Mallinckrodt plc MNK announced that it has entered into a purchase agreement with The Medicines Company MDCO.
As per the agreement, Mallinckrodt will acquire three hemostasis drugs from The Medicines Company – Recothram Thrombin topical (recombinant), PreveLeak and Raplixa (fibrin sealant).
Financial Details of the Transaction
Mallinckrodt will make an upfront payment of approximately $175 million for the three products, which includes their existing inventory along with milestone payments of around $235 million. The transaction is expected to close in the first quarter of 2016 (second quarter of fiscal 2016 for Mallinckrodt).
Mallinckrodt expects the acquisition to be dilutive to its bottom line in fiscal 2016. Excluding one-time items, however, the transaction expected to have no effect on the bottom line. Mallinckrodt expects the drugs to add approximately $40–$50 million in incremental revenues in fiscal 2016 and generate low double-digit organic growth starting fiscal 2017. It is projected to be accretive to the company’s bottom line in fiscal 2017.
Yet Another Acquisition by Mallinckrodt
We note that Recothram is approved by the FDA as a topical thrombin to aid hemostasis from capillaries and small venules, in cases where the control of such bleeding by standard surgical techniques (such as suture, ligature, or cautery) is either ineffective or not possible in adults and pediatric populations aged one month and above.
Mallinckrodt will promote Recothrom alongside its Ofirmev injection. The acquisition will broaden Mallinckrodt's impact in the surgical suite for patients and physicians. There is a huge market for products that help control bleeding in surgical practices, which is estimated to be $750 million in the U.S. and at least $1 billion on a global basis.
The latest acquisition will create a stronger framework to market new products like PreveLeak and Raplixa that have patent protection up to 2028 and 2031, respectively.
Once the acquisition is closed, Mallinckrodt will invest in the commercial launch of both PreveLeak and Raplixa. We note that PreveLeak is a surgical sealant approved for use in vascular reconstructions for adjunctive hemostasis by mechanically sealing areas of leakage. Raplixa is approved by the FDA as an adjunct to hemostasis for mild-to-moderate bleeding in adults undergoing surgery, in cases where control of bleeding by standard surgical techniques (such as suture, ligature and cautery) have not worked.
Our Take
Mallinckrodt is expanding its portfolio through strategic acquisitions. We remind investors that the acquisition of erstwhile Cadence Pharmaceuticals added Ofirmev to the company’s specialty pharmaceuticals portfolio, which was approved for the management of mild-to-moderate pain, moderate-to-severe pain with adjunctive opioid analgesics, and reduction of fever.
Ofirmev volumes experienced a trough in May 2015 but managed to rebound later. Hence, the acquisition of these hemostasis drugs will diversify Mallinckrodt’s pain management franchise and strengthen its growing hospital portfolio, which includes Inomax and Therakos.
In a bid to expand into the hospital growth platform, the company acquired privately held critical care company Ikaria, thereby adding Inomax to its portfolio. The company also acquired Therakos Inc. in Sep 2015 in order to broaden its footprint in hospitals.
Mallinckrodt carries a Zacks Rank #3 (Hold). A couple of better-ranked stocks in the health care sector are Mylan MYL and Biodel Inc. BIOD. Both stocks sport a Zacks Rank #1 (Strong Buy).
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