc), but it seems this business never lived up to the expectations and in the last 2-3 years its economics resembles more oil&gas or shipping, than some kind of sustainable competitive low cost manufacturing. Maybe this is/will change, but I just have no idea how to handicap this question?

Yea I honestly don't know. Much of the sector has just been flipped upside down the last few years. Were the valuations prior reasonable? Or is the system really broken and therefor the entire universe of players needs to be reset? When an entire sector gets bombed Ive always found it prudent to start sniffing around. A bunch of these companies have lost like 80% of their value in a couple months. Largely for issues relating to the entire field. I've started looking around at a bunch of companies but that's really the million dollar question. VRX was just the big noise maker, but structurally many of these companies operated similarly, with huge leverage and stale portfolios of products.

Regarding opioid issues, outside of what Ive already said above, you'd also have to think that if the objective is to get large settlements, there would be a noted effort to seek resolution that didn't involve bankrupting companies....MNK can be the headline "we took a hardline and Bk'd one of the bad guys" sacrificial lamb, but if all of them follow suit no one will get any money.
Title: Re: MNK - Mallinckrodt
Post by: Spekulatius on September 05, 2019, 06:45:02 PM
I donít see how MNK, TEVA and others involved in this can avoid bankruptcy. When you look at the verdict against  JNJ, which didnít  even have a meaningful market share, it is clear that the weakly capitalized companies which have orders of magnitude larger exposure are probably getting restructured :
https://finance.yahoo.com/news/johnson-johnson-apos-opioid-case-222826349.html (https://finance.yahoo.com/news/johnson-johnson-apos-opioid-case-222826349.html)

FWIW, I owned a good sized position in MCK but sold it recently because I canít handicap the exposure.
Title: Re: MNK - Mallinckrodt
Post by: UK on September 05, 2019, 09:11:45 PM
https://seekingalpha.com/article/4289885-mallinckrodt-plcs-mnk-presents-wells-fargo-securities-2019-healthcare-conference-transcript?part=single
Title: Re: MNK - Mallinckrodt
Post by: Stuart D on September 05, 2019, 11:30:47 PM
https://seekingalpha.com/article/4289885-mallinckrodt-plcs-mnk-presents-wells-fargo-securities-2019-healthcare-conference-transcript?part=single

^Thanks for posting.

According to one of the comments following the article, MNK can buy back the Apr-2020 debt, however they need to pay 101%. I guess that explains why they are not buying it back ferociously at the moment...
Title: Re: MNK - Mallinckrodt
Post by: Gregmal on September 06, 2019, 05:11:28 AM
I donít see how MNK, TEVA and others involved in this can avoid bankruptcy. When you look at the verdict against  JNJ, which didnít  even have a meaningful market share, it is clear that the weakly capitalized companies which have orders of magnitude larger exposure are probably getting restructured :
https://finance.yahoo.com/news/johnson-johnson-apos-opioid-case-222826349.html (https://finance.yahoo.com/news/johnson-johnson-apos-opioid-case-222826349.html)

FWIW, I owned a good sized position in MCK but sold it recently because I canít handicap the exposure.

The key with the lawsuits is behavior. JNJ paid what they did because they actively, and most importantly deliberately lied to the public. Same with Purdue. I don't know MNK, TEVA, ENDP in regards to how egregious their market efforts where in relation to the others. Partially, I would think generics have less risk simply because they dont spend as much on marketing as the brands names. Every time Ive been to the doctor and gotten prescribed something, they always same the branded name but when you get to the pharmacy 80% of the time you get a generic. So where does the liability lay? As you said, its just too hard to handicap.

Also, the author of the Yahoo article talks up the risks with all these companies and then recommends investors buy Abbvie if they want to avoid the opioid wreckage!!! IMO AGN will go down as one of the worst acquisitions in recent memory, even if they see little harm despite being the #2 producer of pain pills in the world.
Title: Re: MNK - Mallinckrodt
Post by: DeepSouth on September 06, 2019, 07:45:02 AM
I donít see how MNK, TEVA and others involved in this can avoid bankruptcy. When you look at the verdict against  JNJ, which didnít  even have a meaningful market share, it is clear that the weakly capitalized companies which have orders of magnitude larger exposure are probably getting restructured :
https://finance.yahoo.com/news/johnson-johnson-apos-opioid-case-222826349.html (https://finance.yahoo.com/news/johnson-johnson-apos-opioid-case-222826349.html)

FWIW, I owned a good sized position in MCK but sold it recently because I canít handicap the exposure.

