Mallinckrodt: Impact Of $1.2 Billion Sucampo Deal Could Be Ethereal

Dec. 28, 2017 12:44 AM ETMallinckrodt plc (MNK)SCMP1 Comment
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  • MNK's $1.2B acquisition of SCMP could help sentiment, but it might not be that meaningful financially.
  • MNK will likely have to incur over $800MM of additional debt to fund the deal. It will have less flexibility going forward.
  • I expect the diminution in sales of Acthar and opioids to weigh in Q4 and in 2018.
  • Investors should avoid MNK until the slide in revenue and EBITDA subside.

Sucampo's Amitiza. Source:

After Mallinckrodt (NYSE:MNK) experienced cracks in Acthar sales, I all but left the company for dead. Last week it announced it expected up to $500 million in deferred tax benefits after President Trump's tax cuts take hold. It subsequently announced the $1.2 billion acquisition of Sucampo Pharmaceuticals (SCMP):

Mallinckrodt Plc agreed to buy Sucampo Pharmaceuticals Inc. for about $1.2 billion in cash to add a treatment for constipation and experimental medicines targeting rare diseases, helping diversify its business away from the controversial drug that makes up the largest part of its revenue.

MNK was up as much as 6% when the deal was announced on Tuesday. Since, the stock has given back those gains. Mallinckrodt needs to change the narrative from its stalling top-line growth. This transaction may not be the catalyst management expected.

About Sucampo

Sucampo's primary focus lies in the treatment of gastrointestinal, ophthalmic, autoimmune, inflammatory, neurological and oncology disorders. Its primary product, Amitiza (lubiprostone), is marketed in the U.S. under collaboration with Takeda Pharmaceutical (OTCPK:TKPHF), (OTCPK:TKPYY). Amitiza treats chronic idiopathic constipation (CIC) in adults, irritable bowel syndrome with constipation (IBS-C) in adult women and opioid-induced constipation (OIC) in adults suffering from chronic non-cancer related pain. Gastrointestinal disorders ("GI") include irritable bowel syndrome (IBS) - a disorder of the intestine that affects 20 to 60 million people in the U.S. IBS is the most common disorder diagnosed by gastroenterologists and accounts for over 10% of visits to primary care physicians.

Sucampo's Q3 revenue of $61 million was up 6% Y/Y. EBITDA of $29 million was flat Y/Y. Its EBITDA margin was 47%, down from 49% in the year earlier period due to higher marketing expenses. Sucampo granted Par Pharmaceuticals a non-exclusive license to market generic Amitiza in the U.S. beginning in 2021; Par will split gross profits with Sucampo. It granted Dr. Reddy's (

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The Shock Exchange has a B.A. in economics and MBA from a top 10 business school. He has over 10 years of M&A / corporate finance experience. Currently head the New York Shock Exchange, financial literacy program based in Brooklyn, NY.His book, "Shock Exchange: How Inner-City Kids From Brooklyn Predicted the Great Recession and the Pain Ahead", predicted pain ahead for the U.S. economy and financial markets.In 2014 the law firm of Kirby, McInerney, LLP brought a class action lawsuit against Molycorp, Inc. for "materially misleading statements" in its financial statements. Kirby, McInerney used investigative journalism from the Shock Exchange to buttress its case. That's the discipline the Shock Exchange brings to every situation he covers for SA.

Disclosure: I am/we are short MNK, CELG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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