Mizuho Defends Mallinckrodt (MNK) After 'Highly Inflammatory' Citron Report
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Mizuho Securities analyst Irina Koffler came out to defend Mallinckrodt plc (NYSE: MNK) following what she called a 'highly inflammatory' report from Citron Research.
Koffler commented, "Citron Research again published a highly inflammatory report that suggests that Medicare/Medicaid spending represents over 61% of Acthar sales, accused the Mallinckrodt CEO of lying to investors, and suggested that the government could move to negotiate pricing on this molecule. We looked at the Medicare and Medicaid Drug Spending Dashboards and contest Mr. Left's views as follows:
(1) The dashboards exclude any data on manufacturer rebates or pricing concessions, so we believe that Citron is starting with highly inflated assumptions of cost to the system that may not reflect actual dollars received by Mallinckrodt. For example, a report issued by the Quintiles IMS institute notes that net costs to Medicare Part D plans are 42.3% of manufacturer list price due to negotiations between plans and manufacturers. If we apply this discount to the combined $649M spending reported by both dashboards combined, we would arrive at total government spend of $274M on Acthar, which represents just 23.5% of reported 2015 sales by Mallinckrodt. So the accusation that the CEO lied to investors about Medicare/Medicaid utilization in about a quarter of the business seems false to us.
(2) The Medicare dashboard reports spending of $504M at $162,371 per patient, which translates to roughly 3,104 Medicare patients treated. For Medicaid, there was $144.6M spent at $44,102 per patient (3,278 patients). Therefore, the overall patient volume represented by these patients is approximately 58% of the 11,000 patients that the company describes treating each year (which seems scary at first). But these patients do not represent the majority of Acthar revenues because they are heavily discounted, in our view.
(3) Of the drugs listed on the dashboards, Acthar had an annual cost increase per unit of 5% in 2015, which is significantly lower than a number of other branded and generic molecules that could draw the attention of regulators, some of which nearly quadrupled in price. This year there was no price increase at all. So not exactly the worst actor, in our view.
The firm maintained a Buy rating and price target of $89 on MNK.
Shares of Mallinckrodt plc closed at $67.80 yesterday.
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Related EntitiesCitron Research, Irina Koffler
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