JNJ got slapped with a huge verdict because they have a huge balance sheet and AAA rating. You can't squeeze blood from a stone and if plaintiffs push companies into filing they're screwed because civil judgments are subordinated to opco guaranteed senior debt. That's also why the distis are in a tough spot with IG rated balance sheets and reasonably low leverage, plenty of room to hammer them. In other words, if looking for max $, plaintiffs should be looking to keep companies solvent and settle for long term payouts that are manageable. Munis/states could structure these payments into up front muni bonds if they want up front $. This is easiest for TEVA (although TEVA bonds are subordinate finco issued) and ENDP which have real businesses. MNK and Purdue are dying scams which is why they are far more likely to file.
Title: Re: MNK - Mallinckrodt
Post by: Leverage Capabilities on September 08, 2019, 05:47:19 PM
I donít see how MNK, TEVA and others involved in this can avoid bankruptcy. When you look at the verdict against  JNJ, which didnít  even have a meaningful market share, it is clear that the weakly capitalized companies which have orders of magnitude larger exposure are probably getting restructured :
https://finance.yahoo.com/news/johnson-johnson-apos-opioid-case-222826349.html (https://finance.yahoo.com/news/johnson-johnson-apos-opioid-case-222826349.html)

FWIW, I owned a good sized position in MCK but sold it recently because I canít handicap the exposure.

The key with the lawsuits is behavior. JNJ paid what they did because they actively, and most importantly deliberately lied to the public. Same with Purdue. I don't know MNK, TEVA, ENDP in regards to how egregious their market efforts where in relation to the others. Partially, I would think generics have less risk simply because they dont spend as much on marketing as the brands names. Every time Ive been to the doctor and gotten prescribed something, they always same the branded name but when you get to the pharmacy 80% of the time you get a generic. So where does the liability lay? As you said, its just too hard to handicap.

Also, the author of the Yahoo article talks up the risks with all these companies and then recommends investors buy Abbvie if they want to avoid the opioid wreckage!!! IMO AGN will go down as one of the worst acquisitions in recent memory, even if they see little harm despite being the #2 producer of pain pills in the world.


No view on the abbv/agn deal but AGN's opioid exposure is actually pretty low (relative to others). They sold the generics business to Teva and have an indemnification for any liabilities. The indemnification comes up in both the purchase agreement as well as an agreement related to a working capital adjustment dispute (in this one it specifically calls out the opioid liability. On the branded side, most of they are indemnified by Pfizer for most of it (although this is currently being disputed in NY courts) for everything before i think 2008 and AGN has said they really didn't do much marketing once they acquired the portfolio.
Title: Re: MNK - Mallinckrodt
Post by: Stuart D on September 10, 2019, 11:54:14 PM
MNK up 80% in 1 day on news of selling BioVectra business for $250m.
Title: Re: MNK - Mallinckrodt
Post by: walkie518 on September 11, 2019, 08:57:04 AM
MNK up 80% in 1 day on news of selling BioVectra business for $250m.

after that sale, mcap will be less than cash? 

then what happens with the rest of the business?  super high short interest... might be worth taking a flier
Title: Re: MNK - Mallinckrodt
Post by: Stuart D on September 11, 2019, 12:07:23 PM
after that sale, mcap will be less than cash? 

Yeah, I think so. Also in the 6-months ended 28-June-2019 they generated > $300m in FCF. It's a dying business, but it still seems to have a lot of cash coming in the front door.
Title: Re: MNK - Mallinckrodt
Post by: writser on September 11, 2019, 12:56:06 PM
MNK up 80% in 1 day on news of selling BioVectra business for $250m.
after that sale, mcap will be less than cash? 

How relevant is that if you ignore $5.5b in debt?
Title: Re: MNK - Mallinckrodt
Post by: walkie518 on September 11, 2019, 01:33:52 PM
MNK up 80% in 1 day on news of selling BioVectra business for $250m.
after that sale, mcap will be less than cash? 

How relevant is that if you ignore $5.5b in debt?
the $250m isn't net proceeds?

the debt is substantial, but supported by EBITDA ... bankrtupcy only happens if the gov't forces?  it seems unamerican to force a company into bankruptcy rather than work out a deal that benefits all parties?
Title: Re: MNK - Mallinckrodt
Post by: DeepSouth on September 12, 2019, 12:40:05 PM
MNK up 80% in 1 day on news of selling BioVectra business for $250m.
after that sale, mcap will be less than cash? 

How relevant is that if you ignore $5.5b in debt?
the $250m isn't net proceeds?

the debt is substantial, but supported by EBITDA ... bankrtupcy only happens if the gov't forces?  it seems unamerican to force a company into bankruptcy rather than work out a deal that benefits all parties?

The EBITDA is ephemeral, the debt is not. Bankruptcy happens if they can't refi or roll their debt. MNK couldn't issue a first lien secured bond today at 12%.
Title: Re: MNK - Mallinckrodt
Post by: walkie518 on September 13, 2019, 08:02:13 AM
MNK up 80% in 1 day on news of selling BioVectra business for $250m.
after that sale, mcap will be less than cash? 

How relevant is that if you ignore $5.5b in debt?
the $250m isn't net proceeds?

the debt is substantial, but supported by EBITDA ... bankrtupcy only happens if the gov't forces?  it seems unamerican to force a company into bankruptcy rather than work out a deal that benefits all parties?

The EBITDA is ephemeral, the debt is not. Bankruptcy happens if they can't refi or roll their debt. MNK couldn't issue a first lien secured bond today at 12%.

ok, but I think it's likely the attorneys make a push for resolution (good or bad) prior to restructuring? 

for instance, if they get a $200m fine rather than one for $600m, bond market should ease up?

buying the stock is like buying an option here?  might be better off buying the calls anyway?